Category Archives: Bankruptcy Attorney Kansas City

The “New Value Exception” To The Absolute Priority Rule In Chapter 11 In Kansas City

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How does the absolute priority rule of Chapter 11 play in the confirmation process?  Are there any exceptions to it?  Can the owners of a company retain their equity interests in a Chapter 11 plan?  The Tenth Circuit (Kansas) adheres to the doctrine that the absolute priority rule of Chapter 11 applies in individual cases.

The absolute priority rule comes into play during the Chapter 11 plan confirmation process.  Under Bankruptcy Code § 1129(b)(1), a creditor’s plan objection will be upheld if the plan: (1) discriminates unfairly; or (2) is not fair and equitable with respect to each non-accepting class of claims or interests that is impaired under the plan.  In this context, “impaired” means that the plan alters the rights of a class of creditors compared to the contractual rights prior to bankruptcy.

For a dissenting class of impaired unsecured creditors, a plan is “fair and equitable” only if the allowed value of the claim is to be paid in full, or if the holder of any claim or interest that is junior to the dissenting creditors will not receive or retain any property under the plan on account of such junior claim or interest.  See 11 U.S.C. § 1129(b)(2)(B)(ii).  This condition is generally referred to as the absolute priority rule.

The new value exception solves the problems created by the absolute priority rule.  The new value doctrine opens the door for plan proponents to overcome the absolute priority rule by requiring equity holders to make a substantial and essential contribution in exchange for their continued ownership of the debtor.  To be substantial, most courts require that the contribution (i.e., new value) be: (1) a present contribution; (2) freely tradable in the market; and (3) money or money’s worth.  To be essential, the case law generally mandates that this new contribution be directly related to the success of the reorganization plan.

The absolute priority rule was originally a judicially created concept; that is, it was created by case law.  In practice, it provides a much needed way to resolve the problems created by the artificially strict barriers created by the absolute priority rule.  Anyone considering filing a Chapter 11 bankruptcy case, or any type of bankruptcy case in general, should contact Phillips & Thomas LLC for a free consultation of their options.  

Read More:  Voluntary And Involuntary Chapter 7 And Chapter 11 Bankruptcies In Kansas City

 

Don’t Obsess About Credit Scores In Kansas City

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One of the things that people get worked up about sometimes is the idea of the “credit report” score.  I think part of this stems from media propaganda that there is some magic scorecard of everyone’s life out there in cyberspace.  In practice, this just isn’t true.  The reality is that people filing for bankruptcy need to do it because they need to fix major financial issues.  The last thing people should be worrying about is a credit score.

Filing a bankruptcy case actually wipes the slate clean, and gives you a fresh start.  It doesn’t put you in the “doghouse” or put you in any worse situation than what you currently have now.  So, it is important to keep the big picture in mind.  The big picture, and the goal, is to get out of the debt problems.  Our clients are able to get loans during a bankruptcy, and after a bankruptcy.

Taking action to solve a problem is always better than doing nothing.  Taking action will make you feel better, empower you, and help you back on the right track.  Doing nothing, and waiting for phone calls, garnishments, and liens to hit is not the right way to go.  Give us a call and we can give you our thoughts on your situation.

Read More:  Voluntary And Involuntary Chapter 7 And Chapter 11 Bankruptcies In Kansas City

Representing Yourself In A Bankruptcy Case Or Criminal Case Is Always A Bad Idea In Kansas City

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Overland Park Bankruptcy Attorney

The Kansas City Star today had an article about the perils of self-representation.  The article can be found here:

http://www.kansascity.com/2013/09/25/4506213/take-a-hint-dont-represent-yourself.html

I thought this would be a good time to offer my thoughts on this.  Whether you are dealing with a civil, bankruptcy, or criminal case, representing yourself is never a good idea.  From working in the courts and in the legal profession for 15 years, I can tell you with certainty that this should never be done.  Why?  Let me count the ways.

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Individual Chapter 11 Cases And Business Bankruptcy In Kansas City

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Overland Park Business Bankruptcy Attorney

One of the trends we’ve been noticing in the past year or two is the increasing use of the “individual” Chapter 11 case.  Chapter 11 bankruptcies can be filed by businesses or individuals.  Usually an individual Chapter 11 case comes about when a person either has too much debt to do a Chapter 13 case, or has some other specific reason to be in a Chapter 11.

We’re seeing more professionals (dentists, doctors, lawyers, accounts, architects, etc) file Chapter 11 cases.  Why?  Because you can do things in Chapter 11s that you can’t do in any other chapter.  You are basically your own trustee.  You have a lot of flexibility in proposing a reorganization plan.  You can do “cram downs” on things like real estate or vehicles or business equipment that you can’t do in any other type of bankruptcy.  So, it’s a very powerful tool to have.

People with real estate portfolios are also finding that Chapter 11 is a great way to get the mortgage creditors to accept a restructuring of the mortgages, so that you are only paying what the house is worth, not what you owe.  No other type of bankruptcy can do that.  We have handled real estate Chapter 11 cases (both personal and business cases) and are experienced in the issues that come up in such cases.  Most consumer bankruptcy attorneys are not experienced in Chapter 11 cases, so it is important to have counsel who will know the nuances of this area of the law.

Upon the filing of the Chapter 11 bankruptcy petition, the debtor, be it a business or an individual, becomes a debtor and debtor-in-possession. The debtor-in-possession has the majority of the rights and responsibilities of a bankruptcy trustee. The debtor-in-possession can file actions with the bankruptcy court to avoid transfers of money to creditors, obtain loans for the debtor, and accept or reject contracts.  Although nearly all of the debtors who file Chapter 11 cases are actually unable to pay their debts as they become due, there is no requirement that debtors be in any particular financial condition in order to file.  That is, a person or corporation does not have to be insolvent in order to file a case.  A debtor can file a case even if the debtor is solvent.  A debtor can file a Chapter 11 case even if the value of the debtor’s assets exceeds the amount of the debtor’s liabilities and even though none of the debtor’s obligations are currently in default.

Chapter 11 cases are complicated.  If you are thinking about reorganizing your real estate portfolio, are a professional in need of some financial help, or just want to get information, please contact us.  We can help.

Read More:  Utility Service And Bankruptcy

Advantages In Treating Taxes And Student Loans In Chapter 13 Or Chapter 11 Bankruptcy

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There can be tremendous advantages with paying back unpaid taxes or student loans in a Chapter 13 or Chapter 11 case.  In fact, bankruptcy is one of the most underappreciated tools of taking care of tax or student loan issues.  The big benefit comes in the fact that tax creditors (IRS, state government, or municipal government) have to file a proof of claim in a case.  Taxes are broken down into priority and nonpriority portions, and very often the nonpriority portions of the tax debts receive nothing.  This can save a debtor thousands.  We have seen cases where a debtor has over $50000 in tax debt and pays back only a tiny fraction of that.

Regarding student loans, it is often not understood that reorganization plans can be proposed and confirmed that allow for the loans to be paid at either 0% interest, or receive all of the “pot” that would normally go to other unsecured creditors.  Every case is different, and you really need to consult with us to find out how these rules and options apply to you. But the bottom line is that you need to consider the bankruptcy option.  It gives you a lot more power and flexibility than you think.

Read More:  Selling Bankruptcy Estate Property

Bankruptcy Attorney On The Radio In Kansas City

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George J. Thomas was a guest today on Carter Broadcasting’s KPRT 103.3 FM at 12:15 pm., with host Ms. Jeannie Henry.  Mr. Thomas has been a long time guest of the midday radio show at KPRT 1590 AM (103.3 FM), to talk about bankruptcy and debt issues.

This blog contains articles with detailed information about bankruptcy law and the actual process of how a case works.  Be sure to follow us on Twitter, and you will receive updates on when he will appear in the future.

Read More:  The Meeting Of Creditors In A Bankruptcy Case In Kansas City

In A Chapter 11 Case In Kansas City, What Is Affected By The Automatic Stay?

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Overland Park Business Bankruptcy Attorney

The “automatic stay” is one of the basic protections provided to debtors in a Chapter 11 business or personal case.  It gives the debtor a much-needed breathing spell from creditors by pretty much stopping all collection activity, litigation, or contact from creditors of any kind.

In a Chapter 11 case (personal or business) filed in the Kansas City area (in either state), an automatic stay will immediately come into effect and will do the following:  (1) stop the initiation or continuation of any legal, administrative, or other proceeding against the debtor that arose before the commencement of the case; (2) stop the enforcement of any judgment obtained before the commencement of the case; (3) stop any act to obtain possession or control of property of the estate; (4) stop any attempt to perfect or create any lien against property of the estate, even postpetition liens; (5) stop the setoff of any debt against the debtor.  The automatic stay applies to all creditors, even the IRS.

The filing of a Chapter 11 bankruptcy case can be a very powerful tool to assist in a reorganization.  It has articles and provisions that other chapters of the Bankruptcy Code do not have.  If you have questions about Chapter 11 cases, please give us a call.

Read More:  Involuntary Bankruptcy Cases

Are Co-Signers For Debts Liable In A Bankruptcy Filing In Kansas City?

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What is the definition of a “co-signer” of a debt?  This is a situation created when there is more than one person (or entity) who has signed for the debt or is otherwise liable on it.  It comes up in many situations.  For example, I had a gentleman call me the other day to discuss a situation he had in co-signing for a family member’s student loans and credit card debts.  This situation can also arise in owners of businesses, when both the business (the “entity”) and the individual owner signs for the debt.  In the metro Kansas City area, there are a huge number of different types of businesses, each with its own specific traits.

Of course, it’s in the creditor’s best interest to have as many people or business entities liable for a debt as possible.  When one co-signer files a bankruptcy case, and the other co-signer does not, the co-signer who has not filed for the bankruptcy will still be liable for the debt.  This is true regardless whether the non-filing co-signer is a business or an individual.  So, think very carefully before ever co-signing on a debt.  We understand that in many cases it is unavoidable, but you should be aware that agreeing to co-sign for another’s debt means that you are agreeing to be liable for the debt.

This type of situation can get complicated when there are both individuals and business entities (LLCs, S corporations, PAs, etc) who are responsible for a debt.  It can be very important to select the proper type of bankruptcy to file, in order to maximize your legal protections and benefits.  Please give us a call if you have any questions about this subject.  We’re more than happy to share our combined years of experience in representing businesses and individuals in these situations.

Read More:  Debts From Ponzi Schemes

Garnishments in Missouri And Kansas City

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Overland Park Bankruptcy Attorney

How does a wage garnishment come about in Missouri or Kansas?  The process begins with the filing of a collection suit against a debtor.  You will get served papers, which puts you on notice of the civil action against you.  If you don’t respond within the required time frame, you will get a default judgment against you.  Even if you do respond, usually people owe the money that is claimed to be owed.  You will eventually get a judgment against you, Once a creditor has a judgment against you, they can then proceed with other collection techniques.  They can try to debit your bank account, put a lien on assets, or even haul you into court for something called a “debtor’s exam”.

A debtor’s exam in Kansas or Missouri is a court proceeding where a debtor must appear to answer questions about his or her assets.  Another collection technique is a wage garnishment.  The creditor will send a copy of the judgment against you to your employer, and the employer will deduct a portion of your wages and send it to the creditor.

Filing a bankruptcy case at any stage of this process will stop the collection process.  So, it is important to meet with an attorney and find out how you can do this.  Some people who are retirees think that since their social security income is protected from being garnished, they don’t need to solve their financial problems.  This is not a good way to go. You can still be hauled into court for debtor’s exams, the creditors can still put liens on things, and they can harass and hound you on the phone.  In addition, you may be setting yourself up for additional estate or probate problems down the road by allowing your estate to be encumbered with debt.

So,  the important thing is to deal with the problem.  Hoping it will go away is not a real option.  Give us a call and we can discuss your options.

Read More:  Redemption of Secured Collateral In Bankruptcy

What Are The Differences Between Foreclosures In Kansas and Foreclosures In Missouri?

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Many people contemplating a bankruptcy filing are being faced with a situation where payments on their mortgages have not been made for months.  Once a person falls behind in their loan payments, a creditor (a bank or mortgage company) will eventually refer the loan for commencement of the foreclosure process.  This process is different each state:  Kansas has a judicial foreclosure process, and Missouri uses a system based on “deeds of trust”.

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In Kansas, the foreclosure process begins by the filing of a civil action in the district court in which the property is located.  The homeowner will be served with a summons and a copy of the petition.  There will be a time required for the filing of a response.  If no response is filed, a default judgment will be taken and the next step in the process moves forward.  This would be the setting of an actual foreclosure sale date on the “courthouse steps” some months down the road.  How fast this happens depends on many factors, but lately it seems to be taking months from the time the default judgment is entered.

Regardless, it is critical that you file your bankruptcy case before the foreclosure sale date. Failure to do so can have tragic consequences for your ability to retain the residence and try to get caught up on the arrearage over time.  As soon as you fall behind on your mortgage payment, give us a call.  Delaying only makes things worse.

In Missouri, foreclosures are handled differently.  They are not done through the court system as in Kansas.  Rather, there is a trustee assigned in each county (e.g., Jackson, Cass, Platte, Buchanan, Clay, etc.) who handles the deeds of trust for the houses in question, and this trustee is responsible for taking care of the foreclosure process.  Again, the principle is the same:  you must get your case filed before the sale date.  This does not mean that you should wait a week before the sale date to deal with the issue.  The better option is to seek legal help as soon as things start to become difficult.

Read More:  Title Loans And Bankruptcy