Running a small business is tough. You have a constant balance of obtaining new business and serving the current customers that you have at the level that both parties expect. Often, a small business will need additional capital. This can be to weather a downturn or to expand if business is going well. A quick Google search for “small business loans” yields an overwhelming choice of lenders, advisers, governmental agencies and the like offering the “perfect” solution for your small business.

Non bank lenders such as Kabbage and On Deck have quickly become the go to lenders for most small businesses. These non-bank lenders offer a streamlined web based application process, quick approval and access to capital in smaller amounts. In contrast, bank based lending generally does not offer any of those benefits. Bank lending requires a branch application, lengthy underwriting and a reluctance for small loans that may not be seen as profitable.

Our office is seeing the effects of the non-bank lending on small businesses. Compared to bank lending, the current trends produce loans that seem to have the following factors:

• High up front fees –

SBA and other bank based lending is typically in the range of 7-10% interest rate. There are traditional lending charges such as origination fees and title search charges that are set costs. Non bank fees can range from 1 – 13.5% of the loan amount for the first two months, and then 1% of the total amount for months 3-6. These fees can be dramatically higher than typical bank terms and increase rapidly with the amount borrowed;

• Higher interest rates –

On Deck currently charges between 20-50% interest, plus origination fees and other maintenance charges. Other companies are similar or even higher;

• Loss of control of your bank account –

The most immediate consequence of using a non-bank lender may be the loss of control over your business finances. Such loans are becoming more aggressive in asserting control of your business bank accounts. Withdrawals are typically done on a daily basis through a linked bank account and are done daily without the control of the business owner. A recent client was paying over $15,000 per day in high interest daily loan payments;

• Aggressive collection tactics –

Most business owners are familiar with the consequences of a default with a traditional lender. There are a series of demand letters with the chance to cure the default. Then maybe a letter from an attorney. Finally, a lawsuit in the place you run your business and the chance to explain the default to a Judge prior to judgment being entered.

If you default on a non-bank lender loan by stopping the daily interest payments or moving your bank accounts, then the lender will normally have a judgment within days against your company and any personal guarantor (typically the owner). Our office has seen several recent cases where the loan amount was typed into a “Confession of Judgment Affidavit” with credit to be given for any payments made. This document was signed at loan origination and then taken to a court in New York after default. Within days, a judgment had been entered for the entire amount owed on the principal, accrued interest, attorney’s fees and costs. There is no chance to dispute the suit or any amounts claimed due to the Confession of Judgment Affidavit being signed and admitting that the debt is owed.

Finally, defending a suit in New York is not possible for most small Florida businesses. Once the judgment has been entered, the creditor sends it to a lawyer in Miami, FL and files for a domestication of the judgment and immediate receivership for the business. Again, the debt and business were all based in Duval County, FL in each case that we have seen, but the business owner has had no chance to defend any actions in the Duval County Courts. Within days, the receivership has been granted and the business owner is ordered by the Miami Court to turn over the business and all records to the receiver.

Solutions for Your Business

The above scenarios are examples that we have seen in our actual day to day working relationship with small business owners. Chapter 11 bankruptcy offers these owners the chance to remove the receiver that had been ordered by the State Court and take control of their business again. The daily interest lenders are then restructured through the Bankruptcy Court reorganization process in a financially affordable way to allow the business to continue to operate and repay debts through a reorganization plan.

The reorganization plan for the business is generally based upon the business income and expenses, not dictated by the non-bank lenders. Our office works closely with the business owners to determine the appropriate payment terms, length and other plan terms to ensure that your reorganization plan is as successful as possible. Each case is as unique as the business that is being saved. Contact our office for a personal review of your business and potential restructuring benefits.

At Mickler & Mickler, we attend Court and see the bankruptcy trustees and judges in action several times a week. We have the experience to guide you to the right decision about whether to file a case, and if so, what Chapter to file.   Please contact Mickler & Mickler at 904.725.0822 or bkmickler@planlaw.com. We will be happy to set you up a free appointment to discuss your situation and potential solutions.

Bryan Mickler

bkmickler@planlaw.com

904-725-0822

SMALL BUSINESS CHAPTER 11 FOR 2019

A recent Bloomberg article revealed a potential dramatic change for small business chapter 11 cases starting in 2019. The complete article is below with the link to the story.

Currently, Chapter 11 is a time consuming, needlessly expensive proposition for small businesses. The additional administrative costs and burdens of the current system have resulted in loss of family businesses through liquidation instead of the business being reorganized. Additionally, the current law requires a 100% repayment of unsecured debt unless the creditors accept a lower amount with an affirmative vote. This burden has also resulted in family businesses being liquidated instead of reorganized.

The new bill, as described below, would allow a “cramdown” of unsecured debt similar to Chapter 13 cases for individuals. This would allow the current family ownership structure to survive a reorganization effort in bankruptcy. It also appears that the current administrative burdens of reports, fees and the like will be reduced by the changes for small business cases. These changes should allow a much better chance to save a small business and preserve a family’s financial stability through reorganization.

At Mickler & Mickler we fight every day to save family businesses. Our office has the experience and the dedication that you deserve when your business is attempting to reorganize. Please contact us at 904-725-0822 or bkmickler@planlaw.com for any additional questions regarding a small business chapter 11.

Bryan Mickler

https://news.bloomberglaw.com/bankruptcy-law/bankruptcy-bill-aims-to-keep-more-small-businesses-open

Small businesses with less than $2.5 million in debt would be able to file bankruptcy more quickly and cheaply under bipartisan legislation teed up for consideration in 2019.

The bill (S. 3689, H.R. 7190) would add to the Bankruptcy Code a separate subchapter for small businesses. Small businesses, which account for 80 to 90 percent of business bankruptcy filings, would be treated more like individuals than corporate filers under the bill.

Small business owners would find it easier to keep their ownership interests because a standing trustee would oversee every case, a procedural protection preferred by creditors.

Advocates say the current Bankruptcy Code makes it difficult for small businesses to reorganize and forces them to use alternatives that often result in liquidation.

“It’s a well-balanced bill that streamlines the process for small businesses that need it and increases recovery for creditors where it is used,” Professor Edward Janger, Brooklyn Law School, Brooklyn, N.Y., told Bloomberg Law. Janger teaches and writes in the areas of bankruptcy law, commercial law, consumer credit and data privacy.

The bill’s sponsors include Sen. Chuck Grassley (R-Iowa), the departing chairman of the Senate Judiciary Committee, and Rep. Doug Collins (R-Ga.), who is expected to be the top Republican on the House Judiciary Committee next Congress.

They were joined by Sheldon Whitehouse (D-R.I.) and David Cicilline (D-R.I.), who serve on the Senate and House Judiciary Committees respectively.

The bill is likely to be reintroduced next year with many of the same sponsors despite House and Senate leadership changes, said Samuel J. Gerdano, executive editor of the American Bankruptcy Institute, Alexandria, Va.

There’s a “good chance” that Collins will reintroduce the legislation, his communications director told Bloomberg Law via email Dec. 13.

Well-Balanced Compromise

Currently, instead of filing for Chapter 11 protection, a small business might negotiate with creditors or use remedies like state and federal receiverships and assignments for the benefit of creditors, Robert J. Keach, a bankruptcy lawyer with Bernstein Shur, Portland, Me., told Bloomberg Law. The end result will be a liquidation under state law, he said.

The bill is a good compromise among many stakeholders, Keach said. Keach is co-chair of the American Bankruptcy Institute’s Commission three-year study of how to reform Chapter 11.

There is some disagreement over what the right cap is for qualifying for the new subchapter, Craig Goldblatt, a partner at Wilmer Cutler Pickering Hale and Dorr LLP, Wash., D.C., specializing in bankruptcy law, told Bloomberg Law.

Keach, for example, said a $10 million cap would cover more companies than the lower cap that is in the bill.

New Subchapter V

Under the bill, small business owners could retain a stake in the company as long as the reorganization plan doesn’t discriminate unfairly, and is fair and equitable with respect to each class of claims or interests. A bankruptcy court couldn’t approve the plan unless all of the small business’s disposable income, excluding amounts necessary for the payment of ordinary operating expenses, is applied to the plan over a three-to-five year period.

The bill would eliminate the absolute priority rule in Chapter 11 where unsecured creditors must be satisfied in full before the debtor is allowed to retain any property under the plan.

“The measure relaxes the absolute priority rule as in Chapter 12,” which applies to family farmers, Gerdano said.

Business owners may be able to keep their ownership interests without having to pay senior creditors in full or provide new value through funding plan payments.

The change will “enhance a small business’s ability to get a plan confirmed over objections by creditors” if it has proven to have applied their disposable income over a three-to-five year plan, retired Judge A. Thomas Small of the U.S. Bankruptcy Court for the Eastern District of North Carolina told Bloomberg Law.

More Oversight and Quick Reorganizations

Creditors would benefit under the measure because of the standing trustee appointed in every case. The standing trustee would perform duties similar to those of a Chapters 12 or 13 trustee, Small said. Chapter 13 is for individuals with regular income who repay their debts over a three-to-five year period.

It’s hard to get a creditors’ committee to participate in a small business case because of the cost and the time involved, Small said. A standing trustee would make sure the reorganization stays on track, he said.

An official committee of unsecured creditors wouldn’t be appointed under the bill unless the bankruptcy court orders one. A disclosure statement won’t be required, which further reduces the burdens and costs on small businesses.

The bill also would speed up the reorganization process. Under the measure, a small business must file a plan within 90 days, rather than the 120 days in Chapter 11.

This is good for debtors and creditors, Small said. It ensures debtors move through the process quickly, lowering costs and attorneys’ fees, he said.

Chapter 12 uses the 90-day rule and it hasn’t been a problem, Small said.

Small business debtors with no chance of reorganizing won’t be able to “hang out and use the bankruptcy process to delay payment to creditors,” Janger said.

ZOMBIE DEBT ISSUES IN CHAPTER 13 CASES

Zombie debt appears to be making a comeback due to some recent Court rulings involving Chapter 13 bankruptcy cases. Recently, there was a Supreme Court ruling which prohibited the filing of an FDCPA action against a debt collector in Chapter 13 cases where a “stale” claim had been filed, i.e. a claim based on a debt which was deemed uncollectible based on an applicable statute of limitations. The opinion is found here:

https://www.supremecourt.gov/opinions/16pdf/16-348_h315.pdf

An interesting note in the opinion is that the Court considered a Proof of Claim that was obviously time barred. “Whether Midland’s assertion of an obviously timebarred claim is “unfair” or “unconscionable” (within the terms of the Fair Debt Collection Practices Act) presents a closer question.” Page *5 above. The Claim in the above case made no misrepresentations regarding the age of the account or whether such account was past an applicable statute of limitations. In such a case, the Supreme Court has said that debt collectors are free to file such a claim and suffer no liability through the FDCPA for attempting to collect on a stale claim.

But what if the claim is presented in such a way as to attempt to appear timely? What if a creditor or debt collector intentionally “re-ages” an account in an attempt to collect a stale debt so that the claim wasn’t “obviously time barred” as stated by the Supreme Court? Would that type of collection activity subject the creditor or debt collector to liability through the Bankruptcy Code or the FDCPA?

Twice in the past 2 years our office has seen large institutional creditors (not debt collectors, surprisingly) file claims that contained account statements dated for the month of the petition when the account is well past the Florida five year statute of limitations. In one case the creditor filed multiple claims with the same deceptive account statements. We filed suit against both creditors in adversary proceedings in an attempt to bring such behavior to the attention of the Bankruptcy Judge and to prevent future repeat violations.

Such behavior is an obvious violation of Bankruptcy Rule 3001 which requires that claim filers provide in the Proof of claim the date of the last transaction, date of last payment and date charged off for all unsecured open end or revolving accounts. The reason for such a requirement is obvious: Put everyone on notice as to whether the claim is collectible. The Rule also provides the Bankruptcy Judge with the ability to disallow the presentation of evidence of the missing items, award attorney’s fees and costs, as well as other “appropriate relief”. Our office believes that any “appropriate relief” that is awarded should be sufficient to deter repeated violations of claim standards and to prevent deceptive filings in reorganization cases.

As we move well past the limitations period for most debts incurred and charged off during the financial crisis of the late 2000’s, it becomes critical to any successful reorganization effort to make sure that only legitimate claims are provided with financial benefit in a reorganization case. Stale claims, deceptive claims and the other variations of uncollectible debt should be carefully checked in each case and taken out of any reorganization plan to allow for the best chance of success.

At Mickler & Mickler, we attend Court and see the bankruptcy trustees and judges in action several times a week. We have the experience to guide you to the right decision about whether to file a case, and if so, what Chapter to file.   When you contact our office, we can help you in your case with sound legal advice.

Please contact Mickler & Mickler at 904.725.0822 or bkmickler@planlaw.com. We will be happy to set you up a free appointment to discuss your situation and potential solutions.

Bryan Mickler

            As we approach the middle of 2016, it is interesting to look back and see the effects of the bulge of filings from 2009-2011. During that time, the filings in Jacksonville routinely approached 12,000 cases per year.

            With the end of the boom now approaching five (5) years, it is particularly interesting to see the effects of the surge in Chapter 11 filings. After the 2005 Bankruptcy Code Amendments were passed, it became quite acceptable to file an individual Chapter 11 case in an effort to deal with substantial mortgage debt related to investment properties. That turned out to be exactly what thousands of real estate investors did when the real estate market crashed.

            The Chapter 11 filing allowed the investors to match cash flow from the rental properties to a restructured mortgage based upon a valuation of the investment properties. Unlike homestead properties, the protection against modification did not extend to investment properties. Chapter 11 plans would strip down an investment property to the current value, change interest rates and extend the term of the amortization period in an effort to make the properties cash flow for the investors. These restructured rental units formed the basis for repayment of secured debt and unsecured debt in most individual chapter 11 plans.

            The typical individual Chapter 11 plan was a 5 year plan. That means that we are approaching the end of the cycle for completion of the Chapter 11 Plan payment period. So what is happening with the mortgages which were restructured in the Chapter 11 Plans? If the Debtor successfully completed a Chapter 11 case and received a discharge, the answer is familiar.

            In almost every case, our office is seeing mortgage servicers fail to comply with the terms of the discharged plan. Some failures are small, with servicers just misapplying payments over the term of the plan. Others are more substantial. Failures include the wrong principal balance, interest rate, amortization term or other aspects of the Chapter 11 modification of the mortgage.

            This is a repetition of the Chapter 13 issues that our office has been fighting for years. As in Chapter 13, it is very difficult to complete a Chapter 11 plan and comply with the payment structure of the modified mortgage. However, the benefit for such compliance is supposed to outweigh the effort upon completion of the Plan. The hard working debtor is supposed to have a new mortgage with a modified principal balance, interest rate and term as ordered by the Court. Unfortunately, the failure of the mortgage servicers to adjust the mortgage to comply with the Plan has the potential to undo all of the hard work of the client.

            Our office spends considerable time after the completion of every Chapter 11 case to ensure that all mortgages are current and in compliance with the Plan. We do this at no cost to our clients to ensure that they do not have to call us in a panic 6 months after discharge with the fear that a home is going to be foreclosed due to the errors of the mortgage company.

            If you are experiencing post discharge issues with your mortgage company, give us a call. We will review your situation and give you an honest opinion of whether the mortgage company is in error.

            At Mickler & Mickler, we attend Court on a regular basis. We have the experience and knowledge to ensure that you receive the correct advice when confronted with difficult financial decisions related to filing bankruptcy. Contact us at 904.725.0822 or bkmickler@planlaw.com.

Bryan K. Mickler

A commercial tenant facing eviction may find relief under Chapter 11 of the Bankruptcy Code, particularly if the tenant fell behind on payments as the result of a temporary decline in income. While a Chapter 11 debtor cannot compel its landlord to reduce the monthly rent or eliminate past due rent, the filing of a Chapter 11 Petition will stop an eviction action and allow the debtor time to formulate a plan of action.

Absent abandonment or consent by the tenant, the landlord must file an eviction lawsuit in order to take possession of the business premises.[i] Once the landlord files a lawsuit to evict the commercial tenant, the tenant can stop the eviction action by filing of a Chapter 11 Reorganization.[ii] This allows the tenant time to remain in possession while it determines the best course of action. Bankruptcy Code Section 365 gives the tenant a deadline of 120 days to assume or reject the lease.[iii] The tenant may request that the bankruptcy court extend this deadline by 90 days, allowing up to 210 days for the tenant to assume or reject the lease.[iv]

Once the deadline arrives, in order to assume the lease and remain in the property, the tenant will need to provide a plan for promptly curing the pre-petition arrears.[v] The bankruptcy court’s interpretation of “prompt” cure will depend on the unique facts of each case, such as the remaining term of the lease.[vi] For instance, twelve months to cure arrears should be considered sufficiently “prompt” when the tenant has three years remaining on a five year lease. [vii] In contrast, curing pre-petition arrears over the remaining life of the lease will almost certainly be deemed inadequate by the bankruptcy court.[viii]

Should the tenant’s income prove insufficient to maintain the regular lease payment and cure the arrears within a reasonable period of time, Chapter 11 still offers the benefit of additional time to negotiate a reduced rent with the landlord. If the tenant cannot cure the arrears or reach an agreement with the landlord, the tenant must find an alternative location or close the business. If closure proves the only viable option, the tenant can file a Chapter 11 Plan of Liquidation or convert the case to a Chapter 7 in order to efficiently wind down the business and address any corporate liability for future rent or liquidated damages under the lease.

In summary, Chapter 11 may be a viable for a commercial tenant wishing to defend an eviction action and remain in possession of its business premises. For further information, contact an experienced professional to know your legal rights.

[i] Florida Statutes § 83.05.

[ii] 11 U.S.C. § 362(a).

[iii] 11 U.S.C. § 365(d)(4)(A).

[iv] 11 U.S.C. § 365(d)(4)(B).

[v] 11 U.S.C. § 365(b)(1)(A).

[vi] In re Embers 86^th Street, Inc., 184 B.R. 892, 900 (Bankr. S.D.N.Y. 1995).

[vii] In re Citrus Blvd Imaging Ctr., LLC, 2012 Bankr. LEXIS 2208, at *11-12 (Bankr. N.D. Ga. 2012).

[viii] In re Gold Standard at Penn, Inc., 75 B.R. 669, 673 (Bankr. E.D. Pa. 1987).

FDCPA Claims in Chapter 13 for Stale Proof of Claims

I have previously written about the potential for FDCPA claims after filing for bankruptcy and having a debt collector contact you regarding a debt that was discharged in the bankruptcy filing.

https://www.planlaw.com/bankruptcy-and-the-fair-debt-collection-practices-act-understanding-your-consumer-rights/

Essentially, the attempt to collect a debt that had been discharged in a previous filing was generally a violation of the FDCPA since the FDCPA prevents the collection of debts not owed by a consumer. Our office has vigorously defended the attempts to collect discharged debt for the past several years from collectors looking to pay pennies on the dollar for old debt in hopes that it could be collected. Most collectors never bother to check the status of the debt, previous settlements, bankruptcy or any other factor which may make a debt uncollectible. Instead, the collector just purchases a set of accounts and begins collection activity immediately. For a shocking look at the business of selling collection accounts check out this story: http://www.nytimes.com/interactive/2014/08/15/magazine/bad-paper-debt-collector.html

Another method of attempting to collect debts which are not collectible by collectors is to actually chase people after they have filed for Chapter 13. There is a huge business of selling debt to collectors by the original creditor after a person has filed for Chapter 13 relief. The collectors buy the debt for pennies on the dollar, file a claim for the full amount and hope to make more from the Chapter 13 payoff than they paid for the account. If they weren’t making money this way, the collectors would not continue to buy the accounts and file claims.

 One reason the bankruptcy accounts can be so cheap is that they can be very old. Recently, I have seen claims from the 1990s filed in Chapter 13 cases. Claims continue to be filed by collectors long past the date that the law allows them to be collected. In Florida, the statute of limitations for claims is five (5) years from the date of the default.

 Recently, the 11^th Circuit Court of Appeals in Atlanta issued an opinion which may finally put an end to the practice of filing stale claims in Chapter 13 cases. Crawford v. LVNV Funding, http://law.justia.com/cases/federal/appellate-courts/ca11/13-12389/13-12389-2014-07-10.html

 Crawford found that filing a Proof of Claim in a Chapter 13 case for a debt which is uncollectible under a State statute of limitations was a violation of the FDCPA. When a debt collector violates the FDCPA, they are responsible for the up to $1,000.00 in damages and attorney’s fees and costs. Damages may be doubled if the State Statute regulating collection has also been violated. Our office has been actively checking all proofs of claims in every Chapter 13 case that we have filed in the past two years to determine if there have been claim violations. This effort will, hopefully, result in recoveries for our Chapter 13 clients, increased distributions to legitimate creditors and possibly shorter plan periods for some clients.

 If you feel that you may benefit from a Chapter 13 filing or a review of claims in your case, contact our office at 904.725.0822 for a free consultation.

Bryan Mickler

bkmickler@planlaw.com

A GREATER NEED FOR CHAPTER 11 AND 13 BANKRUPTCY DUE TO RISING RENTS?

            A recent article regarding rising rents served as a follow up to a blog that appeared on this site last year. http://www.nytimes.com/2014/04/15/business/more-renters-find-30-affordability-ratio-unattainable.html?hpw&rref=business&_r=0

In that last blog post, the rising home prices in many Florida cities appeared to be the result of investor hedge funds purchasing rental properties for cash. https://www.planlaw.com/is-the-american-dream-dead-in-jacksonville-fl/ That activity was causing a run up in the prices of homes which would typically be middle class living in many cities. The result was a loss of opportunity for home purchases and a greater need to save homes that are currently owned by middle class families.

Now, it appears that rents are rising to a level where they may be unaffordable for many middle class families. As with mortgages, the typical ratio for housing expense in rentals is approximately 30% of a household’s gross income. However, 50% of all renters now spend more than 30% of their gross income on rent. The problem appears to be getting worse as rents continue to rise due to a combination of low vacancy rates and low wage increases.

So what can the average homeowner do to escape the rising rental problem? Try to keep that house and avoid paying high rental rates seems to be the obvious solution. If you currently have a home that is behind and subject to foreclosure – the best solution may be to cure the arrearage on a primary residence with a Chapter 13 Plan or restructure an investment property with a Chapter 11. Chapter 13 can allow for a cure of all arrears over a 60 month period of time or by modifying the mortgage if the homeowner is eligible. Chapter 11 allows investment properties to be valued to the market value of the home even if the mortgages on the property are much greater than the value. Interest rates and maturity dates can also be changed on investment properties.

Saving a primary residence will allow the homeowner to avoid higher rental rates that may areas are experiencing now. If you currently are looking to save an investment property, then rising rental rates could be used to fund a Chapter 11 Plan to save the investment property for future retirement planning or other long term goals. Contact us to discuss your options.

At Mickler & Mickler, we attend Court on a regular basis. We have the experience and knowledge to ensure that you receive the correct advice when confronted with difficult financial decisions related to filing bankruptcy. Contact us at 904.725.0822 or bkmickler@planlaw.com.

Bryan K. Mickler

The goal of Chapter 11 generally is to restructure a Chapter 11 debtor’s monthly debt service and thereby improve cash flow to maintain a viable business. This can be accomplished by reducing principal owed, extending the length of a loan, and reducing the interest rate. The Chapter 11 Plan of Reorganization outlines these new terms that will form the basis for the new contractual rights between the debtor and creditors.

The debtor, a creditor, or another party in interest may file a Chapter 11 Plan. However, only the Debtor is permitted to file a Plan during the first 120 days after the Chapter 11 case is filed, or 180 days in a small business case.  After this exclusivity period expires, a creditor or party in interest may propose a Plan. Practically speaking a creditor rarely proposes a Plan, and therefore the Debtor is typically the “plan proponent”.

The Plan outlines the substantive rights of the debtor and creditors. In conjunction with the Plan, depending on the complexity of the case, the debtor must also prepare and file a Disclosure Statement to give more information to creditors regarding the debtor and the proposed Plan. After notice and a hearing the Bankruptcy Court determines whether or not to approve the Disclosure Statement as containing adequate information under 11 U.S.C. § 1125.

Once the court approves the Disclosure Statement, the Debtor provides the Plan and Disclosure Statement to each creditor in the case along with a ballot for voting to accept or reject the Plan. In order to successfully obtain confirmation of a Plan of Reorganization, Section 1129(a)(10) of the Bankruptcy Code requires that the plan proponent obtain the acceptance of at least one impaired class. This is assuming at least one class of claims under the Plan is impaired, which is virtually certain to be the case in most any Chapter 11 Plan.

Although one class in the Plan may contain multiple claims, typically, most classes in a Plan will contain the claim of a single creditor. Therefore, to meet this requirement outlined in Section 1129(a)(10) only one creditor must vote to accept the Plan in order to reach confirmation.  Although a Plan accepted by one creditor may technically meet the confirmation requirements, in practice a court may not confirm a Plan that merely meets the minimum requirements.

Where a class in the Plan contains only one creditor, calculating the acceptance or rejection of that class is straightforward. This will be the case for most secured claims, which are loans secured by collateral such as a house, car, building, equipment, or inventory. Unlike secured claims which are each placed in their own respective class, the class of general unsecured claims will contain many unsecured claims. Thus, the calculation of class acceptance or rejection may require a calculation consistent with 11 U.S.C. § 1126. This Code Section provides that a class has accepted the Plan if at least two-thirds (2/3) the dollar amount and greater than one-half (1/2) in number have accepted the Plan.

As an example, assume the Debtor owes four unsecured debts, Creditor A – $10,000, Creditor B – $15,000, and Creditor C – $25,000, and Creditor D – $50,000. If Creditor A & B accept and Creditor C & D reject the Plan, the unsecured class has rejected the Plan as only 1/2 the number of claims has accepted and the number must be greater than 1/2 the number of claims. If Creditor A, B, and C accept and Creditor D rejects then more than 1/2 the number has accepted, but less than 2/3 the dollar amount has rejected and therefore the unsecured class has rejected.

If Creditor A, B, and D accepts and Creditor C rejects then the conjunctive requirements for class acceptance have been met, 3/4 of the dollar amount has accepted and 3/4 of the number of claims has accepted, and therefore the unsecured class has accepted. As a final illustration, if three of the creditors were to abstain from voting, and Creditor A were to accept, the unsecured class would therefore accept the Plan under Section 1126 as only those claims that accept or reject are counted when calculating the class acceptance or rejection. Even though Creditor A held the small claim of $10,000, since the other creditors failed to vote, this creditor dictates the outcome of the voting.

This voting process is only one of the many aspects of a Chapter 11 case. At Mickler & Mickler, we deal with these issues in Chapter 11 cases on a daily basis. We hold the knowledge to guide an individual or business through this complicated process. Contact us at 904.725.0822 or tjking@planlaw.com should you need counsel regarding your financial situation. The consultation is free.

WELLS FARGO BANK AND THE FREEZE ON BANKRUPTCY ACCOUNTS

            I’ve been meaning to write about this issue for some time, but it gets pushed to the side to deal with more current issues usually. However, just when I think that Wells Fargo has ceased to be a problem in Bankruptcy, the “administrative hold” on accounts will pop back up and cause real problems for individuals or companies attempting to reorganize through Chapter 13 or Chapter 11.

            The administrative hold is Wells Fargo’s way of throwing a wrench into the ability of individuals or companies to reorganize even if the individual or company does not owe any money to Wells Fargo. Wells will scan the bankruptcy filings each night for the entire United States. If it gets a hit for an individual (even if the other account holder did not file) or a company, it will freeze the entire account for some undetermined period of time. Fortunately, the bank limits the freeze to accounts that contain more than $5,000.00 on the date of the filing.

             Wells claims that it is preserving the assets of the bankruptcy estate for the benefit of the Trustee (See 11 U.S.C. § 542(b) requiring turnover of property to Trustee). While some sense can be made of that reasoning in a Chapter 7, the reorganization purpose of Chapter 13 and Chapter 11 do not support the reasoning of Wells. Short of Court Order, Wells will not release the funds in the account despite the fact that the Chapter 13 debtor needs the funds to commence payments. In a Chapter 11 case, the bank will only release the funds to a DIP account at Wells Fargo or require the individual or company to go to a branch and pick up a check issued to the entity as DIP. This is despite the fact that the Chapter 11 Debtor is really the Trustee and Wells has no duty to preserve the funds for a third party trustee.

         Unfortunately, the administrative hold is here to stay. The Courts (outside of the 9^th Circuit in a Chapter 7 case) have not found that such an activity is a violation of the automatic stay despite the damage that has been caused to companies by the action of freezing a corporate account needed for day to day operations. We recently encountered this when a towing company was forced to delay responding to stranded motorists after filing Chapter 11 since Wells had frozen its operating account. This company was in Chapter 11 and owed no money to Wells. It took over 24 hours to move the funds to a Wells Fargo bankruptcy account and allow access to the funds.

        The takeaway from this story is that Wells will continue to freeze accounts with no reason in the future. If you are considering filing any type of bankruptcy, be sure to understand the consequences of having a Wells Fargo account. Also, be sure that your attorney can warn you of such a consequence before you file so that you are not left without funds to meet your daily living expenses.

            At Mickler & Mickler, we attend Court on a regular basis. We have the experience and knowledge to ensure that you receive the correct advice when confronted with difficult financial decisions related to filing bankruptcy. Contact us at 904.725.0822 or bkmickler@planlaw.com.

Bryan K. Mickler

BANKRUPTCY PREDICTIONS FOR 2014 . . . AND BEYOND

            With 2013 behind us, it is time to look ahead to what 2014 will bring to the Bankruptcy World. First, a look at 2013. Filings in the Jacksonville Division continued the decline that started in 2010. 2013 filings were down 8% from 2012 levels and down 35% from the 2010 peak of over 11,000 cases.

            What is causing the decline? The average person will say that unemployment has dropped significantly since 2010 and that has helped lower filings. However, bankruptcy filing rates have historically never been tied to unemployment, health care expenditures or any number of reasons that typically are blamed for increased filing rates. Instead, bankruptcy filing rates have risen and fallen almost perfectly in line with the availability of credit. See chart at: http://www.creditslips.org/creditslips/2011/08/one-more-time-with-feeling.html

               So based on the availability of credit, what can we expect for 2014? The good news for everyone except bankruptcy practitioners is that it looks like 2014 will be more of the same declines, just maybe not as steep. Short term credit appears to be increasing which has the effect of pushing down bankruptcy filing rates since people will borrow to put off filing bankruptcy. Greater amounts of long term credit and household debt will inevitably cause the bankruptcy filing rates to increase.

               This is why the 2010 to present drop in filings is easily explainable. After the collapse of the financial markets in 2008, there was no credit available for 2-3 years for the average person. Lack of home equity, tighter credit card standards and almost no unsecured lines of credit created a cash basis for most households. Coupled with high household debt levels, this caused a dramatic upswing in filings from 2008-2010. That has slowly starting to change since 2010 with the increase in available credit brought about by the growth in the economy and housing values. The decline in bankruptcy filings will inevitably reverse itself as long term credit/household debt level increases over the next 12-24 months.

               As in 2008, long term increases in household debt levels coupled with a sharp pullback in the availability of credit due to actual or perceived economic weakness will result in an increase in bankruptcy filings. Most likely, that scenario will not play out for the next year or two as the economy continues to improve. It will be interesting to see how the coming 2014 mortgage standards (tougher underwriting) will impact the availability of mortgage credit and the bankruptcy filing rate. Stay tuned for more on that in a later post.

            At Mickler & Mickler, we attend Court on a regular basis. We have the experience and knowledge to ensure that you receive the correct advice when confronted with difficult financial decisions related to filing bankruptcy. Contact us at 904.725.0822 or bkmickler@planlaw.com.

Bryan K. Mickler