/** Allow updates without FTP credentials */ define('FS_METHOD', 'direct'); Bankruptcy in the news Archives - Tennessee Bankruptcy Blog

August 13, 2014

Bankruptcy – a Legitimate Reset Button?

Any ethical bankruptcy lawyer will tell you that filing a Chapter 7 or Chapter 13 should be your last resort. It is something that needs plenty of meaningful thought and the advice of professionals who help good people to see debt relief as achievable. There are ways to deal with debt that will not involve a filing of bankruptcy, but one size does not fit all.  The main thing to remember:  if you do nothing, the problem will not disappear. [Read more...]

Tennessee Republican Bob Corker helps propose a plan for setting up a new bankruptcy court for failing financial firms

The U.S. Senate is likely to propose setting up a new bankruptcy court for failing financial firms. The plan has been crafted by Senators Mark Warner, a Virginia Democrat, and Bob Corker, a Tennessee Republican, who want a specially trained judge, rather than a government agency, to preside over the takedown of financial firms whose failure could destabilize the system.

While details of the plan are still being worked out and will be released by the banking committee as part of the regulatory revamp, Corker said, “We absolutely want to eliminate from the American vocabulary that any company is too big to fail.” Both Corker and Warner have come to a strong preference for bankruptcy.

The lawmakers are among a number of bipartisan teams that Banking Committee Chairman Christopher Dodd, who announced his retirement last week, has assigned to draft pieces of the overhaul bill. They are in charge of crafting rules for how large, interconnected financial institutions should be regulated.

Both the banking committee bill and one that passed the House late last year will be part of the government’s effort to support financial system rules and to avoid the chain reaction of panic and failures that resulted from the 2008 collapse of Lehman Brothers Holdings Inc.

According to the Obama administration, the Lehman Brothers bankruptcy is an example of why the government should have power to recover complex financial companies outside of the courts. “Taxpayers simply must not be put in the position of paying for losses incurred by private institutions,” Obama wrote in a letter to House Financial Services Committee Chairman Barney Frank last October. “When major financial firms fail, government must have the ability to dissolve them in an orderly way, with losses absorbed by equity holders and creditors.”

Both FDIC Chairman Sheila Bair and Fed Chairman Ben S. Bernanke have also argued against the proposed plan, and oppose putting too-big-to fail firms in bankruptcy. “We feel very strongly that bankruptcy frequently does not work,” said Bair.

Corker and Warner’s plan offers a compromise. While it would require the firms to go into bankruptcy, the firm would then be subject to a government-controlled takedown. The group of regulators deciding if the resolution should be removed from the courts would include the Treasury, the Federal Reserve and a member of a newly created systemic risk council.

Another Newspaper Company to File Bankruptcy

MediaNews Group Inc. will be the latest in the string of troubled newspaper companies that have had to seek protection from creditors amid unsustainable debt loads. The holding company plans to file for bankruptcy protection by the end of the month.

MediaNews, which owns 54 daily newspapers, along with television and radio broadcasters, is expected to file bankruptcy in Delaware as early as this week. MediaNews has been nearing bankruptcy for months but had been trying to rework its debt load outside of bankruptcy court, said William Dean Singleton, the company’s chairman and chief executive.

MediaNews will file a prepackaged bankruptcy, in which companies gather support from creditors ahead of a filing, creating a streamlined bankruptcy that can be approved by a judge quickly with little or no opposition from creditors. Sources familiar with the transaction said the company has been valued at approximately $200 million, including about $50 million of equity value.

Singleton, who has been able to retain control over MediaNews, represents a victory as bankruptcies often result in board and management changes. According to Singleton, cleaning up the company’s debt allows him to help lead newspaper consolidation, which some say could help publishers stay in business by creating stronger, more efficiently run groups of papers.
Singleton wants to be aggressive in merging newspapers. Potential candidates for such a merge have been pointed out, including MediaNews’s paper in St. Paul with the Star Tribune in Minneapolis, and adjacent papers in Southern California published by MediaNews, MediaNews Group Co., and MediaNews Group Inc. When asked what groups of newspapers may merge, Singleton simply said “you can look at the map.”

Because only MediaNews’s holding company is filing for bankruptcy protection, its newspapers should remain unaffected. The company remains current on vendor payments and should remain so, said Singleton. Also, the company’s trade creditors, suppliers and employees should be unaffected by the filing.

Tennessee Chapter 13 Debtors Lead Nation in Repayments to Creditors

Debt burdenThe Chattanooga Free Press reports that Chapter 13 debtors in Tennessee pay more back to creditors than much larger states like Texas, California or New York.   As of September 30, 2008, Tennesseans had paid back over $558 million in active Chapter 13 cases.  Texas Chapter 13 filers were second on the list, paying back $528 million, with Georgia third at $412 million.

Unlike most states, Tennessee debtors file a higher percentage of Chapter 13 cases.  Here, 56% of debtors in 2008 filed Chapter 13, whereas in other states the percentage is much lower.  In California, for example, Chapter 13 amounted to only 19% of cases filed – with 81% of California debtors filing Chapter 7.

Chapter 13, of course, is the repayment plan type of bankruptcy, whereas Chapter 7 permits debtors to wipe out debt.

What does this mean to you?  The trustees and judges in Tennessee bankruptcy courts prefer repayment plans as opposed to debt elimination.  These bankruptcy officials also will try to push you to pay back as much as they can get you to pay.

An experienced consumer bankruptcy lawyer working on your behalf will identify and pursue a form of debt relief that is most advantageous to you.   A good bankruptcy lawyer will serve as your advocate and fight for Chapter 7 relief where appropriate, or create a payment plan that is liveable for you.

Effect of President Obama’s New Mortgage Program on the Housing Market and Mortgage Market

foreclosureThe U.S Federal Reserve anticipates that in FY2009, the economy may shrink by a figure anywhere between 0.5% and 1.3%. It may be attributed to increase in unemployment, crisis in the housing market and credit crunch. Owing to the subprime mortgage crisis, incidence of foreclosure and bankruptcy have increased manifold. In fact, one of the reputed subprime lenders BNC Mortgage LLC, a subprime lending unit of Lehman Brothers had to close down.

The economic slowdown in United States and in the housing market specially has threatened many homeowners and many people have lost their homes already. To bring in some repose among the homeowners, President Barack Obama has unveiled his Mortgage foreclosure plan recently. [Read more...]

Clark and Washington Attorney Wins Confimation Hearing Over Trustee Objection

May a debtor include payments due secured creditors (house payment and car payment) for Chapter 13 means test calculation purposes if the debtor’s plan provides for the surrender of the collateral?  Attorney Mary Beth Ausbrooks, managing attorney of Clark and Washington’s Nashville office recently argued this issue before Judge Marian Harrison in Nashville (Middle District of Tennessee) bankruptcy court.

Opposing Mary Beth was the Nashville Chapter 13 trustee, Henry Hildebrand.  The trustee argued that if the debtor was planning on surrendering her house and her car, she could not deduct the monthly payments for these items when calculating the means test.  Without these deductions, the debtor would show over $1,000 more in “disposable income” which would result in a much higher Chapter 13 payment.

In a brief published decision, Judge Harrison sided with the debtor and Clark and Washington.  The judge focused on the language of Section 1325 of the Bankruptcy Code which looks to payments contractually due in the 60 months following the filing of the case.  The statute does not provide that surrendered items result in the disallowance of the deduction so the trustee cannot demand as much.   Click here to read Judge Harrison’s decision in the case of Brenda Sue Ray.

Tennessee Leads the Nation in Bankruptcy Filings Per Capita During the 1st Quarter of 2008

The National Bankruptcy Research Center, a data research company, reports that Tennessee holds the distinction of having the highest per capita number of bankruptcy filings in the country.  According to the NBRC, Tennesseans are filing bankruptcy at a rate that will result in an annual bankruptcy filing rate of one out of every 56 households.

The NBRC did not comment as to why Tennessee has so many bankruptcy filings, but we at Clark and Washington actually see a large number of filers and we tend to see the same situations again and again.

In our practice, we see a large number of filers who are there because of:

  • job loss
  • out of control credit card debt
  • medical issues (resulting in a so called “medical bankruptcy”)
  • divorce or family issues
  • pending foreclosures

We have also been seeing more and more clients who previously held high paying jobs and who were, until recently, financially stable.

6th Circuit Decides “Hanging Paragraph” Issue in Favor of Creditors

One of the most controversial topics arising from the BAPCPA changes ot the bankruptcy law has to do with the so-called "hanging paragraph" of Section 1325(a).  Stated simply, Section 1325(a) does not clearly address what happens in a Chapter 13 if a debtor surrenders a vehicle back to a secured creditor if the vehicle is worth less than the outstanding claim.

Example:  Tom has a 2005 Chevrolet worth $10,000.  GMAC holds a lien against that vehicle totaling $14,000.  Tom files Chapter 13 and provides in his plan that he elects to surrender the Chevrolet back to GMAC.  What happens to the $4,000 "deficiency?"

Some federal circuit courts of appeal have held that the surrender of the vehicle wipes out all liability.  Other appeals courts have ruled that upon surrender, any deficiency balance would become an unsecured claim payable in the Chapter 13.

The 6th Circuit Court of Appeals (its precedent governs cases filed in Tennessee) has issued a ruling on this matter in favor of creditors.  In the case of AmeriCredit Financial Services v. Long, the 6th Circuit Court of Appeals has ruled that deficiency claims arising from a debtor’s surrender of a vehcile in a Chapter 13 survives the surrender and must be paid pursuant to the Chapter 13 plan.

You can read a copy of the AmeriCredit v. Long decision by clicking on the link.  The decision is worth reading not only to understand the Court’s logic, but also to get a sense of the frustration that the appeals court has for the poorly worded provision of the law.  While the 6th Circuit holding provides that the vehicle surrender does not wipe out the deficiency, the appeals court does not hold back in expressing its displeasure in issuing its decision.

In language highly unusual to circuit court opinions, 6th Circuit Judge Merritt writes "due to a glitch or a gap in a recent revision to the Bankruptcy Code intended to benefit creditors, the law is now  silent on what happens to the remaining indebtedness in the surrender-of-the-car situation.  The bankruptcy court below held that the congressional mistake in drafting the revision means that the remaining indebtedness is completely wiped out.  We believe the gap should be filled and the Congressional mistake corrected. The law previously governing this situation should be restored until Congress can correct its mistake and fill in the gap."

Now, back to our example.  For the time begin at least, if Tom surrenders his car in his Chapter 13, GMAC can file an unsecured claim in Tom’s case for $4,000.  If Tom’s plan provides for a 100% payout to unsecured creditors, his plan will cost him around $80 more per month.   Let’s hope that Congress will see fit to fix this problem and end the situation where a lender gets a vehicle back to resell and hundreds or thousands of dollars in windfall profit earned on the backs of struggling debtors.

As Foreclosure Rates Rise, Beware of Foreclosure Scams

With foreclosure numbers in Tennessee cities on the rise, it should come as no surprise that desperate homeowners are being targeted by scammers.  Usually the scammers pitch promises to stop a pending foreclosure using a "secret provision in the law" or an alleged special relationship with mortgage lenders.

In almost every case, the scammer asks for several hundred or several thousand dollars, then he prepares a two page Chapter 13 "emergency petition" in the homeowner’s name and files the petition in the local bankruptcy court.  The scammer does not put his own name on the petition – instead he signs the homeowner’s name as if the homeowner filed the case.

Often the emergency filing will stop the foreclosure, although only temporarily.  Under the bankruptcy law, a Chapter 13 plan and schedules must be filed within 15 days of the "emergency" filing.  Since the homeowner did not intend to file bankruptcy in the first place, many of these cases are dismissed by the clerk’s office when no plan and schedules are filed.

Further, many of the emergency petitions are filed without proper documentation – no credit counseling certificate and no pay advices.

At best, the bewildered homeowner will realize what is going on and will retain counsel to either proceed with the Chapter 13 or to file a dismissal in court.  More often than not, however, the homeowner will be afraid to take any action out of concern that the homeowner himself did something wrong.   The wrongfully filed case will wind its way through the bankruptcy system until it is eventually dismissed and the homeowner will be left facing foreclosure again, but with less of a bankruptcy option because of the previous filing.

Recently a federal judge in Kansas denied bond to a foreclosure scammer named Issac Yass, who owned a company called Stopco that allegedly perpetrateda slightly different type of bankruptcy fraud in several States, including Tennessee.  Investigators say that Yass operated by filing Chapter 13 petitions on behalf of fictitious persons who claimed to have a fractional interest in the properties in foreclosure.  He then charged homeowners a monthly fee.  Yass’ case is unique in that the alleged fraud was perpetrated on a grand scale – investigators contend that since 2006, Yass stopped foreclosures on over $50 million worth of properties.

At Clark and Washington, we have seen many cases of many kinds of foreclosure scams.   Sometimes we can help pick up the pieces, and sometimes there is little or nothing we can do.  If you are facing a foreclosure in Tennessee, we strongly recommend that you seek competant legal advice from a lawyer who is a member of the Tennessee bar.  If a non-attorney foreclosure prevention company solicits your business, run the other way.