Typically, individuals who file bankruptcy have a choice between filing a chapter 7 “liquidation” and a chapter 13 “reorganization”. Individuals who are determined to have disposable income under the Means Test only have the option of filing chapter 13 and repaying their creditors. However, individuals still have to meet certain eligibility requirements to file chapter 13. First, only individuals may file chapter 13. Small businesses and corporations can only reorganize under chapter 11. Chapter 13 was designed to be a simpler, more efficient way to reorganize and therefore is only available to individuals. Furthermore, stockbrokers and commodity brokers are excluded from filing chapter 13. Second, individuals filing chapter 13 must have “regular income”, i.e. wages, business or rental income, alimony or child support, or retirement income. In other words, a chapter 13 repayment is not possible if there is no consistent source of income to repay creditors. Finally, when filing chapter 13, an individual cannot have more than $383,175 in unsecured debt and cannot have secured debts totaling more than $1,149,525. The debt limit includes non-dischargeable debt like student loans. Again, this reinforces the idea that chapter 13 is meant to be a simpler version of chapter 11 and the more debt a person has, the more complicated their bankruptcy will likely be. Only secured and unsecured debts that are “noncontingent and liquidated” count toward the debt limit. For example, Client A was being sued for $700,000 at the time he filed chapter 13 so he did not exceed the unsecured debt limit because the lawsuit was still pending. In Client A’s case, the money owed was contingent on entry of a judgment. If Client A had wanted to file bankruptcy after a judgment for $700,000 was already entered against him, he would no longer be eligible to file chapter 13. In a real estate market with many people’s homes underwater, it is important to note that when your house is worth less than your mortgage(s), the amount of negative equity counts toward the unsecured debt limit. For example, Client B owns a house worth $100,000 and has a mortgage with a balance of $150,000 on it. The undersecured portion of the mortgage, $50,000, counts toward Client B’s unsecured debt. So, if Client B has $350,000 in unsecured debt, by adding $50,000 to the unsecured debt, Client B is now over the unsecured debt limit by almost $17,000. If you are interested in reorganizing in bankruptcy, it is important to consult with an attorney. If your debts exceed the limits in chapter 13 and you make too much money to file a chapter 7, then your only bankruptcy option is chapter 11.

On April 14, 2014, the Bankruptcy Court for the Eastern District of Virginia issued an opinion limiting the credit bid of a party asserting that it held senior secured position in all assets of the debtors. In re The Free Lance-Star Publishing Co. of Fredericksburg, VA, et al., Case No. 14-30315-KRH (Bankr. E.D.Va. April 14, 2014).  The Free Lance-Star opinion coupled with the Bankruptcy Court for the District of Delaware’s opinion in In re Fisker Automotive, Inc. et al., Case No. 13-13087-KG (Bankr. D.Del. January 17, 2014) should be viewed as instructive for chapter 11 debtors, creditor committees, and aggressive lenders seeking to employ a loan-to-own strategy through a quick section 363 sale process. In 2012, the Supreme Court in Radlax Gateway Hotel, LLC v. Amalgamated Bank, 132 S.Ct. 2065 (2012) clarified that the holder of a senior secured debt may credit bid in a chapter 11 plan auction. However, Free Lance-Star and Fisker demonstrate footnote 14 from In re Philadelphia Newspapers survives. Footnote 14 of Philadelphia Newspapers provides, in relevant part, “A court may deny a lender the right to credit bid in the interest of any policy advanced by the Code, such as to ensure the success of the reorganization or to foster a competitive bidding environment. See, e.g., 3 Collier on Bankruptcy 363.09[1] (“the Court might [deny credit bidding] if permitting the lienholder to bid would chill the bidding process.”).” In re Philadelphia Newspapers, 599 F.3d 298, 316 fn. 14 (3d Cir. 2010)(emphasis added). While Fisker is an opinion limited to the facts of the case, the arguments raised by the Committee may be instructive – in the right situations – to frustrate, limit or deny a secured creditor’s attempt to credit bid. In Fisker, the debtor sought to sell the debtor’s assets through a private sale in connection with the secured party providing a $75 million credit bid. The debtor and committee presented a set of stipulations related to, among other issues, the committee’s motion to limit the secured creditor’s right to credit bid. The stipulations served as the factual basis for the court’s decision to limit the secured creditor’s credit bid. Therein, the competing bidder provided that it would not participate in an auction if the secured creditor was allowed to bid more than $25 million, or the purchase price of the DOE loan. As a result of the unresolved issues as to the validity of the debt buyer’s lien, and no bidding would take place unless the credit bid was capped, the court found ‘cause’ under section 363(k). The debt buyer’s bid was capped at $25 million. The debt buyer’s attempt to appeal the court’s decision were futile. As a result, a public auction went forward and the competing bidder purchased the debtor’s assets for $149.2 million. The unsecured creditors went from receiving approximately $500,000 under the debt buyer’s original credit bid, to potentially receiving approximately $35 million under a proposed settlement post-auction sale. Fisker’s result and reasoning may be clear, however, the manner in which the court determined the amount to limit the credit bid is open to discussion. It must be assumed that the stipulations drove the court’s decision. This gives rise to a different issue: If the facts justify limiting a secured party’s right to credit bid, how should a court determine the appropriate amount of the credit bid? The Free Lance-Star case may provide an answer. In Free Lance-Star, the debtor was a family-owned publishing, newspaper, radio and communications company. After securing a $50 million loan from Branch Banking and Trust (BB&T), the company fell on hard times. The loan was secured by certain assets of the Debtor. However, it was not secured by the debtor’s “tower assets” associated with the debtor’s radio broadcasting operations. Eventually, BB&T sold its loan to Sandton Capital Partners (“Sandton”) in late June 2013. Sandton wanted to push the debtor through a chapter 11 case and sell substantially all the assets to a related entity of Sandton, DSP Acquisition LLC (“DSP”). DSP took certain actions pre-petition which put the scope of DSP’s security interest at issue, and lead to the debtor seeking to limit DSP’s credit bid under §363(k). The debtor, similar to Fisker, sought to limit DSP’s credit bid on the grounds that the validity and scope of DSP’s lien was at issue, DSP engaged in inequitable conduct, and limiting the credit bid would foster a robust bidding process. At the combined evidentiary hearing on the debtors’ motion to limit credit bidding and cross-motions for summary judgment filed in an adversary proceeding seeking a determination as to the extent, and validity of DSP’s lien, the court determined DSP acted improperly and ‘cause’ existed to limit DSP’s credit bid. The court asked for testimony from DSP as to how much Sandton paid for the BB&T loan. No such testimony was provided. Typically, a debt buyer considers this information confidential. It was only known in Fisker because the debt buyer purchased a Department of Energy loan at a public auction a month prior to the filing of the Fisker case. The court, having determined that DSP acted improperly and did not have a valid perfected security interest in all of the debtors’ assets, found ‘cause’ pursuant to section 363(k) to limit the debt buyer’s credit bid. Without any evidence being offered by DSP, the court requested that the debtors’ expert witness provide testimony on the best procedure for fashioning a competitive auction sale and credit bid price. Here, the debtor’s expert eliminated the unencumbered assets (as determined by the court) and applied a market analysis to develop an appropriate cap for the credit bid. The court accepted this approach and limited DSP’s credit bid of approximately $38 million to $13.9 million. DSP has filed an appeal. Depending on the outcome of the appeal, employing a market analysis in connection with determining what amount a credit bid should be limited in order to generate a competitive environment for an auction is a novel, creative approach. This approach may lay the ground work for other courts to employ such a valuation method to reduce a credit bid where the facts justify limiting a secured party’s right to credit bid. No matter the outcome of DSP’s appeal, Fisker and Free Lance-Star demonstrate that debtors and committees have grounds to challenge a credit bid, especially where the validity of a secured party’s lien is questioned.  Holders of secured debt, whether debt buyers or the loan originators, should evaluate their lien rights and develop options in advance of a chapter 11 filing when using a credit bid in a loan-to-own strategy in a section 363 sale process.

Recently, the district court for the Northern District of Illinois ruled on one of the important unresolved issues in chapter 13 bankruptcy: If a chapter 13 bankruptcy is dismissed, what happens to money that the chapter 13 trustee is holding when the case is dismissed? The district court decided that the funds held by the trustee belong to the debtor, and the trustee needs to return the money to the debtor. I had the privilege of representing the debtors before the bankruptcy court. They had fallen behind in their payment obligations to the chapter 13 trustee, and then came current. They decided, thereafter, not to pursue their bankruptcy case any further. But the trustee had the money they’d paid to catch up. At the time of dismissal, the trustee was holding over $16,000. As their counsel, I wanted my clients to get their money back. The trustee, diligently endeavoring to maximize the creditors’ return, wanted to disburse the funds to their unsecured creditors. My firm and I undertook this endeavor on their behalf for free. Seeking to advance the law – and help our clients retain a ton of dough – we chose to pursue this litigation against the trustee entirely pro bono. This is a close legal question, but at the end of the day, the bankruptcy court – and now the district court – reached the right result, and ordered that the trustee should return the funds held at the time the case was dismissed. Technically speaking, under section 349(b)(3) of the bankruptcy code, a dismissal order revests property of the bankruptcy estate in the entity in which such property was vested before the commencement or filing of the case. Here, since the Trustee hadn’t yet paid to creditors the funds that my clients had paid to her, the funds belonged, post-dismissal, to my clients. This is an important unresolved issue in chapter 13 debtor practice. The bankruptcy court opinion has already been cited in several other cases and jurisdictions – in the Middle District of Tennessee and the Eastern District of Pennsylvania, for example. The crux of chapter 13 is a repayment plan that can last up to five years. It’s messy enough merely in theory, before one ever gets to the practice. (Imagine all the things that can happen to someone’s life and finances over the course of five years!) Once one gets to the practice, one quickly learns how often very smart people can disagree. So it’s always nice when, in some small way, I might be helping my colleagues and my clients get a little more clarity, not to mention helping my clients keep a lot more of their money.

April 15th is the deadline to file 2013 tax returns with the IRS and your state taxing authority unless you’ve received an extension to file.  But you may notice we ask for several years of tax returns (if you were required to file) before we can file your bankruptcy. Why? Well, let’s say you have regular income and want to do a Chapter 13 filing to make a payment plan for your debts over 3 years.  One of the requirements in the bankruptcy code says you have to file all tax returns for all taxable periods ending during the 4-year period ending on the date of the filing of the petition?  Huh? Basically you have to have filed your last 4 years of tax returns before filing the bankruptcy.  What happens if you don’t?  Well, your Chapter 13 trustee can hold open the meeting of creditors to file those returns.  If they aren’t filed, the case can be dismissed and your bankruptcy will tank.  That would be bad. The code also says all debtors have to provide certain tax returns to the trustee before the meeting of creditors.  If you don’t do that, the trustee can’t do their job and conduct the meeting.  Your case could be dismissed and you won’t get the benefit of the hard work, fees, and other documents you’ve already invested in the case. Not only that, but if you never file your tax returns, the debt you might owe from those past returns can’t be discharged.  Think about that – you might owe tax debt from 2007 or 2008 that could be discharged this year if the taxes were filed in a certain time frame.  By not filing, you’re denying yourself a chance to eliminate that debt! Tax returns are important pieces of information that lets your attorneys do their job of asking questions and let the trustees do their job in administering cases.  Unless you have a good excuse for not filing (such as only having social security income or not having any job in the year that the returns would have been filed), you should always file those returns.  If you owe the money, we can talk about how you might be able to pay it back or eliminate it.  But until that’s done, you’re only hurting yourself by refusing to file. If you have questions about discharging or repaying taxes in bankruptcy, reach out to us.  Lakelaw will help go over your paperwork with you to make the most of your bankruptcy debt elimination or repayment plan.   Call 847-249-9100 or 262-694-7300 in Wisconsin, or e-mail us , but most of all, get those taxes filed and copies to us!

The typical debts that are eliminated with Chapter 7 bankruptcy include credit cards, medical bills, personal loans and more.  The transcription and video below explain what is eliminated in greater detail. Jesse Barrientes:   What debts are typically eliminated with the Chapter 7? David Siegel: Well, a Chapter 7 is going to eliminate typical unsecured debt such+ Read MoreThe post What Debts Are Eliminated With Chapter 7 Bankruptcy? appeared first on David M. Siegel.

The automatic stay in the most powerful tool when filing bankruptcy. The automatic stay provides a shield of protection against most collection efforts. In the video below, we discuss just how powerful the stay is when filing a bankruptcy case. David Siegel: Let’s talk about what’s created the minute a bankruptcy case under Chapter 7+ Read MoreThe post Filing Bankruptcy And The Creation Of The Automatic Stay appeared first on David M. Siegel.

In previous blogs, I have written introductory information about the basic process in chapter 13 bankruptcy. In this next series of articles, I will discuss some of the issues surrounding chapter 13. In order to file chapter 13, you must be an individual with regular income. There are limits to the amount of debt you can have and still be eligible to file chapter 13. As of April 1, 2013 the limits are now $1,149,525.00 for secured debt and $383,175.00 for unsecured debt. These numbers are adjusted every three years. If you are close to these numbers, be sure and contact our office to get the current applicable limitations.The post Chapter 13 Bankruptcy appeared first on Tucson Bankruptcy Attorney.

There are income qualifications for filing Chapter 7 bankruptcy.  If you are over the median for your state then you are subject to a means test.  If it is determined that you have the ability to pay back at least 25% over the next three to five years, then you will not qualify for Chapter+ Read MoreThe post Your Monthly Income Is A Factor In Qualifying For A Chapter 7 Bankruptcy appeared first on David M. Siegel.

File Chapter 7 Bankruptcy To Protect Property The first reason why somebody would want to file Chapter 7 bankruptcy is if they have something they want to protect. What I’m talking about here is something of value that is subject to a taking if a bankruptcy case is not file. This could be wages. If someone is+ Read MoreThe post There Are Three Main Reasons Why Somebody Would Want To File Chapter 7 Bankruptcy appeared first on David M. Siegel.

In order to file for Chapter 7 bankruptcy, you must provide a copy of your most recent Federal tax return.  If you are going to be receiving a sizable refund, then you want to time your bankruptcy filing so that you do not have the refund forthcoming after your filing date.  This way, you are+ Read MoreThe post Tax Return & The Importance Of Timely Filing – Bankruptcy appeared first on David M. Siegel.