The easily availability of consumer debt in the United States (U.S.) has significantly increased debt amounts by more consumers, especially those with low to moderate income. This makes these families and individuals most vulnerable to financial difficulties when they suffer income interruptions or emergency expenses when it comes to staying a float debt payment The post Consumer Debt and Bankruptcy: Your Options appeared first on Tucson Bankruptcy Attorney.

This was the first of two educational programs sponsored by the Commercial Law League of America.   I had the privilege of appearing on a panel featuring moderator Beverly Weiss Manne, Prof.  Pam Foohey, Sam Maizel and Nancy Peterman.   Prof. Foohey and I focused on religious entities in bankruptcy, while Sam Maizel and Nancy Peterman discussed healthcare non-profits.   Types of Cases Filed On the church side, Prof. Foohey's research shows that 654 churches filed bankruptcy between 2006 and 2013.   The vast majority of these churches were African American congregations.    Some of the notable filings during 2016 included Carter Tabernacle Christian Methodist Episcopal Church, a 100 year old congregation in Orlando and Metropolitan Baptist Church in the District of Columbia.    Since 2004, fifteen Catholic Dioceses and religious orders have sought chapter 11 protection to resolve sexual abuse claims.   Two examples of these cases are the Diocese of Stockton which is proceeding toward a consensual confirmation following a two year mediation process and the Diocese of St. Paul and Minneapolis, MN where competing plans have been proposed by the Diocese and the Committee of Unsecured Creditors.    Finally, a handful of predominantly white mega-churches, such as the Crystal Cathedral and Great Hills Baptist Church have entered chapter 11 proceedings.   On the healthcare side, there have been at least nine hospital bankruptcies filed this year.   However, healthcare filings range from community hospitals to skilled nursing facilities.    In re Bayou Shores, SNF, LLC, 828 F.3d 1297 (11th Cir. 2016) is an example of the issues that can arise in the healthcare sector.Operating Structure The different types of religious and healthcare entities pose challenges in dealing with corporate governance.   Community hospitals frequently have a board composed of volunteers with a passion for the mission of the entity but with little business experience.   African American congregations may have a nominal board of elders, but the pastor generally manages the church. Indeed, the board may not even be aware of the filing.  In Roman Catholic dioceses a bishop or archbishop appointed by the Vatican holds sole authority.   White mega-churches often have an active board of lay members although the pastor is a highly influential actor.   Both Catholic Diocese and mega-church bankruptcies tend to be very public.      Debt Structure and Funding Debt structure and funding vary between the different types of non-profits.   Small African American churches rely almost entirely on parishioner donations or business income such as operating a day care.  However, Prof. Foohey pointed out that the business operations may lose money and contribute to the financial problems of the church.    Mega-churches rely heavily on tithes but may also have ancillary business income such as sale of books and DV Ds.     Among both types of churches, the primary creditor is the secured lender on the church property.   Sometimes there are specialized lenders that finance churches such as the Evangelical Christian Credit Union.    Because contributions are often not covered by the lender's security interest, cash collateral is usually not a factor.The Roman Catholic dioceses and orders have a much different funding and debt structure. This round of bankruptcies have been generated by overwhelming waves of sexual abuse tort claims which threaten both the financial stability of the Diocese and its moral standing.    A Catholic diocese generally receives contributions from parishes within the diocese to fund ongoing operations.  Tort claims may be covered by insurance although there are often coverage disputes.    Attempts to claw back assets that were once owned by the Diocese are a common feature of Diocese bankruptcies.   For example, in the Diocese of Milwaukee case, the Debtor transferred funds into a cemetery trust fund prior to bankruptcy. The Diocese of Stockton case provides a good example of how plans are funded.   In that case, the Diocese agreed to pay $14.25 million into a trust for tort claimants.   Of this amount, the Diocese contributed $9.9 million from available cash and sale of assets, the insurers contributed $3.3 million and other Catholic entities contributed $3.9 million.    The parishes and schools contributing to the settlement received a release of potential claw-back liability as well as from claims related to priests or other religious who committed abuse while in the specific parish or school.      In the healthcare space, tax exempt bonds and government payments from Medicaid and Medicare are significant sources of revenue.   Cases are often precipitated by the government's decision to withhold payments based on an overpayment.   Because the government holds back funds under the doctrine of recoupment, the automatic stay does not apply to prevent the government's self-help remedy.   In addition to the government, creditors include secured lenders, doctors and tort claimants.Unique AspectsHealthcare bankruptcies have several unique features.   First, there is usually a patient care ombudsman appointed which adds a layer of expense.   Additionally, state attorneys general are likely to be active players to ensure that health and safety standards are maintained.   Keeping doctors and dealing with a volunteer board are other challenges.    In the case of a sale, continuing the mission of the non-profit is a relevant factor in addition to obtaining top dollar.  Sam Maizel gave an example of a case where the Debtor accepted a slightly lower offer that would further the mission of the non-profit over a higher offer that did not.    When a facility is sold, there must be provision made for preservation of patient records.   In the unusual event of a surplus, the remaining funds must go to a qualified non-profit. For smaller churches, proving feasibility is particularly challenging since member contributions are likely to fall off when the church is in financial difficulty.    In the Catholic Diocese cases, the Debtor must deal with claims that may have arisen decades earlier and are emotionally charged while reassuring parishioners that their places of worship will not be drawn into the bankruptcy of the Diocese.Both types of non-profits are exempt from being placed into involuntary bankruptcy by 11 U.S.C. Sec. 303(a).    This played an important role in the Diocese of St. Paul and Minneapolis case.   The Official Creditors' Committee sought to substantively consolidate the Diocese with two hundred non-bankrupt parishes and schools.    In denying the motion, one of the grounds that the Court gave was that substantive consolidation would involuntarily bring the non-bankrupt entities into bankruptcy in violation of section 303(a).11 U.S.C. Sec. 541(b)(1) may also play a role in a non-profit bankruptcy.   It says that a "power that the debtor may exercise solely for the benefit of another" is not property of the estate.   In the Baptist Foundation of Arizona case, the Foundation had the right to name the boards of numerous other non-profit entities.   When the Board of one entity balked at being dragged into the bankruptcy, the Debtor sought to replace the Board with a more compliant one.   The Court ruled that the right to name the Board was a "power exercised for the benefit of another" and could not be exercised by the Debtor.However, religious entities generally do not receive any special protection under either the Free Exercise Clause of the First Amendment or the Religious Freedom Restoration Act (RFRA).   In Listecki v. Official Committee of Unsecured Creditors, 780 F.3d 731 (7th Cir. 2015), the Seventh Circuit held that RFRA did not preclude a suit by the Creditors Committee to recover money transferred to a cemetery trust fund.   The Court found that in order for RFRA to apply, a government actor would have to burden the free exercise of religion without a compelling governmental interest.   The Court found that the Official Committee of Unsecured Creditors was not a governmental actor and  that the protection of creditors was a compelling governmental interest. The Courts have also rejected challenges that the application of bankruptcy law substantially burdened the Free Exercise of religion under the First Amendment.   In In re Congregation Birchos Yosef, 535 B.R. 629 (Bankr. S.D. N.Y. 2015), parties who had been sued  in an adversary proceeding sought to invoke a Jewish religious proceeding instead.   The Court found that the attempt to force the Debtor to adjudicate the dispute outside of bankruptcy under threat of being shunned violated the automatic stay and that the stay did not violate the First Amendment rights of the defendants.However, courts cannot adjudicate matters that would require interpretation of church doctrine.  In two of the Catholic Diocese cases, priests accused of sexual abuse filed proofs of claim after they were dismissed following a trial under canon law.   Both of the Courts found that under the ecclesiastical exception, the Court did not have jurisdiction over the dispute.

The Commercial Law League of America held its annual luncheon at NCBJ featuring the Lawrence King Award and a keynote speech by Andy Dillon.Bankruptcy Judge Dennis Montali received this year's King Award, joining such luminaries as Elizabeth Warren, Steven Rhodes and Gene Wedoff.   Among his accomplishments, Judge Montali sailed from San Francisco to Hawaii when he was only seventeen.    He served in the Navy.   As a practitioner, he helped to craft the emergency rule which allowed the courts to function after the Marathon decision.  He was appointed to the bench in 1993 and presided over the Pacific Gas & Electric case.   He gave a heartfelt acceptance speech in which he emphasized his commitment to treating each case as if it was his most important.Andy Dillon was the keynote speaker.  Mr. Dillon was speaker of the Michigan House of Representatives before becoming Michigan's State Treasurer.   As Treasurer, his responsibilities included placing failing cities, including Detroit, into receivership.    More recently, he has advised Puerto Rico on its financial issues through his association with Conway McKenzie.    Mr. Dillon talked about the difficulties facing Detroit and Highland Heights, a small enclave within the City.   There was so much deferred maintenance in Detroit that one fire station relied on a fax machine connected to a jar full of coins as its alarm system.   When the fax machine rang, the jar of coins would fall over alerting the firemen.   Because governmental accounting standards required long term debt to be booked as income, the city's constant borrowing masked its deteriorating financial condition.    However, anyone attempting to address these problems was hobbled by the fact that 75% of the city's budget consisted of payroll obligations subject to a four foot high stack of union contracts.    Under Michigan law and the Constitution those contracts could be suspended temporarily but could not be permanently modified.   Another major problem was underfunded pension liabilities.   This was a major issue that was compounded by the fact that the pensions have so little liquidity that they must keep most of their assets in short term instruments.   This means that they earn a subpar rate of return which puts them deeper in the hole.    Highland Heights, the enclave that once held the headquarters of Chrysler, had sunk to the point where less than 50% of the population was paying their taxes or water bills.   The problem was worse than it looked on the financials because a resident of the city had won the lottery and paid the city a 1% income tax.   Mr.  Dillon's talk emphasized the difficulties in restructuring governmental debt while meeting basaic needs of health and safety.The solution was first to get authorization from the legislature to use an emergency manager.   Prior to actually being appointed, the emergency manager Kevin Orr, spent a year meeting with African American business leaders, politicians and pastors.   Dillon said that if the manager had been imposed initially, the population would likely have revolted.   However, by the time Orr was appointed, the community was ready for him.   The State Treasurer loaned employees to the City to get good books and records put together and to develop forecasts that went more than one year.    At that point, the City was ready for Chapter 9.  Ultimately the State of Michigan authorized funds to Detroit as part of the grand bargain in its plan.   He said that his one regret was not hiring lawyers with more experience with government finance.   He explained that failure to use the right terminology or to say the right thing in public could lead to problems with both internal constituencies and the public.He described Puerto Rico as a much larger problem.    First, its debts were an order of magnitude higher than Detroit's.   The island has lost about 10% of its population and doesn't have some of the advantages that helped Detroit.   Detroit was able to use Chapter 9 which is not available to Puerto Rico.     Detroit was surrounded by healthy economies in surrounding Michigan and across the border in Canada while Puerto Rico is one thousand miles away from the mainland.   Puerto Rico also did not have a state sponsor such as Michigan to provide financial assistance.   

This panel examined energy and healthcare reorganizations.   The unifying theme of this panel was that industries that are highly regulated, highly leveraged and lack control over their prices are prime candidates for bankruptcy.   According to the moderator, Judge Margaret Mann, the panel hoped to make its presentation relevant to practitioners regardless of whether their typical client was a gas station or dentist as opposed to a major oil producer.   Judge Mann said that these two areas are "vital to the economy and heavily regulated." Bill Wallander explained that the energy industry was in a mess because oilprices dropped from $110 per barrel to $26, although they have recovered to $50.   He said that companies had made their plans based on being able to survive at $70-80 a barrel but that prices kept dropping.  He did add that companies that hedged were able to hold on later but that many did not have sufficient hedges.  Ana Alfanso stated that banks didn't see the drop coming either.   She stated that the crisis highlighted the problem with asset based lending.   She added that cash was a major issue because companies without cash could not drill.Harris Winsberg said that nonprofit healthcare providers suffer from having a poorer client base  and competition from for profits leading to doctor flight.  He added that cash was a big problem.  He said that ideally a hospital system should have 365 days of cash on hand but that he was seeing clients with just 3-5 days of cash on hand.   This cash shortage can become critical because the government can decide that a provider has been overpaid and recoup against future income.Thomas Califano stated that community hospitals have had difficulties with the drastic changes brought about by the Affordable Care as well as difficulty keeping up with changes in technology.Ms. Alfanso talked about issues with hedges in energy cases.   If a company is in the money, its lenders may want to exercise the hedges to pay down debt but if the hedges are terminated, the company can't use them for cash management. Mr. Wallander spoke about the problem of valuation in the energy industry.  This will affect which creditor holds the fulcrum security, that is, which secured claim is at the dividing line between being secured and unsecured.  Ms. Alfanso said that it may help to put valuation off when prices are changing.   She said that "if you wait long enough, the market can tell you where the fulcrum is." However, the Sabine case illustrated the downside of this approach because the adequate protection claims consumed all of the unencumbered assets.Bill Wallander stated that the end game in energy was to survive the volatility.    He said, "It is easy to get into chapter 11 but  harder to get out."   He added that  "if you don't get out you are pouring concrete down a hole instead of producing."Mr. Winsberg said that there is no typical health care case.   This was echoed by Mr. Califano who pointed out that healthcare cases bring a range of constituents not present in other cases, including patients, doctors, families, regulators and the public.     He pointed out that in healthcare "it's people's lives" that are at stake.   Califano added that non-creditor, non-economic interests played a role and that a nonprofit healthcare business had to consider the mission of the entity as opposed to just selling for the best price.The panel also offered a few pitfalls involving energy and healthcare cases.   In the energy field, plugging and abandoning wells can be an extremely expensive task fraught with environmental risk.  An interesting point is that if the bankruptcy estate cannot afford the plugging liability, the regulators can look to co-owners and previous owners.   In healthcare, the government has argued that the provider agreement is an executory contract which must be assumed in a sale so that the purchaser must take the assets subject to the overpayment liability.    Another percolating issue is whether bankruptcy courts have jurisdiction to decide medicare issues if the debtor has not exhausted its administrative remedies.Bill Wallander suggested that the flood of energy cases may slow down.  He said,   "The fire will burn as long as it has fuel.  We have processed a lot of companies through the bankruptcy process.   Plenty of companies can make money at $50."  He also said that improvements in technology will also reduce filings, that a better "special sauce" will allow them to drill better.         

Be honest Be honest with yourself, your attorney, the trustee, the court and anyone else involved in your bankruptcy case. The first question to ask is do you really need the help? Are you someone who has a small amount of debt that is manageable over the course of six months to a year or+ Read More The post 3 Tips For A Successful Bankruptcy Experience appeared first on David M. Siegel.

The first plenary session of NCBJ was Broken Bench Radio, a fast-paced discussion of hot topics in the form of a radio call-in show.   It covered insights from the Caesar's Entertainment case, upcoming Supreme Court decisions, recharacterization, equitable mootness, Chapter 13 updates, the CFPB and the Husky case.   Insights From Caesar's EntertainmentJames Sprayregen was the first caller in to the show.   He talked about the Caesar's Entertainment case.    He repeatedly alluded to the interesting issues that could have been decided, such as the involuntary petition filed against the company and the section 105 injunction in favor of the parent company, if only the case hadn't settled.   His best quote was "Settlement negotiations are never over and the activities in the courtroom are an extension of the settlement negotiations.Upcoming Supreme Court DecisionsProf.  Erwin Chemerinsky gave a brief public service announcement about two upcoming Supreme Court cases:  Czyzewski v. Jevic Holding Corp and Midland Funding, LLC v. Johnson.   The Supreme Court has granted cert in both of these cases.   Jevic is about whether a  settlement agreement resulting in a structured dismissal can violate the priority scheme under the Bankruptcy Code.   Midland Funding deals with the question of whether it is a violation of the Fair Debt Collection Practices Act to file a proof of claim that is barred by the statute of limitations.   This is an issue where the Eleventh Circuit, which says yes, is at odds with at least three other circuits.  I have a case on this issue pending before the Fifth Circuit so it is of special interest to me.RecharacterizationMichael Baxter was the show's second caller responding to a question from Prof. David Epstein about whether re-characterization of debt shouldn't be the same under both state law and bankruptcy law. Baxter discussed the cases applying an equity approach under section 105(a) and those looking to state law under section 502(b) before concluding that both lines of cases generally apply the same factors.   The Fifth Circuit follows the section 502(b) approach.Equitable MootnessEric Brunstad called in to discuss equitable mootness.   He distinguished equitable mootness from Article III mootness.   If there is no relief that a court can grant, there is not a live case or controversy and the case is moot under Article III.   However, equitable mootness, which generally applies to attempts to appeal a confirmation order after substantial consummation has occurred, depends on equitable discretion.   Brunstad is not a fan of equitable mootness.   He pointed out that the equitable mootness doctrine conflicts with the Stern/Wellness cases since it prevents an Article III Court from fulfilling its obligation to review the decision of an Article I Court.   However, he had to acknowledge that the Supreme Court refused to grant cert in the Chicago Tribune case in which he had filed an amicus brief arguing against the doctrine.Chapter 13 UpdatesRetired Bankruptcy Judge Gene Wedoff gave an update on the proposed new rules and forms for chapter 13 plans.    Under the rules, there would be a standard national chapter 13 plan in which issues relating to valuation, lien avoidance and allowance of claims would all be determined at confirmation.   Under the new rules, the deadline to file claims would be shortened to 70 days.   Special provisions would have to be included in a box for that purpose.   Districts could adopt their own plans but they would be required to follow the general format of the national plan and would be limited to one plan per district.    If approved, the new rules and form would go into effect on December 1, 2017.Consumer Financial Protection BureauSen. Elizabeth Warren gave a videotaped message about the Consumer Financial Protection Bureau.  She  said that the Bureau existed to protect families from fraud and that it had already recovered $13 billion for consumers.Actual FraudThe final caller was Debra Grassgreen who spoke about the Supreme Court decision in Husky Electronics v. Ritz.   The moderators pointed out that Husky allowed non-dischargeability based on actual fraud that did not involve reliance on a false representation or even a debtor-creditor relationship.   Her big take-away was that Husky could apply in corporate chapter 11 cases.   Under § 1141(d)(6)(A), the section 523(a) exceptions to discharge apply to a debt owed to a governmental unit.   Because the section only referred to section 523(a) and not section 523(c) (which requires certain non-dischargeability actions to be brought within a period of time), she raised the prospect that governmental units could conduct an investigation of the debtor and assert that their debts were non-dischargeable based on "actual fraud" years after confirmation.   This would be a major erosion of the value of a chapter 11 discharge.     

I am resuming my coverage of the National Conference of Bankruptcy Judges this year.   Last year the demands of work kept me off the blog.   NCBJ 2016 is taking place in San Francisco.  A few random observations.    People in San Francisco wear jackets even when it isn't cold.   There are mica specks in the sidewalk that make them glitter when the light hits them.   The Golden Gate Bridge looks incredible when it is lit up at night.I started NCBJ wondering why I agreed to wake up at 5:00 a.m. to go running.   This year was the Seventh Annual Wake Up and Run event.   About 70 runners got to experience the darkened streets of San Francisco and the waterfront for a 5k fun run. The turnout was impressive given the early hour and the prior night's festivities.  As usual, I finished near the back of the pack but I was not alone.   It was a good way to start the conference and see some of the City.   

Here at Shenwick & Associates, the debtors that we represent (we represent creditors, too) are primarily looking to get their debts discharged in bankruptcy. However, what most debtors don't know is that besides getting rid of unsecured and secured debt, some liens or judgments secured by property can be eliminated by making a motion under § 522(f) of the Bankruptcy Code, which permits a debtor to wipe out the interest that a creditor has in property if the debtor's interest in the property would be exempt but for the existence of the creditor's lien or interest.The most common types of liens that can be avoided under § 522(f) are judicial liens (a lien created when someone obtains a judgment against you and attaches the judgment against your property), but not including liens that secure a domestic support obligation); and nonpossessory, nonpurchase-money security interests. To qualify as a nonpossessory, nonpurchase-money security interest: (1) you (not the creditor) still possess the collateral; and (2) you used property you already owned as collateral for the loan, not money that you borrowed.A lien is considered to impair an exemption to the extent that the sum of: (i) the lien; (ii) all other liens on the property; and (iii) the amount of the exemption that the debtor could claim if there were no liens on the property, exceeds the value that the debtor's interest in the property would have in the absence of any liens.By way of example, let's assume that a house owned by a husband and wife has an appraised value of $500,000. The house is subject to a $200,000 mortgage. The husband and wife file for chapter 7 bankruptcy and have a combined $300,000 homestead exemption under New York State law. Prior to their bankruptcy filing, a judgment creditor records a $75,000 judgment against the house. The debtors may commence a motion under § 522(f) of the Bankruptcy Code to avoid or eliminate the $75,000 judgment docketed against the house.To discuss whether lien avoidance as part of a bankruptcy filing would be a beneficial strategy for your debt issues, please contact Jim Shenwick.

Why do debt collectors keep calling me at work after I tell them to stop? The Fair Debt Collection Practices Act protects you from debt collectors calling your workplace.  But, if you tell them you want them to stop, the debt collectors keep calling. How’s that? To get them to stop calling, you need to […]The post Debt Collectors Keep Calling Me At Work by Robert Weed appeared first on Robert Weed.

Code Provision There are times when you may need to convert a chapter 13 bankruptcy case to a chapter 7 bankruptcy case. Section 1307 of title 11 USC provides for conversion or dismissal. In essence, under section (a), a debtor may convert a case under Chapter 13 to a case under Chapter 7 at any+ Read More The post Converting A Bankruptcy Case From Chapter 13 To Chapter 7 appeared first on David M. Siegel.