San Francisco Bankruptcy Lawyer Blog

When determining whether to file bankruptcy, it helps to have background on bankruptcy terms:

AUTOMATIC STAY: injunction that automatically stops lawsuits, foreclosure, garnishments, and collection activity against the debtor the moment a bankruptcy petition is filed.

BANKRUPTCY: legal procedure for dealing with debt.

BANKRUPTCY CODE: Title 11 of the United States Code (11 U.S.C. §§ 101- 1330), the federal bankruptcy law.

BANKRUPTCY ESTATE: legal or equitable interests of the debtor in property at the time of the bankruptcy filing. The estate includes all property in which the debtor ownership even when property is used by another.

BANKRUPTCY JUDGE: judicial officer who is the court official with decision-making power over federal bankruptcy cases.

BANKRUPTCY PETITION: formal request for the protection of federal bankruptcy laws.

BANKRUPTCY TRUSTEE: private individual or corporation appointed in Chapter 7, Chapter 12, and Chapter 13 cases to represent the interests of the bankruptcy estate and the debtor's creditors.

CHAPTER 12: bankruptcy designed for family farmers or family fishermen with regular annual income to propose and carry out a plan to repay debts.

CHAPTER 7: chapter of the Bankruptcy Code providing for "liquidation," i.e., the sale of a debtor's nonexempt property and the distribution of the proceeds to creditors.

CHAPTER 11: reorganization bankruptcy, usually involving a corporation or partnership. A Chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time.

CHAPTER 13: chapter of the Bankruptcy Code providing for adjustment of debts of an individual with regular income. Chapter 13 allows a debtor to keep property and pay debts in 3-5 years.

REAFFIRMATION AGREEMENT: agreement by Chapter 7 debtor to continue paying a dischargeable debt after the bankruptcy, usually for the purpose of keeping collateral or mortgaged property subject to repossession.

Continue reading "Glossary of Bankruptcy Terms - San Francisco" »

There are two US Bankruptcy judges in San Francisco. The US Bankruptcy court in San Francisco is located at 235 Pine Street, San Francisco, CA, in the heart of the financial district. The judges' names are Judge Dennis Montali and Judge Thomas Carlson.

According to his bio on the US Bankruptcy Court, Northern District of California web site, Judge Carlson graduated from Beloit College, B.A. in 1969, and then went on to Brandeis University, for graduate studies in American History from 1970-71. He graduated from Harvard Law School, J.D. in 1975 and received a LLM in Tax from N.Y.U. Law School, LL.M. in 1985. Judge Carlson is well respected by attorneys for seeing things in cases that sometimes the parties do not catch. He appears to want the best interests of all parties served, even continuing status conferences sometimes to give parties another chance to review their issues to make sure they are making the right decisions. In one recent status conference in June 2010, he asked the debtor to review again to see if dismissal of his Chapter 11 case rather than converting to Chapter 7 was really in his best interest, considering he had unsecured debt that could be discharged in a Chapter 7.

According to his bio on the US Bankruptcy Court, Northern District of California web site, Judge Montali received a Bachelor of Arts, University of Notre Dame in June 1961, and a Juris Doctor, University of California, Berkeley in June 1968. He was appointed United States Bankruptcy Judge Northern District of California, San Francisco Division in April 23, 1993, and reappointed in April 23, 2007.

A bankruptcy judge is not the same as a state court judge. The bankruptcy code is federal law and the US Bankruptcy Court has exclusive jurisdiction in all bankruptcy cases. A person cannot file bankruptcy in a state court. Bankruptcy judges are federal judges. The bankruptcy court is a court of specific jurisdiction, meaning that a person cannot file any other claim in bankruptcy court except for matters related to bankruptcy. If there is a related civil action, like a contract dispute, the person must file the action in a state court.

A debtor might need to appear in bankruptcy court for status conferences or motions when there are decisions to make on keeping personal property that the person does not own outright, disputing reliefs from automatic stays, or asking to re-assume liability for a certain debt.

Continue reading "US Bankruptcy Judges in San Francisco" »

When observing a US Bankruptcy Court status conference in San Francisco, there is often an appearance made by the US Trustee and the Panel Trustee. These individuals have different roles in a bankruptcy case.

The US Trustee works for the Department of Justice responsible for overseeing the administration of bankruptcy cases and private Panel Trustees, and ensuring compliance with the Bankruptcy Code. The US Trustee ensures that the public interest is being served by the proper administration of all bankruptcy cases. The US Trustee appoints the Panel Trustees that filers meet about five weeks after filing at 341 creditors' hearings.

If the Panel trustee notices fraud or the ability for a debtor to pay a fraction of debts over a 60 month period then it's reported to the US Trustee where they will litigate and attempt to dismiss the debtor. US Trustee administration ensures debtors are paying their fees and submitting all required schedules. The US Trustee gets its fees in certain bankruptcy cases like Chapter 11 cases by calculating a percentage from the operating reports that debtors turn in each quarter. Operating reports are also important for keeping parties informed on the cash flow for secured creditors. The rents generated by properties securing debt are also security for secured creditors.
Payments made each quarter to US Trustee are based on cash flow in operating reports. Reports are filed under penalty of perjury.

The Panel Trustee works for creditors even though paid by the debtor. When a debtor files bankruptcy without a Panel Trustee appointed, the debtor is said to be a debtor-in-possession. The debtor no longer a debtor-in-possession after a Panel Trustee is appointed. The Panel Trustee might engage attorneys and accountants to find out how the funds in the estate were used, but usually would try to preserve estate assets by not conducting investigations that are not beneficial to creditors. For instance, forensic accounting, because of the expense amounting to as much as $50,000, is saved for situations where there are fraud or preference payments.

Continue reading "Panel Trustee and US Trustee at San Francisco Bankruptcy Status Conferences" »

For someone interested in learning about bankruptcy laws, the hearings in San Francisco in front of Judge Thomas Carlson might be more instructive than reading a book. Anyone can go to the 23rd Floor at 9:30 am and sit in the audience to listen in on the bankruptcy hearings. For example, on June 28, 2010, there was an interesting case about a debtor deciding whether to convert to Chapter 7 or dismiss the case.

In a dismissal, the debtor goes back to where he was as if he never filed for bankruptcy. Once the case is dismissed, the debtor no long has the protection of the automatic stay, allowing the creditors can go after him again for all the amounts owing. There is no discharge of any debts. The debtor continues to owe all debt as if never filed bankruptcy.

If a debtor converts to Chapter 7, he will have the advantage of a discharge as long as no one objects. A discharge is a federal court order that all creditors can no longer go after the debtor. The Panel Trustee sells off the assets in the estate and uses the proceeds to pay off as much of the debt as possible. If the bankruptcy estate does not have any assets to pay off the debts, the debts that cannot be paid are discharged. There is a priority to the payment of the debts. The Panel Trustee, and his attorneys and accountants, for example, get paid first. Unsecured debts like loans from family members get paid off last.

Besides discharge, another advantage of Chapter 7 over dismissal is that the debtor does not need to contribute any funds into the payment of debts. For instance, if the Panel Trustee's fees exceeded the assets available in the bankruptcy estate, the Panel Trustee is stuck with whatever amount he is able to get from the sale of assets. In a discharge, the Panel Trustee would be entitled to his full fees.

If the Panel Trustee does not want to use property for the payment of the debts like when the Panel Trustee might incur liabilities in managing property or the property is secured with loans that are over the value of the funds generated from the property, the Panel Trustee might abandon the property. When property is abandoned, it goes back to the debtor. If it was real property, the debtor can allow foreclosure if he does not want it anymore, or if he wants to save the property, he can cure amounts owed, pay off amounts due and payable, and then maintain payments.

If the debtor does not want the Panel Trustee to sell off a specific asset such as cars he wants to keep, he can buy back the property. For example, with cars, he can pay the Panel Trustee the Kelly Blue Book value.

Continue reading "US Bankruptcy Court Hearings in San Francisco" »

When a debtor goes to a creditors meeting or has exchanges with a bankruptcy trustee, the debtor should understand that the trustee's job is not all that easy or glamorous. To become a trustee, the person must have his personal finances in check also. The trustee's role is like opening a small business, where he is not a federal employee, but an appointed fiduciary.

The trustee keeps a relationship with a bank, which might assist in providing a computer and software, but the trustee must have a dedicated telephone line, post office box, office supplies, and a bond premium to take on the trustee position. At first the trustee gets about 40-60 cases/month, and must be able to survive without seeing any payments for work in the first six months. Not all of these cases pay the trustee any money because sometimes a debtor gets his bankruptcy case fee waived. In the San Francisco Bay Area, usually when the trustee does get paid, for non-asset cases, he gets around $60/case, and for asset cases, less than 8% of the funds he liquidates and distributes to creditors. Asset cases rarely get closed within a year so the trustee does not get paid until the case closes. It does not matter how hard the trustee works, if there are no assets to recover, the trustee cannot expect more than $60.

The trustee must pass a FBI security background check, focusing on criminal history, taxes, student loans. Once a trustee sets up office, he gets audited by the Office of Inspector General. Each trustee is appointed for 1 year, which is renewable.

The trustee role is not fit for the person who has a full time job or responsibilities that do not allow the flexibility to make his own hours to take care of case matters. The trustee must be available to track down assets, valuate assets like cars, real property, businesses. A business background is helpful when deciding whether to operate a debtor's business and to identify records on profitability. The trustee must be intuitive in spotting discrepancies, suspicious circumstances, and questionable explanations. For example, a debtor who lists no car, but car insurance should be questioned.

The trustee presents matters to the bankruptcy judge in cases, and must review the petitions to see if there is a need to shut down businesses, secure assets. The trustee may need to visit property on site to evaluate them. Sometimes assets are cases that need to be litigated. A part-time trustee takes on 30-40 cases each month, and a full time trustee takes on about 100 each month.

Understanding the bankruptcy process may not always be easy. Rinne Legal provides counseling to individuals, families and small businesses in financial difficulties. Call for a no charge initial consultation.

When a business has dealings with a party that is in bankruptcy, it should be aware of executory contracts. It's a contract between a debtor and another party under which both sides have material performance remaining. If either side stopped performing, the non-performance would be a breach.

Real property and equipment leases are examples of executory contracts. In these agreements, the lessor has a duty to provide future possession of the property and the lessee has a duty to make the payments.

Executory contracts matter in bankruptcy because the debtor or a bankruptcy trustee decides whether to agree to perform or refuse to perform its obligations under an executory contract. The entire contract must be assumed or rejected. The debtor or trustee may not assume part of the contract and reject or modify the rest. In a Chapter 7 liquidation case, executory contracts must be assumed or rejected within 60 days of the filing of the bankruptcy petition. In Chapter 13 executory contracts must be assumed or rejected before confirmation of a plan unless the court provides another date.

Agreeing to perform translates to assumption of the contract and refusing to perform translates to rejection of the contract. Rejection is automatic if the contract is not assumed within a proscribed time. Rejection of an executory contract is treated as a pre-petition breach of the contract, with damages treated as an unsecured claim.

If a debtor assumes the executory contract, it has to cure any defaults, and show that it can actually perform in the future. Assumption requires court approval. If a debtor assumes and assigns the executory contract to someone else, commonly a buyer of its assets, at a minimum the debtor has to cure any defaults and the buyer has to show that it can actually perform under the contract in the future. An executory contract may generally be assigned even when it has an anti-assignment clause in the contract. This means that a debtor may assign its agreement to a third party to take over the performance even when the non-debtor party negotiated a requirement that its consent must be obtained prior to assignment.

A recent story that originated with the Detroit News, but has run in newspapers around the country, highlights the fact that bankruptcy can cut the financial legs out from under anyone - even people who might seem to have no financial problems. As the Salt Lake Tribune reports, Luther Elliss was a college football star, first-round NFL draft pick and earned over $11 million in five seasons with the Detroit Lions. Today, he is bankrupt and "relying on area churches and friends to pay bills, his savings depleted."

According to the paper, Elliss notes that when he was in professional football players were required to attend seminars on financial planning. During those sessions, he says, players were given "statistics on how many of us would be broke. Guys were saying 'That's not going to be me. I'm too smart for that.' And, here I am, one of those guys."

Elliss and his wife filed for chapter 7 bankruptcy last summer after losing one of their homes to foreclosure. At that time they listed liabilities that were about three times their reported $1.38 million in assets.

As Elliss told the media, "I made bad choices." That, of course, is a situation that is hardly confined to well-paid professional athletes. It highlights the importance for Bay Area families and business of consulting with a San Francisco bankruptcy attorney as soon as they sense financial trouble brewing, and not when the situation has gone too far to be fixed outside of the courts.

A full-service Bay Area foreclosure and loan modification lawyer can help clients avoid liquidation, and a California chapter 7 bankruptcy; as well as representing you in court should a California bankruptcy filing become unavoidable.

Wall Street Journal: Ex-football star facing bankruptcy, foreclosure

Salt Lake Tribune: Riches to rags: former Ute, NFL star Luther Elliss no longer can pay his bills

The left-leaning Air America radio network abruptly announced yesterday that it is ceasing operations and intends to file for Chapter 7 bankruptcy. Live programming came to an end at 3pm Pacific Time. The network said in a statement that it will air older, pre-recorded, programs over the weekend before going silent permanently on Monday evening.

In a letter to employees the network's chairman, Charlie Kirker, cited economic difficulties in the radio industry where, he noted, ad revenues have been "down for 10 consecutive quarters, and (were) reportedly off 21% in 2009." In San Francisco and the Bay Area Air America's programming aired on AM station KKGN.

Chapter 7 bankruptcy filings are especially serious as they are intended to liquidate, rather than reorganize, troubled companies. A San Francisco Chapter 7 bankruptcy attorney can be a crucial guide through this often stressful process. Liquidation may sound simple, but it is, in fact, often very complex. The advice of a qualified and experienced Alameda County or Contra Costa County bankruptcy and liquidation law firm can be an essential as you seek to navigate the legal system without making a failing company's problems worse than they already are.

Air America, a company that boasted a number of wealthy and prominent liberal backers (former Vice President Al Gore was involved in the network's 2004 launch), but which consistently struggled to find a niche in a crowded marketplace. Its demise is a reminder that any idea can fail to gel, despite deep-pocketed investors and good intentions.

Talking Points Memo: Air America filing for bankruptcy, ceasing live broadcasts

Politico: Air America Declaring Bankruptcy

Air America Press Release

Far from the Bay Area, let us pause this New Year's Eve to note the Chapter 7 Bankruptcy of New York's famed Tavern on the Green. The Central Park West landmark is scheduled to serve patrons for the last time tonight. Its famously glitzy décor goes on the auction block in two weeks as the owners struggle through bankruptcy proceedings and seek funds to pay off their debts. The restaurant is reported to have hundreds of creditors.

The tale of Tavern's Chapter 7 bankruptcy also is a reminder of how complex and acrimonious liquidation can be. According to a recent article in the Wall Street Journal, Tavern's "closing has touched off a flurry of litigation." Among other things, members of the family that owns the restaurant are reportedly suing each other. The family is also locked in a dispute with New York City over ownership of the restaurant's name (which, the Journal reports, has been appraised at $19 million).

It is all a very fast and hard come-down for a property that as recently as last year was the second-highest grossing independent restaurant in the country (though, as a number of media observers have noted in recent months, with the Tavern's famous glitz came extremely high overheads).

The restaurant business, of course, is notorious for both low margins and a fickle clientele. San Francisco, with its many restaurant bankruptcies, is no exception to this rule. The Tavern's woes are, however, a reminder of the importance of having an experienced Bay Area Chapter 7 Bankruptcy law firm behind you when tackling the often messy process of liquidating a business. The number of creditors, lawsuits and counter-suits associated with Tavern's closing may be a bit extreme, but the idea that bankruptcies can generate litigation and bad feeling is not. Enlisting the services of an experienced California bankruptcy attorney early in the process is a good first step toward keeping things orderly and ensuring that these difficult situations unfold smoothly.

Wall Street Journal: Lights go out at famed New York eatery

Reuters: NY's Tavern on the Green to sell art, chandeliers

Local media reports indicate that San Francisco's landmark Four Seasons hotel may be close to filing for California Chapter 7 bankruptcy. According to an article in the San Francisco Business Times, a debt service company has rejected a request by the hotel's owners, Millennium Partners, to renegotiate a $90 million loan against the 277-room property.

Chapter 7 is the portion of the United States bankruptcy code that covers the liquidation of assets, with the bulk of the proceeds being used to pay off a bankrupt firm's creditors. It differs substantially from the better-known Chapter 11 bankruptcy, under which businesses often seek to reorganize with the goal of keeping their doors open.

The hotel's owners withheld payment on the $90 million loan in June in a bid to put pressure on their lender, LNR Property Corporation. After LNR rejected a renegotiation proposal put forward by Millennium it moved to begin California foreclosure proceedings on the property, the newspaper reported citing the credit-rating agency RealPoint.

San Francisco Chapter 7 Bankruptcies can be complex and are often difficult to manage. The assistance of an experienced California Chapter 7 bankruptcy attorney is crucial if you and your company hope to navigate your way through the process successfully. Early consultation with a Bay Area bankruptcy lawyer is a key first step.

San Francisco Business Times: Four Seasons Close to Foreclosure

Resource:
US Court System Official Website - Information page on Chapter 7 Bankruptcy

Not the nicest news to receive on Thanksgiving Weekend, perhaps, but new data released this week indicates that bankruptcies nationwide spiked 33 percent in the third quarter of this year. California bankruptcies remain a significant part of the problem, as the state remains one of the nation's leaders in this area, an unhappy reality for anyone facing a Bay Area foreclosure.

According to media reports, the American Bankruptcy Institute released data yesterday indicating that 388,485 there were bankruptcy filings between July 1 and September 30, up from 292,291 in the same period last year. "The spike in bankruptcy filings for both consumers and businesses reflect the continuing effects of today's weak economy," said ABI executive director Samuel Gerdano, according to CNN.

According to an analysis by the Reuter News Agency, approximately 71 percent of the third-quarter filings were made under Chapter 7 of the US bankruptcy code and 28 percent under chapter 13. Most of the remainder of the filings used chapter 11. Nevada led the nation in filings per capita with California ranked 13th.

In troubled and unsettled times such as these it is more important than ever to develop a relationship with a full-service Oakland, Walnut Creek and San Francisco bankruptcy law firm. Early consultation with a Bay Area bankruptcy attorney can help avoid worse problems in the future. If the attorney can help arrange a California loan modification it may be possible to avoid bankruptcy entirely.

Reuters: U.S. bankruptcies rise 33 percent in third quarter

CNNMoney: Bankruptcies spike 33%

A report in USA Today details a new study focusing on the middle class and the bankruptcy crisis. As I have noted in earlier blogs, California chapter 7 bankruptcies have been among the worst in the country. The article, and the study data it cites, leave the impression that across the country this trend is getting worse.

The focus of the article is a study by Elizabeth Warren of Harvard Law School and Deborah Thorne of Ohio University (since the research was done Warren has left Harvard to run the congressional panel that oversees the administration of the TARP bailout funds), which the authors intend to publish as a book next year. It notes that there were well over a million Chapter 7 bankruptcy filings by individuals in both 2007 and 2008, and that this year the number looks certain to pass 1.5 million.

These numbers are huge, and growing, despite changes to the bankruptcy laws enacted in 2005 that made declaring California chapter 7 bankruptcy harder. Significantly, the study shows that more and more well-educated, middle class people are finding themselves in financial difficulties. According to USA Today the proportion of bankruptcy filers who have a college education rose from 46.5% in 1991 to 58.9% in 2007.

In situations like this the services of an experienced Bay Area chapter 7 bankruptcy lawyer are more critical than ever. A full-service Northern California bankruptcy and loan modification attorney can advise on whether this significant step is the correct one for you, ensuring that paperwork is handled quickly and correctly to give you the best chance of holding onto your home.

USA Today: More members of middle class file for bankruptcy

A follow-up to my Bay Area Chapter 11 bankruptcy post earlier this week about the pre-packaged Chapter 11 bankruptcy of CIT, a huge, century-old commercial lender: The Sacramento Bee reports that CIT's Chapter 11 bankruptcy may have an impact in Northern California. The paper reports that CIT has two offices in the Sacramento area, where it "is a leading lender to the retail sector and to women- minority- and veteran-owned small businesses."

It is exactly this 'ripple effect' that can make a bankruptcy filing by a large company like CIT so problematic. Even if CIT does manage to keep its day-to-day operations running normally, the effect on small businesses in the region could be significant, forcing some companies to consider their own California bankruptcy moves. The assistance of a Bay Area bankruptcy lawyer who knows that every situation is unique and requires personal attention is crucial for any company that may fear the emergence of this sort of situation.

CIT is the nation's largest "factor" - a specialized type of lender focusing on the retail sector. Factors lend retailers the cash they need to manage their inventories. A spokesman for the National Retail Federation told Bloomberg News that many businesses "dodged a bullet" in the case of CIT, noting that the company's Chapter 11 bankruptcy filing came late enough in the year that most retailers already have their holiday merchandise in stock.

CIT arranged what is known as a "pre-packaged" bankruptcy, in which a company presents the court with a full reorganization plan at the same time that it files for bankruptcy. These are not the most common types of bankruptcy filings, but may be worth considering for some businesses. An experienced San Francisco bankruptcy lawyer can offer more insight on when a "pre-packaged" bankruptcy may be appropriate. CIT says its business operations will continue uninterrupted, but the Bee expressed some doubts, calling the situation for smaller Northern California retailers "worrisome" in the wake of the CIT filing.

There are a number of reasons why a Bay Area company may consider Chapter 11 bankruptcy, which allows for corporate reorganization. Extreme cases may require exploring liquidation as part of a Northern California Chapter 7 bankruptcy filing. A Northern California bankruptcy lawyer is your best source of information and advice concerning the different chapters of the bankruptcy code.

Sacramento Bee: CIT filing may tighten credit for Sacramento-area small firms

Bloomberg: Retailers 'dodge bullet' with CIT's November filing

A loan and foreclosure company in Paso Robles has been forced into California chapter 7 bankruptcy. The San Luis Obispo Tribune quoted a letter from company president Candy Wells which explained that Heritage Lending and the associated HL Foreclosure Services felt they had no choice but to declare California Chapter 7 bankruptcy and liquidate after an unsuccessful business deal led to a lawsuit charging breach of contract, fraud and negligence.

The newspaper quoted Wells saying the company's lawyers believed Heritage could win the case in court, but the company felt it lacked the resources for a trial. Heritage, founded in 1999, was what is known as a 'hard money lender' - a company specializing in pooling investors' money and lending it out at high interest rates to clients having trouble finding financing elsewhere. Many of Heritage's clients were reportedly real estate developers, leaving the company particularly exposed to the possibility of California bankruptcy when the current housing crisis took hold.

California chapter 7 bankruptcy is a complex legal procedure leading to the liquidation of a company. An experienced California Chapter 7 bankruptcy attorney is essential as a guide through the process, particularly the tricky question of what property or assets are "exempt", and therefore not subject to liquidation.

Before deciding on a Chapter 7 bankruptcy consulting with a California bankruptcy lawyer is essential. A skilled California bankruptcy attorney can help determine if this dramatic step best fits your circumstances, or whether other avenues may still be open to you and your company.

San Luis Obispo Tribune: Paso Lender Falls into Bankruptcy

US Federal Court System Website: Chapter 7 Bankruptcy

New data released this week by Equifax shows that Northern California remains particularly vulnerable to small business bankruptcies. Three Northern California areas made the top 15 among the country's hardest hit small business bankruptcy regions during September: Sacramento, Oakland-Fremont-Hayward and the San Jose-Sunnyvale area of Silicon Valley.

Overall, California cities or regions occupy seven of those top 15 slots, spotlighting the degree to which California small business bankruptcy remains a difficult problem. Sacramento small business bankruptcy activity earned the state capital the number three spot on the list. Oakland was 10th and San Jose-Sunnyvale 14th.

A press release from Atlanta-based Equifax, which compiled the data, noted that, nationwide, the September 2009 numbers represent a 27% increase in small business bankruptcy filings from the same month a year ago: 9361 filings, versus 7386 in September 2008. Equifax analyzed Chapter 7 bankruptcy filings, Chapter 13 bankruptcy filings and Chapter 11 bankruptcy filings.

These unpleasant economic numbers are a reminder of the important role a Northern California bankruptcy attorney should have in your financial planning. Consulting an experienced Oakland bankruptcy lawyer, Contra Costa County bankruptcy lawyer or San Francisco bankruptcy lawyer is a key step not only in initiating the bankruptcy process, but in managing it with the goal of making the process run as smoothly as possible.

Equifax Press Release