In a major decision interpreting chapter 15 of the Bankruptcy Code, Judge Harlin Hale has denied recognition of the provisions of the “Concurso” order obtained by Vitro, SAB in Mexico which would have released the liability of its non-bankrupt U.S. subsidiaries. The Court carefully avoided any rulings which would have cast aspersions upon the Mexican legal proceedings while finding that U.S. law would not recognize the specific provision. In re Vitro, SAB, No. 11-33335 (Bankr. N.D. Tex. 6/13/12). The opinion can be found here. What Happened Vitro S.A.B. de C.V. is a holding company formed in Mexico in 1909. It operates its business through a network of subsidiaries. It is the largest manufacturer of glass containers and flat glass in Mexico and its name is Latin for glass. Vitro borrowed approximately $1.225 billion in unsecured notes which were guaranteed by virtually all of its subsidiaries. Vitro also agreed to repay approximately $2.0 billion to its subsidiaries under circumstances which raised questions from its third party creditors.When the global recession hit in 2008, Vitro could not pay its debts. In November and December 2010, proceedings were filed in four different jurisdictions seeking to address the Vitro debts.1. On November 17, 2010, some of Vitro’s American creditors filed involuntary petitions against fifteen of Vitro’s American subsidiaries in the Bankruptcy Court for the Northern District of Texas. Ultimately, four of the debtors consented to relief and an additional two debtors filed voluntary petitions. 2. On December 2 and 9. 2010, Vitro’s American creditors filed suit against Vitro and 49 of its subsidiaries in state court in New York.3. On December 13, 2010, Vitro filed a a voluntary judicial reorganization proceeding under the Ley de Concursos Mercantiles (the “Mexican Business Reorganization Act”) in the Federal District Court for Civil and Labor Matters for the State of Nuevo León, the United States of Mexico, seeking approval of a pre-packaged, “concurso” restructuring plan.4. On December 14, 2010, Vitro filed a chapter 15 proceeding in the Bankruptcy Court for the Southern District of New York. While these filings set up the multinational squabble, this was only the beginning. In Mexico, the pre-pack was rejected based on a finding that the subsidiaries were not entitled to vote. The initial chapter 15 petition in New York was withdrawn after this filing. On appeal, the Mexican court reversed and allowed the subsidiaries to vote. A new chapter 15 proceeding was filed in New York. However, the New York chapter 15 proceeding was transferred to the Bankruptcy Court for the Northern District of Texas. The Bankruptcy Court for the Northern District of Texas granted a preliminary injunction against proceedings against the Vitro parent but not the subsidiaries. The American creditors sought an order prohibiting the American subsidiaries from voting upon the Mexican concurso but were rebuffed. The Mexican concurso was ultimately approved based upon the votes of the subsidiaries. The concurso provided that the guarantees of the subsidiaries could not be enforced. Thus, the subsidiaries were able to vote in favor of a plan which released their guarantees. This set the stage for the Mexican representative of Vitro to seek an order from the Bankruptcy Court for the Northern District of Texas recognizing the concursoand enforcing the order to release the subsidiaries from their guarantees. To summarize:1. Vitro borrowed over a billion dollars guaranteed by its subsidiaries.2. Vitro filed a pre-packaged bankruptcy plan in Mexico.3. Vitro’s pre-pack was approved based on the votes of its subsidiaries.4. The Mexican plan released the subsidiaries from liability.5. The Bankruptcy Court for the Northern District of Texas was asked to recognize the order from the Mexican Court. The Comity Question This left the Bankruptcy Court with a difficult question: should it enforce the Mexican concursoas a matter of comity or was there a countervailing rule under American law? Fortunately for the court, chapter 15 provides some guidance. Under section 1507(b), an American bankruptcy court may provide “additional assistance” to a foreign debtor, but only if five conditions are met, including that American creditors are treated fairly and the distribution scheme is substantially the same as provided under title 11. Additionally, section 1506 allows the Bankruptcy Court to decline to enforce the order of a foreign court if it would be manifestly contrary to the public policy of the United States.” Whether to recognize a foreign court order under section 1507(b) is largely a matter of comity. While comity and comedy sound very similar they have strikingly different meanings. According to Judge Hale: Comity should be the Court’s primary consideration when applying § 1507(b). (citation omitted). Comity has been defined as the “recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protections of its laws.” (citation omitted). Granting comity to judgments in foreign bankruptcy proceedings is appropriate as long as U.S. parties are provided the same fundamental protections that litigants in the United States would receive. . . . “The principle of comity has never meant categorical deference to foreign proceedings. It is implicit in the concept that deference should be withheld where appropriate to avoid the violation of the laws, public policies, or rights of the citizens of the United States.” (citations omitted). Opinion, pp. 7-8.In ruling upon the parties’ contentions, the Court divided its ruling into objections it rejected, objections it sustained and issues it did not reach.The Court rejected the argument that it should not enforce the Mexican order because of corruption in Mexico. While the creditors’ expert presented evidence of corruption in Mexico in general, it did not connect this to the specific case. Additionally, the objecting creditors’ expert on Mexican law testified that in forty years’ practice, he had never bribed a judge. While the Court’s conclusion appears to be sound, as well as avoiding offense to America’s neighbor to the south, the implicit suggestion that corruption should be proved by bringing testimony from a witness who has personally participated in corruption is a bit unsettling.The Court also dismissed a number of arguments based on fairness and compliance of Mexican law on the basis that these were issues best left to the Mexican court system. However, in the end, the Court concluded that American law would not allow a plan of reorganization which granted wholesale releases to non-debtor parties. The Court stated: Generally speaking, the policy of the United States is against discharge of claims for entities other than a debtor in an insolvency proceeding, absent extraordinary circumstances not present in this case. Such policy was expressed by Congress in Bankruptcy Code Section 524, and in numerous cases in this circuit. (citations omitted). This protection of third party claims is described both in terms of jurisdiction and also as a policy. (citations omitted). The Fifth Circuit has largely foreclosed non-consensual non-debtor releases and permanent injunctions outside of the context of mass tort claims being channeled toward a specific pool of assets. (citations omitted).Opinion, p. 25. The Court ultimately concluded that the guarantor release provision of the concursowas contrary to American law and should not be enforced. While the Court’s conclusion may be sound, it is curious that the Court did not discuss case law out of the Northern District of Texas allowing a plan to enjoin pursuit of claims against a non-party who contributes property necessary to the success of a plan which was approved by the creditors and will pay unsecured creditors 100% of the amount of their claims. In re Bernard Steinhard Pianos USA, Inc., 292 B.R. 109 (Bankr. N.D. Tex. 2002); In re Seatco, Inc., 257 B.R. 469 (Bankr. N.D. Tex. 2001). Perhaps the Court felt that those cases were too far different from those of Vitro. However, an acknowledgement of what would constitute “extraordinary circumstances” would have been welcome. The bottom line here is that comity is a good thing, but not when it means an end run around American law as applied to American creditors of an American subsidiary of a foreign company.The Fifth Circuit has approved a direct appeal and has temporarily stayed enforcement of the decision.
Usually my posts here have a message or a lesson imbedded. This one doesn’t, unless readers can help me find it. But it was a prickly case that resolved well, for unanticipated reasons. Perhaps, there’s a lesson lurking somewhere here. The clients were well above median income: a high tech engineer and a stay at home mom with two children under 9. The major creditor was the contractor whose remodel of their house caused them ultimately to lose the house. Rumor said the contractor’s partnership broke up over the botched project as well. Net, net, net, emotions ran high. After an unsuccessful attempt at a Chapter 13 case, we dismissed and filed Chapter 7. The intent was to let the house go. But the secured debt on the house was an available deduction on B-22, in 7 anyway. Enter the UST who brought a motion to dismiss under §707(b)(3). She had a laundry list of disputed expenses, including appropriate care for two children with learning differences and sports and music lessons. She also seemed offended at a mother who wasn’t in the workforce. The hearings on the issue extended over months, with the judge apparently leaning our way, but looking for deeper record on some of the issues. The frustrating thing for me was that there seemed to be no settlement possibilities available. Chapter 13 wasn’t affordable since we relied on the mortgage interest deduction on the house-to-be-surrendered to avoid monthly disposable income. It seemed to be a win or lose confrontation. When up popped the issue of some stock options that we thought the trustee had abandoned. The trustee reversed himself and said, “no, those are mine”. I ended up saying halleluiah. Because with the prospect of an asset in a case heretofore a no asset case, the UST withdrew the motion to dismiss. The loss of the stock options was far less expensive than funding a Chapter 13 plan without the home mortgage payment deduction. We had a perverse sort of settlement of the abuse motion. Is there a takeaway? The outcome had lead me to wonder whether leaving some money on the table, some asset for creditors, in a case where the 707 issues lurk might not be a cheaper way out of such disputes. Make a preferential payment. Leave unexempted cash. Put the UST to a decision about whether they want to dismiss an asset case in a fight over income. What do you think? Image courtesy of Graham Binns If you are in the Northern District of California, consider joining me for a 2 hour exploration of community property issues in bankruptcy cases July 12 5-7 at the Computer History Museum in Mt. View. We’ll look at all the strange and wonderful things that happen when married people, or formerly married people, file bankruptcy. Sign up info. Like This Article? You'll Love These! Means Test Income And The Annual Bonus Means Test: Getting Business Income Correct Use All Channels to Educate Bankruptcy Debtors
Once parties to a legal dispute have entered a settlement agreement, the Defendant may jeopardize the Plaintiff’s ultimate recovery under the agreement by filing for bankruptcy. In order to reduce the risk associated with Defendant’s bankruptcy, the Plaintiff’s lawyer may: (1) Structure the payments so that they do not exceed $5,475 in one 90-day period, as this is the threshold for some preference actions under 11 USC 547. (2) Try to structure the settlement so that most of the payments are made by third parties, or get a third party to guarantee Defendant’s payments. (3) Get the Defendant to represent that, as of the formation of the settlement agreement, they/he/she are/is financially solvent. (4) As soon as possible, take a security interest in Defendant’s (preferably non-exempt) property. (5) Be careful about including broad language releasing all claims in the settlement agreement. Include language in the agreement conditioning the release on Plaintiff’s ability to reap the full economic value promised in the agreement. (6) Beware of novation, which occurs where a settlement agreement converts otherwise non-dischargeable debt, such as that for willful and malicious injury to person or property, into a dischargeable contract debt. In cases where non-dischargeable debt is being settled, have the Defendant specifically admit to the specific charges or other facts that make the underlying obligation non-dischargeable. Anyone with questions regarding bankruptcy-proofing settlement agreements should contact Jim Shenwick.
A Chapter 13 Bankruptcy can last anywhere fromm 36 to 60 months. Three to five years is a considerable amount of time and a lot of things can change. There are a number of issues that may affect your bankruptcy. Some of the most common changes that need to be addressed are:1. Change in Income. Over the course of your bankruptcy you may find that you change jobs, become employed when you previously were not, or get a promotion or pay raise. Any change in income should be reported to your attorney, regardless of whether it is a pay increase or decrease. You attorney may advise that you need to amend certain schedules and/or amend your Chapter 13 repayment plan. 2. A need to replace a vehicle arises. Your vehicle may break down, or perhaps it is just time to replace your current vehicle. If possible you should speak with your attorney before a new vehicle is an absolute necessity. The steps your attorney will need to take depend on the situation. If you are purchasing a new vehicle outright, free and clear of loans, you may need to explain where the funds for the vehicle came from. If you want to purchase a vehicle with a loan your attorney will need to file a motion to incur debt. You will have to show that you can afford your plan payment and the vehicle. A motion has to be filed with the court and you must allow at least 21 days for objections. If there are not any objections your attorney will file an order with the court allowing the purchase of a vehicle. If your previous vehcile was being paid through your chapter 13 repayment plan you and your attorney may need to amend your plan to reflect the changes.3. If you become entitled to receive a lump sum of money or property. You could become entitled to receive money for a variety of reasons, including an inheritance, proceeds from a lawsuit or settlement, cashing out a 401k. This list is not all inclusive. If you receive a sum of money for ANY reason you should contact your attorney. Generally, if you receive a sum of money while in a Chapter 13 that will have to be turned over to the trustee to be distributed to your creditors. Generally, this will be added to your plan base and may mean that you are paying off more of your creditors.This is not an all inclusive list. If something changes while you are in a bankruptcy you should contact your attorney. If you have questions, or would like to schedule a consultation, please contact a St. Louis Bankruptcy Attorney Today.
<p>A Chapter 13 Bankruptcy can last anywhere fromm 36 to 60 months. Three to five years is a considerable amount of time and a lot of things can change. There are a number of issues that may affect your bankruptcy. Some of the most common changes that need to be addressed are:</p><p>1. Change in Income. Over the course of your bankruptcy you may find that you change jobs, become employed when you previously were not, or get a promotion or pay raise. Any change in income should be reported to your attorney, regardless of whether it is a pay increase or decrease. You attorney may advise that you need to amend certain schedules and/or amend your Chapter 13 repayment plan. </p><p>2. A need to replace a vehicle arises. Your vehicle may break down, or perhaps it is just time to replace your current vehicle. If possible you should speak with your attorney before a new vehicle is an absolute necessity. The steps your attorney will need to take depend on the situation. If you are purchasing a new vehicle outright, free and clear of loans, you may need to explain where the funds for the vehicle came from. If you want to purchase a vehicle with a loan your attorney will need to file a motion to incur debt. You will have to show that you can afford your plan payment and the vehicle. A motion has to be filed with the court and you must allow at least 21 days for objections. If there are not any objections your attorney will file an order with the court allowing the purchase of a vehicle. If your previous vehcile was being paid through your chapter 13 repayment plan you and your attorney may need to amend your plan to reflect the changes.</p><p>3. If you become entitled to receive a lump sum of money or property. You could become entitled to receive money for a variety of reasons, including an inheritance, proceeds from a lawsuit or settlement, cashing out a 401k. This list is not all inclusive. If you receive a sum of money for ANY reason you should contact your attorney. Generally, if you receive a sum of money while in a Chapter 13 that will have to be turned over to the trustee to be distributed to your creditors. Generally, this will be added to your plan base and may mean that you are paying off more of your creditors.</p><p>This is not an all inclusive list. If something changes while you are in a bankruptcy you should contact your attorney. If you have questions, or would like to schedule a consultation, please contact a St. Louis Bankruptcy Attorney Today.</p>
When an inexperienced Chapter 13 practitioner asks how much a plan has to propose to pay, I envision the Carnac the Magnificent routine from the Johnny Carson show. Carnak, in turban and robes, puts the sealed envelope with the question to his forehead, provides an answer, then opens the envelope to read the question. The results were uniformly hilarious. Not so when a bankruptcy lawyer answers the question without facts. What says the code? The Bankruptcy Code tells us what the plan must provide and what it may provide. The baseline for your plan lies in the statute. a) The plan— (1) shall provide for the submission of all or such portion of future earnings or other future income of the debtor to the supervision and control of the trustee as is necessary for the execution of the plan; (2) shall provide for the full payment, in deferred cash payments, of all claims entitled to priority under section 507 of this title… (3) if the plan classifies claims, shall provide the same treatment for each claim within a particular class…1322(a) But the Code doesn’t supply all of the answers. What are the client goals? A Chapter 13 plan only exists to further the client’s financial reorganization. Tell me what drove the selection of Chapter 13 over Chapter 7 and I have some clues as to how much money it takes. Is the debtor trying to pay taxes? Then tell me what the priority taxes total. Is the debtor trying to cure mortgage arrears? How much are the arrears? Does the debtor have non exempt property he wants to keep? Walk me through the liquidation analysis. How much are the unpaid attorneys fees? The avoidable transfers? More like juggling Drafting a Chapter 13 plan that works is akin to juggling, or a balancing act. You’ve got to get enough money into the plan to do meet your goals, all the while proving that the debtor has enough real world income to do the trick. I’ve come to appreciate a printing calculator, amortization tables, and step plans. The power of Chapter 13 for the client makes it worthwhile to do the math. Image courtesy of Wikipedia. Coming to Mt. View in July: Yours, Mine & Ours Community Property in Bankruptcy http://bit.ly/M3WrCQ Like This Article? You'll Love These! The Chapter 13 Plan Light Bulb Moment Differing Dollars In Chapter 13 Plan vs. Claim Learn the Bankruptcy Lingo
Most debtors do not like to spread around the fact that they owe any money. Your debt is a matter which is between you and the person to whom you owe money. One of the common debt collection tactics is threatening to tell others about your debt. There are however, rules to protect you and [...]
When filing for bankruptcy a petition must be filed. If the debtor has an attorney the attorney generally fills out the petition based on information provided by the client. The attorney will then meet with the client to have the individual(s) review and sign the petition. While the attorney does fill this out, the debtor(s) are responsible for the information. It is very important that the individual is open and honest with the attorney. It is also very important that the debtor carefully reviews the petition to make sure that all information is accurate and disclosed. If a debtor is unsure of whether an asset should be disclosed it is always better to discuss the matter with an attorney who can give proper legal advice. The debtor will also attend a creditors meeting. The bankruptcy trustee will ask if all information is accurate and all assets and debts have been disclosed. If there is anything missing this is the debtor's opportunity to disclose the information. If information is disclosed at the creditors meeting the schedules filed with the bankruptcy petition will likely need to be amended to reflect that information.In the event that a debtor does not disclose all information on the bankruptcy petition a number of things can happen. Failing to disclose information is considered fraud. Bankruptcy proceedings are federal matters, and are subject to investigation by the United States Trustee and the Federal Bureau of Investigation. Fraud, or attempted fraud, is punishable by fines and/or incarceration in a federal prison.If a debtor fails to disclose creditors that creditor may not be discharged as they did not receive notice and did not have an opportunity to be heard at the creditors meeting. If a debtor realizes that a creditor was omitted the debtor should amend his/her schedules to reflect that information as soon as possible.If a debtor fails to disclose assets a number of things can happen. Depending on the asset the schedules can be amended. If a debtor fails to disclose an asset the trustee can object to exemptions being applied. If the asset is large, or worth any sum of money, the trustee can hold the case open or require the debtor to convert their case. At this time the debtor may be able to pay the trustee for the property, but if that is not an option, may be required to turn over the property. Once a Chapter 7 case is determined to have assets the debtor may not be able to voluntarily dismiss the bankruptcy proceeding. If you have questions about this, or would like to schedule a consultation, contact a St. Louis Bankruptcy Attorney Today.
<p>When filing for bankruptcy a petition must be filed. If the debtor has an attorney the attorney generally fills out the petition based on information provided by the client. The attorney will then meet with the client to have the individual(s) review and sign the petition. While the attorney does fill this out, the debtor(s) are responsible for the information. It is very important that the individual is open and honest with the attorney. It is also very important that the debtor carefully reviews the petition to make sure that all information is accurate and disclosed. If a debtor is unsure of whether an asset should be disclosed it is always better to discuss the matter with an attorney who can give proper legal advice. The debtor will also attend a creditors meeting. The bankruptcy trustee will ask if all information is accurate and all assets and debts have been disclosed. If there is anything missing this is the debtor's opportunity to disclose the information. If information is disclosed at the creditors meeting the schedules filed with the bankruptcy petition will likely need to be amended to reflect that information.</p><p>In the event that a debtor does not disclose all information on the bankruptcy petition a number of things can happen. Failing to disclose information is considered fraud. Bankruptcy proceedings are federal matters, and are subject to investigation by the United States Trustee and the Federal Bureau of Investigation. Fraud, or attempted fraud, is punishable by fines and/or incarceration in a federal prison.</p><p>If a debtor fails to disclose creditors that creditor may not be discharged as they did not receive notice and did not have an opportunity to be heard at the creditors meeting. If a debtor realizes that a creditor was omitted the debtor should amend his/her schedules to reflect that information as soon as possible.</p><p>If a debtor fails to disclose assets a number of things can happen. Depending on the asset the schedules can be amended. If a debtor fails to disclose an asset the trustee can object to exemptions being applied. If the asset is large, or worth any sum of money, the trustee can hold the case open or require the debtor to convert their case. At this time the debtor may be able to pay the trustee for the property, but if that is not an option, may be required to turn over the property. Once a Chapter 7 case is determined to have assets the debtor may not be able to voluntarily dismiss the bankruptcy proceeding. </p><p>If you have questions about this, or would like to schedule a consultation, contact a <a title="Completing and Filing a Bankruptcy Petition" href="http://www.lickerlawfirm.com">St. Louis Bankruptcy Attorney </a>Today.</p>
Many people go to extreme measure to avoid filing for bankruptcy. There are a number of alternatives that people may consider that can actually be worse in the long run than filing for bankruptcy. Below are a few examples.1. Debt Consolidation Options. There are a number of companies that will offer to consolidate your credit cards and help to improve your credit. Be very cautious here and ask them to explain the entire process to you. Many of the places will tell you to stop making your payments to creditors and direct your payment amounts to the company instead. They will then hold onto this money until it reaches a certain amount and then will negotiate your debt down, sometimes only paying cents on the dollar of what you owe. This can have a number of negative implications. First, your credit will continue to worsen as your bills go unpaid for months. Second, the fees that some of these companies charge are exhorbitant. Third, the difference between what you owe and what they will pay your creditors will be considered taxable income to you. Finally, this is a service that you do not need to pay for. You could hold on to your own money and negotiate the debt down yourself.2. Charge Off of Accounts. Many times debtors are relieved when companies charge off an account or mark it as uncollectable. An important thing to note is that this does not mean that the creditor does not have a legal right to collect. Often times the original creditor will sell the account to another party and that third party may start to harass you about the debt. Also, as mentioned above, any amount charged off is considered "discharge of indebtedness" and is taxable income. For example, if you owe 10,000 to your credit card and they settle for 2,000 the 8,000 written off should be reported on your tax returns the following year. You will be taxed on this money as you are taxed on your income, which may mean that you owe taxes you didn't expect to owe. 3. Ignoring the problem. Creditors will not usually disappear and may even start contacting you at work or contacting your friends and family members. Ignoring the problem will not make it any better.If you have questions, or would like to schedule a free consultation, contact a St. Louis Bankruptcy Attorney Today.