Tuesday, December 14, 2010

The Power of the Chapter 11 Debtor-In-Possession

Unlike Chapter 7 and Chapter 13 a Debtor in Chapter 11 bankruptcy stays in control.  When an individual or business files a Chapter 7 a Trustee is appointed to oversee almost every aspect of the bankruptcy.  Among other things this includes who to sue to recover assets and money, how to operate business, and how to dispose of assets and debts..
                In a Chapter 11 bankruptcy there is no Trustee appointed to oversee the case, except in the rare occasion that one is ordered.  This means that more of the power stays in the hands of the Debtor.  The Debtor then gets titled the Debtor-In-Possession because the Debtor stays in possession of the bankruptcy estate.
                Obviously with power comes responsibility.  The Debtor is required to file a monthly operating report showing how much money was made and spent in each month so the creditors and U.S. Trustee’s Office can know how business is going.
                All being said Chapter 11 bankruptcy allows more individuals with real estate issues or businesses to keep control of their situation and to use their own business judgment when deciding how to operate.  For more information please go to http://chapter11jax.com or call me at (904) 521-9868.

Thursday, December 9, 2010

The Absolute Priority Rule and Individual Chapter 11 Bankruptcy

The Absolute Priority Rule and Individual Chapter 11 bankruptcy is a hot newer topic that is finally working its way through Florida and the United States.  Judge Jenneman in Orlando made a recent decision that may ultimately impact the usefulness of Chapter 11 as it relates to individuals.
                Her recent decision in In re Gelin, 437 B.R. 435 (Bankr. M.D.Fla.2010) applied the Absolute Priority Rule very strictly.  She stated that in order for the Debtor to retain any pre-filing property that the Debtor had to pay 100% to unsecured creditors.  This is of course very difficult for individuals in bankruptcy.
                Prior to the 2005 amendments there was no argument that the APR applied to individual cases because there was no specific rules relating to individual chapter 11 cases.  However this all changed in 2005 when Congress amended Chapter 11 to specifically deal with individuals that had to file Chapter 11.  These amendments made it more feasible for individuals to actually make it in and out of bankruptcy and brought the individual Chapter 11 more in line with a Chapter 13.
                There is case law on both sides of the table on this issue.  Early on after the amendments the cases were coming down in favor of a more favorable view of the APR in individual cases.  However now the pendulum seems to have moved to the other side and the Gelin decision is just the most recent decisions that could destroy the individual Chapter 11.

Thursday, September 23, 2010

Real Estate Investors Can Benefit from the Terrible Economy

This article is meant to explain how real estate investors can benefit from the current market conditions through a Chapter 11 bankruptcy reorganization.  Any non-homestead property mortgage can be reduced to the current market value.  This is usually done by looking at websites like cyberhomes.com or zillow.com to get a starting off point.  Should this become a fought issue usually the owner can then move forward with an appraisal. 

                After the value is settled you are then allowed to reamortize that amount over an additional term.  What that means is if your original mortgage was for 30 years and you are 5 years into it, you can redo the loan over an additional 30 years which should substantially reduce your payment.

                Another benefit is the interest rate.  As of today the prime rate is 3.25%.  This is important because your restructured mortgages in Chapter 11 can be based on the prime rate.  The Supreme Court case In Re: Till states that courts are to look at the prime rate when determining new interest rates in bankruptcy.  They are to take prime and add 1-3% for risk factors.  Because the prime rate is so low now it is possible to get a totally reduced and restructured mortgage with a fixed 4%-6% interest rate.

                Second and Third mortgages can also be completely removed if the value of the property is less than the first mortgage.  This even applies to homestead properties.  So if you can show that they are completely unsecured you can remove them and treat them just like a credit card.

                Even though the economy is currently terrible for real estate investors it can actually be a benefit if used correctly.  Because of the low market values and low prime rate it is a great time to consider a Chapter 11 reorganization if you are a real estate investor struggling to keep afloat.  For more information on how Chapter 11 may help you please call me at (904) 521-9868, (386) 868-2650, or (407) 494-0665.  You may also get more information at http://chapter11jax.com.

Thursday, September 2, 2010

Special Rules Regarding Vehicles in Bankruptcy

     One reason many people choose bankruptcy protection is to save a vehicle from repossession or replevin.  Few people actually know that certain rules apply to vehicles when they file.  Most people only know they can keep their car.  In 2005 Congress enacted BAPCPA.  Included in the changes were specific rules dealing with automobile liens.  The most widely criticized and litigated of the automobile changes is the so called “hanging paragraph”.
     The “hanging paragraph” states that if you purchase a personal vehicle and file bankruptcy within 910 days you are not allowed to “cram down” the value of the vehicle.  This means that you would have to pay the full amount owed to the lien holder over the life of your Chapter 13 Plan.  Of course you can still reduce the interest rate and extend the term but sometimes that is not enough.
     Luckily in Chapter 11 cases the “hanging paragraph” does not apply.  This means that there are no time restraints on when you can value a vehicle and when you cannot in a Chapter 11 case.  However,  I am not telling anyone to buy a vehicle and file Chapter 11 a few days or even weeks later because there are still issues of whether the bankruptcy was filed in bad faith or issues of fraud to deal with.  Nevertheless it can be a real benefit for someone that is on the fence about Chapter 11 bankruptcy.
     Again I am not saying that everyone that has a vehicle purchased within 910 days should file a Chapter 11.  I am simply stating that it is an added bonus for people that choose or are forced into Chapter 11 bankruptcy.  Also please note that the “hanging paragraph” does not apply to business vehicles in any chapter of bankruptcy.
     Should you need more information or clarification please feel free to call or email me anytime.  My email is jason@cwbfl.com and web address is www.chapter11jax.com

Tuesday, August 31, 2010

A Few Advantages for Business in Chapter 11 Bankruptcy

There are several reasons for businesses facing tough financial times to look towards Chapter 11 for help. Just a few reasons are listed below:

1. It allows businesses to restructure unsecured debt. This means a business may only have to pay a fraction of their actual debt back to creditors and can still successfully operate their business during and after the Chapter 11 case.

2. It allows multi-location businesses to close some locations and to keep other locations up and running. This allows a business to keep profitable locations and to close unprofitable ones with little to no financial consequences.

3. It provides businesses time to deal with IRS and other tax debt, allowing these debts to be repaid over a long period of time with little to no interest and absolutely no penalties.

4. It allows businesses to stop foreclosure on valuable property that is imperative to the business.

5. It allows businesses to restructure real property loans to the current market value with a fixed interest rate over a new term.

6. It stops payments to creditors for a period of time after filing, allowing businesses to build up a possible cash reserve while deciding how to proceed with the business.

7. It allows businesses to deal with union contracts that may be killing cash flow.

8. It immediately stops any legal action against the company, including foreclosure proceedings.

There are many other advantages for a business to at least consider Chapter 11 bankruptcy when faced with tough financial times. Please feel free to call (407) 494-0665 or (386) 868-2650 to set up a free consultation to discuss what a Chapter 11 can and cannot do for your business.  You can also email me at jason@cwbfl.com or go to www.orlandobusinessbankruptcy.com

Monday, August 23, 2010

Individual Real Estate Investor Chapter 11 Cases

Individual Real Estate Investor Chapter 11 cases have been on the rise in FLorida because of the decline in the real estate market.  Real estate investors really have a lot to gain from a Chapter 11.  Below are just a few things that Chapter 11 may be able to do for the struggling investor.

1. It allows real estate investors to lower loan balances to the current market value of the real property and to restructure that loan over a new term with a low, fixed interest rate.

2.  It allows real estate investors to completely remove second or third mortgages from properties where the value is less than the first mortgage balance.  The second and third mortgages are then treated as completely unsecured and are discharged at the completion of the case just like a credit card debt.

3.  It allows individuals to restructure their unsecured debt, including unsecured second and third mortgages.  Individuals have to pay back anywhere from 0% to 100% to their unsecured creditors depending on their particular circumstances.  Even if 100% is required, it is paid back over at least five years with little to no interest and absolutely no penalties or late fees.

4.  It immediately stops any legal proceeding against the individual, including foreclosure proceedings.

5.  It provides a period of time where no payments are made on unsecured debt and smaller payments are made on secured debt which allows individuals to save up a cash reserve to operate.

There are many other reasons for real estate investors to consider Chapter 11 bankruptcy when faced with tough financial times.  Please feel free to call (904) 374-0111 or (386) 868-2650 to setup a free consultation to consider your particular situation and options.  You may also email jason@cwbfl.com or for more information please visit www.chapter11jax.com