Here at Shenwick & Associates, our summer is busy with (among other matters), representing clients in adversary proceedings. An adversary proceeding is a lawsuit that is brought within a bankruptcy proceeding and based on conflicting claims, usually between the debtor (or the bankruptcy trustee) and a creditor or other interested party. Adversary proceedings are governed by special procedural rules under Part VII of the Federal Rules of Bankruptcy Procedure.Typically, an adversary proceeding is commenced when a business files for reorganization under Chapter 11 of the Bankruptcy Code, and then the case is voluntarily or involuntarily converted to a liquidation under Chapter 7 of the Bankruptcy Code. A Chapter 7 bankruptcy trustee is then appointed. Under § 546(a) of the Bankruptcy Code, the bankruptcy trustee has until the earlier of: (1) the later of two years after the entry of the order for relief, or one year after the appointment or election of the first trustee if the appointment or election occurs before the expiration of the two year period after the entry of the order for relief, or (2) the time the case is closed or dismissed, to commence an adversary proceeding.Typically, the claims a trustee makes against a defendant in an adversary proceeding are for fraudulent transfers (transfers of the debtor's assets to a third party, with the intent to prevent creditors from reaching the assets to satisfy their claims) under § 548 of the Bankruptcy Code and state law (i.e. New York Debtor and Creditor Law, which has a six year statute of limitations) and preferential transfers (transfers made prior to a bankruptcy filing to a creditor by a debtor to the exclusion or detriment of its other creditors) under § 547 of the Bankruptcy Code and state law. A trustee will usually send the defendant a demand letter for recovery of the debtor's assets to voluntarily settle the claims before filing a complaint and commencing the adversary proceeding.Adversary proceedings are highly specialized in both their procedural rules and the analysis of the merits of the substantive claims for relief against a creditor or other party. If you're involved in bankruptcy litigation or think you may be (i.e. one of your vendors appears to be having financial difficulty), please contact Jim Shenwick.

By C. J. HUGHES To understand how the current office market for technology companies can resemble a Russian nesting doll, with layer upon layer of increasingly smaller subleases, it might help to consider the upper stories of 568 Broadway in SoHo. In the cast-iron former sewing factory, Scholastic, the publisher, is subletting two floors of space to Foursquare, a social media company. In turn, Foursquare is subletting one of those floors to a handful of other tech firms, including Fueled, which designs apps for phones. And Fueled has divided its column-lined room as a co-working space, where $650 a month gets a renter a seat and unlimited snacks from jars along a wall. One of those seats belongs to David Spiro, a self-employed entrepreneur, who sat alone at the corner of a long table on a recent afternoon, a bag of popcorn by his laptop. “I’ve raised some funding,” Mr. Spiro said, “but not nearly enough to afford a typical lease in Manhattan, so this place is great.” The sentiment could also apply to the daisy chain of tenants in his building, and more broadly to the surrounding neighborhoods. In the last few months, the area of Manhattan south of Midtown has been awash in deals where early-stage tech companies have opted to take over office space belonging to another tenant, rather than enter into a direct lease with a landlord. These sublet deals are often preferred, tenants and brokers say, because the rents are usually slightly cheaper than conventional leases. They can also be for shorter lengths of time than the typical 10 years and require a far smaller security deposit up front. As important, they say, is that the spaces usually come built out, which means essentials like high-speed Internet lines, air-conditioning and conference rooms are already in place. Getting up and running quickly is critical for companies or self-starters that often measure growth in months, not years, analysts explain. Of course, the office within an office within an office can carry risks. If the first, second or third tenant goes bankrupt, a subletter could find itself without a home. But because their own leases are so brief, these low-rung tenants can also easily wind down operations quickly if, say, their app never catches fire. “They don’t know about the future, so flexibility is key,” said Heidi Learner, the chief economist at Studley, the commercial real estate firm, who is the co-author of a report on the tech sublet trend. “You don’t know about what head count will be, whether you will get any venture capital funding, or whether you will be acquired.” In general, subletting is becoming more popular. In the Midtown South area, or from Canal Street to 30th Street, sublets accounted for 19 percent of major leasing activity this year, up from 11 percent in 2010, Studley said. And between January and April of this year, 33 percent of all the leases signed in Manhattan by tech companies — a major driver of the current economy — were sublets, the report said. Sublet tenants among other industries within the same period were less than half that. The report also states that the average length of tech subleases is about four years. Not just any space will do; tech firms almost exclusively want prewar buildings with lofty ceilings and open floors, said Sean Black, a broker with Jones Lang LaSalle. Since that type of converted industrial space is clustered mainly around the Broadway corridor, supply is limited, he added, and demand is robust. “They like the ‘old world meets new world’ look,” said Mr. Black, whose many tech clients include Foursquare. A lack of walls and cubicles, with eclectic art on the walls, embodies a certain attitude. “The last thing they want to do is conform with corporate America.” Technology firms have been subletting a bit more space than they personally need, reflecting awareness of heightened demand from a flourishing industry that allows them to rent out extra room to similar companies. Besides, locking in the space at today’s asking rents, which for sublets is about $45 a square foot in Midtown South, according to Studley, is considered wise, because rents are expected to climb, companies say. “It’s a great way to hedge the lease,” said Derek Stewart, who handled leasing for Foursquare before leaving the company this summer. Foursquare, which has 120 employees in New York, paid about $45 a square foot in 2011 in a seven-year deal, Mr. Stewart said. But he estimated that with companies like ZocDoc, a physician app service, and Thrillist, a lifestyle site for men, under the same roof, the building had gained a bit of buzz as a popular tech address. That means the space could command $55 a foot today, he said. But so far there has been little urge to profit off the subtenants, he added, saying that Fueled and the other subtenants also pay about $45 a foot for their space. “We felt kind of badly making money off it,” Mr. Stewart said. “We didn’t want to have a bad name in this tight community.” Mr. Stewart, who now works for David Tisch, a tech investor, also pointed out that subleases were essential for the survival of the tech community. In San Francisco, where Mr. Stewart leased two spaces on behalf of tech companies, start-ups can afford direct leases, which often require just three months of rent for a security deposit. But in New York, 12 months of rent is common. “Landlords here are just so risk-averse,” he said. In a business where a company’s start-up phase can be hypercompressed — Instagram was founded in 2010 and bought by Facebook for $1 billion two year later — short sublets are not unusual. The news site BuzzFeed, for example, has signed a two-year sublease for space in the new headquarters of Tiffany & Company at 200 Fifth Avenue, across from Madison Square Park. BuzzFeed, which had been based on West 21st Street in a 20,000-square-foot space, will take an entire 58,000-square-foot floor, which is one of seven floors Tiffany has there. The rent was not disclosed, but Greg B. Taubin, the Studley broker who represented Tiffany, said that comparable sublet space in the area went for $65 a square foot.  “Companies like this don’t sign long-term leases because they don’t have a crystal ball,” Mr. Taubin said. But for Tiffany, which doesn’t need the space immediately, there’s an upside in cost reduction, too, he added. Other advantages include having lights on and more people in the elevators, said Bonnie Shapiro, the director of leasing for Allied Partners, an owner of 568 Broadway. “You don’t want tenants touring the building and seeing dark, unused spaces,” she said. For tenants that may be consolidating or downsizing, the new demand for sublet space may come at a fortunate time. Credit Suisse, the investment bank, which has undergone several rounds of layoffs in recent months, has managed to sublet all its former office space at 315 Park Avenue South, one of three locations it has in Manhattan. Tech subletters in the 20-story Beaux-Arts tower, which is at East 23rd Street, include VaynerMedia, X+1 and Responsys, as well as Adap. TV, which this month took the entire seventh floor measuring 16,000 square feet. The new space features a red wall decorated with words like energy, creativity and passion, and executive offices around the perimeter have been turned into shared conference rooms. The space is a far cry from its cramped, plain-jane 4,000-square-foot space at 915 Broadway, said Gerry Manolatos, the communications director for Adap. TV. Mr. Manolatos would not disclose the terms of his lease, only that it is for less than a decade. But in the merry-go-round of the tech sublet market, Adap. TV is cashing in itself; its former space on Broadway is also being sublet to a tech firm, he said. “It’s like one deal leads to the next,” Mr. Manolatos said. “Everybody’s thinking, ‘Who knows where we will end up next?’ ” Copyright 2013 The New York Times Company.  All rights reserved.

Can I leave some creditors off of my bankruptcy?No. Any creditor whom you owe a balance to must be listed on the petition. Does this mean you should go pay off all the credit cards that you want to keep?No. Even with a $0.00 balance the credit card companies will likely close your accounts once you file bankruptcy. Some creditors WILL let you keep your account but even if this is the case, you do not want to pay off any large balances right before filing for bankruptcy. If any creditor receives more than $600 in the 90 days prior to filing it is considered a preferential treatment, meaning that the trustee can request the money back from the creditor.I owe $1000 to my Dad (any family member or friend). Can I pay him back right before I file bankruptcy?No. As stated above, if you owe money to someone they are a creditor. The trustee and the Bankruptcy Court do not allow preferential payments. They do not like to see you pay Dad back, but not Visa for example. For this reason, any payments made to family members or friends in the past year before filing must be listed on the petition. You certainly do not want the trustee contact Dad to get the money back that you paid to him.Does this mean I can never pay my Dad, or any family member or friend, back the money that I borrowed? No. The bankruptcy wipes out your LEGAL liability to the creditors. However, you can choose to make VOLUNTARY payments to certain creditors if you chose. Keep in mind this cannot be done until the bankruptcy case is closed.  I owe my Doctor money. Does this mean that I have to change doctors? No. Similar to the voluntary payment to Dad described above, you can make voluntary payments to the doctor if they are requiring payment before using their services again. However, you will want to check with the doctor before making payments. A lot of times, they will wipe of your balance before the bankruptcy and let you start fresh with a new account. 

What happens if I get behind on mortgage payments while I am in a Chapter 13?You made the decision to file a bankruptcy and decided to keep you home. You file a Chapter 13 and are making your mortgage payments and your Chapter 13 plan payments as scheduled. Something comes up and you get several months behind on the post-petition mortgage payments. Now what? Several things will happen…First is that the attorney for the mortgage company will likely contact your attorney let you know that payments are delinquent. If this happens, the attorney should contact you advising you that payments needs to be brought current. However, this step of a “warning” from the mortgage company is not required and does not always happen.The next step (often times the first step), is that the mortgage company’s attorney will file a Motion for Relief with the court in your bankruptcy case. Essentially this is the mortgage company bringing notice to the court that you are delinquent on post-petition payments on your mortgage. They are also asking the court to grant the mortgage company relief from the automatic stay. In short, the mortgage company wants permission to be able to continue with a foreclosure process even though you are in a bankruptcy due to being delinquent.The motion for relief will set out a hearing date. 7 days prior to that hearing date a response must be filed by you or your attorney (if you are represented) stating your intentions, whether you intend to become current on the mortgage, etc. If not response is filed, the motion for relief will automatically be granted to the mortgage company 7 days before the hearing.Options1. Become Current: Respond to the motion and become current on post-petition mortgage payments before the hearing2. Stipulation Agreement: Depending on how far behind you are on your mortgage, you can ask the mortgage company to allow you to enter into a stipulation agreement. This stipulation agreement usually requires some sort of down payment and spread the delinquent post-petition mortgage payments out over 6 months. This may sound like a great option, however, be aware that you now have 1) ongoing mortgage payments, 2) chapter 13 plan payments, and 3) a stipulation payment.3. Surrender the home: If at this point you realize you cannot maintain payments on the mortgage, you can allow the Motion for Relief to be granted and surrender the home through the bankruptcy. The decision to file bankruptcy and the decisions related to any motion for relief in a bankruptcy are important and should not be made based on this article. You should seek legal advice before making a decision. 

What is a wage order and what are the benefits?A wage order in a Chapter 13 is where a portion of your Chapter 13 plan payment is automatically deducted from your paycheck by your employer. Your employer then sends the money directly to the trustee.If you are paid bi-weekly then the monthly payment will be prorated. For example, if your Chapter 13 plan payment is $300 then $138.46 would be taken out of each paycheck.Benefits to wage order:                                       Presumed current if less than 10 days lateNo paying entire payment out of one paycheckPayments guaranteed to be made (so long as your employer is following the order)You are not tempted to spend the money elsewhereAllows for an overall successful completion of a Chapter 13 planIn Illinois, wage orders are required where the Debtor is employed. In Missouri, while it is not required, it is strongly recommended as is ensures payments will be made to the trustee on a regular basis.What are your payment options if you do not have a wage order?Payments can be made in the form of a cashier’s check or money order and mailed to the trustee. You can also set up for an official bank check to be sent on a monthly basis directly to the trustee. They will NOT however accept a personal check from you.To avoid incurring the fees of a money order on a monthly basis for your entire Chapter 13, talk to your attorney about setting up a wage order for you. 

Do I have to appear in front of a Judge for my bankruptcy? No. The Judge does oversee the bankruptcy process; however you are not required to appear in front of him. Depending on your specific case, your attorney may need to appear in front of the Judge for certain motions or objections that may arise, but you do not need to attend.So do I have to go to court at all for my bankruptcy?Yes. One time during your bankruptcy you are required to appear in front of a trustee who has been assigned to your case. This appearance is often referred to as the “meeting of creditors”.What happens at the meeting of creditors?  The meeting of creditors is required under 11 USC §341 of the United States Code. This meeting is required in order to receive your discharge under both Chapter 7 and Chapter 13 bankruptcies.At the meeting the trustee will ask you questions under oath. There are some required questions and other questions will be asked depending on what you have listed on your petition, schedules, statements, and related documents. Generally, the questions are aimed towards verifying information you have listed (i.e. Are all of your creditors listed? Is your income still the same at it was on the date the petition was filed?).If you were honest and reviewed for accuracy your documents before they were filled with the court, then you will have nothing to worry about at this meeting.Are my creditors going to show up and tell me that I have to pay them back?Yes and no. Can creditors show up at your meeting of creditors? Yes, but they usually do not. Even if some of your creditors do show up, they cannot come and tell you to pay them back. Their appearance is permitted to allow them to ask you questions about your income, assets, etc. Again however, appearance by creditors is rare.Who is the trustee and what does he do?The trustee is appointed by the United States trustee, an officer of the Department of Justice, who oversees the bankruptcy. The trustees’ role is to determine whether there are assets that can be liquidated for the creditors’ benefit. They are essential appointed to make sure your bankruptcy complies with the bankruptcy code and that you have disclosed all income and property and that those items do not exceed that which is allowed in the bankruptcy in order to receive a discharge.In Closing…. The meeting is nothing to be worried about. If you have been thorough and completed your forms honestly and accurately, then this will be a breeze. Show up on time with your ID and SS card and the rest is easy! 

Great food for thought on the Non Billable Hour on understanding clients. The headline was “Are your clients really stupid?”. Wait, wait.  Hear him out. The answer isn’t what you’re tempted to respond. Matt Homann, who describes himself as a recovering lawyer, adapted to lawyering a piece from the Bay Area tech world, suggesting that differences of opinions among co workers are more often due to different  thinking process, biases and emotions than native intelligence. Homann added these questions to ask as you think about communication problems with clients. Are they afraid of the conclusion? Maybe it threatens their work, their reputation, or their self-esteem. Are environmental stresses degrading their judgment? Time pressure or having your career on the line can make it hard to do your best work. Are they intimidated by you?  Are they swamped by emotions of insecurity that make it hard to think. You may be unwittingly shutting them down, which begins a vicious cycle. Tone it down. Analyzing bankruptcy clients Our bankruptcy prospects are so often afraid of the conclusion that bankruptcy is a good choice for them. Or rather, they are afraid of the conclusions they draw about bankruptcy as failure.  Or fear of the unknown that is life after bankruptcy. We certainly see clients too stressed to think rationally.  They’ve lived in a stew of creditor pressures and self-flagellation for too long.  Part of our job is reducing that stress enough that other concerns and other outcomes can be considered. If we are intimidating our clients, that’s a barrier to communication that we can fix, without help from the client.  Our ability to listen to the client ought to be as well developed as our ability to expound on the law. I have heard now from a number of clients who’ve come to me after engaging another local lawyer.  Each reported that he controlled the conversation and cut off questions.  There was no reaching out to the humans across the desk, who had concerns, doubts, and fears.  The most recent refugees from his office marvelled that I listened to them before talking myself. We as bankruptcy lawyers are stupid if we don’t practice empathy.  The stakes for our clients of impaired communication are too great. Image courtesy of fisher.osu.edu.

  Advantages of Bankruptcy As part of our work with clients considering bankruptcy, we want to make sure you understand all of your options. When you are faced with stress and overwhelming debt, bankruptcy can be one option that can quickly end creditor harassment. When you file for bankruptcy, your creditors must stop calling or [...]

  Advantages of Bankruptcy As part of our work with clients considering bankruptcy, we want to make sure you understand all of your options. When you are faced with stress and overwhelming debt, bankruptcy can be one option that can quickly end creditor harassment. When you file for bankruptcy, your creditors must stop calling or […]The post Advantages and Disadvantages of Bankruptcy appeared first on Tucson Bankruptcy Attorneys Trezza & Associates.

The marital settlement agreement that resolves a divorce often divides the debts between the couple.   If it goes beyond creating two piles of debt, his and hers, you have  a bankruptcy issue. Hold harmless provisions The typical indemnification provision requires each spouse to hold the other harmless from the debts assigned to that spouse.  The indemnity is itself a contingent debt.   And debts (other than support) to a spouse or former spouse incurred in the course of a dissolution of marriage are not dischargeable in Chapter 7.  §523(a)(15). Note, it doesn’t require the debtor to pay the debt;  it just requires that the debtor make his former spouse whole if she is sued by the creditor and has to pay it. So, while the debtor can discharge his liability to the third party creditors on the debts assigned to him in the divorce, his obligation to protect his former spouse from the creditor survives a Chapter 7 discharge. Indemnification in bankruptcy This provision recently bit client of mine with a decades-old marital settlement agreement. The joint credit cards assigned to him had long been paid off and remained unused.  But when he hit a rough patch and used the cards to carry him over a business crisis, lo and behold, he had obligated the former spouse whose name, unfortunately, remained on the account. His discharge in Chapter 7 wiped out his liability to the credit card company, but not his obligation to hold his ex wife harmless for any claims on the joint account. Marital history may drive choice of bankruptcy chapter Chapter 13 treats indemnification obligations differently. The discharge outlined in §1328 does wipe out non support debts to a former spouse. Whether the debt is a payment to equalize the division of property or an undertaking to hold the other harmless from marital obligations, it is dischargeable in Chapter 13. The bankruptcy interview Your intake process needs to identify non support debts to former spouses.  Dollars to doughnuts, the potential bankruptcy filer will not know what the settlement agreement or divorce judgment says on the issue of marital debts. If there is exposure to a former spouse, you’ll need a candid discussion of the risks in proceeding in Chapter 7. Just one more complexity in the life of a bankruptcy lawyer.