Category Archives: Business Bankruptcy in Kansas City

Property Of The Chapter 11 Bankruptcy Estate In Kansas City

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When we speak of the “property of the estate” in a Chapter 11 case, we are speaking of all the legal and equitable interests of the debtor in possession.  A Chapter 11 bankruptcy filing is a very powerful tool, and in some ways the property of a Chapter 11 estate is broader and more far-reaching than the estates for other chapters of the Bankruptcy Code, such as Chapters 7 and 13.  This can can be a valuable tool for the debtor to use as part of his or her reorganization.  In general, the property of the Chapter 11 estate will include the following:

1.  All legal and equitable interests of the debtor in property as of the commencement of the case, with some exceptions.

2.  All interests of the debtor in community property as of the filing of the case that is under control of the debtor.

3.  Any interests in property recovered under certain provisions of the Bankruptcy Code (this is not common)

4.  Any interests in property preserved for the benefit of the estate or, in certain situations, transferred to the estate.

5.  Property that the debtor may become eligible to receive from an inheritance or bequest within 180 days after filing of the case.

6.  Proceeds, rents, or profits from property of the estate.

7.  An interest in property that the estate may acquire after the filing of the case.  The conditions on this provision can be complicated, and will vary from debtor to debtor.

Although bankruptcy law determines what property of the debtor becomes part of the bankruptcy estate, non-bankruptcy law determines whether the debtor owns or has an interest in property. However, any ipso facto clauses in contracts that deprive the debtor of property because of insolvency or bankruptcy are void—if the debtor would have been entitled to the property except for the bankruptcy, then the property is included in the bankruptcy estate regardless of contract provisions or state law to the contrary.

It may also include post-petition property, depending on the chapter of the bankruptcy. Only property and income included in the bankruptcy estate is available to pay creditors. The bankruptcy estate is a new legal entity that is administered by the trustee or the debtor in possession for the equitable benefit of unsecured creditors of the debtor as of the filing date. Most of the property included in the estate is listed in the bankruptcy petition itself.  What is and what is not estate property matters when it comes time to filing the plan of reorganization.  The gist of of most Chapter 11 plans is to extend the time for the payment of debts, to effect a percentage reduction in the amount of of unsecured debts (which often receive some sort of fixed “pool” amount, or nothing), or both.

In a future post, we’ll talk about things that are not property of the bankruptcy estate.  As with so many things, these rules can be nuanced and complicated, so it is critical to speak to your attorney about questions that may arise.

Read More: Interest Rates In Chapter 11 And Chapter 13 Cramdowns

Executory Contracts And Unexpired Leases In Chapter 11 Bankruptcy Cases In Kansas City

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A Chapter 11 debtor is usually is ensnared in one (or more) unmanageable contract or lease that will need to be either redrawn or rejected if the debtor is to get things back to a profitable situation.  Leases for use of equipment or services are common, as well as all types of contractual obligations, employment contracts, collective bargaining agreements, and franchise agreements.  Of course, there are also all types of real estate leases.  As part of a comprehensive plan of reorganization, a debtor can and should consider renegotiating or rejecting such leases as the situation may dictate.

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How Chapter 11 Bankruptcy Financing Rules Can Help Your Business In Kansas City

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One of the most powerful features of a Chapter 11 bankruptcy is the ability of the “debtor in possession” to use the bankruptcy rules to access financing.  Very often, distressed businesses need to find a way to inject capital into their business as part of a comprehensive reorganization plan.

Debtors are often faced with a situation where lenders are unwilling to extend credit, due to fears concerning the ability to repay.  The Bankruptcy Code offers a way to make both lender and debtor satisfied.  “Debtor in possession” financing (DIP financing) is one method that has worked for many troubled businesses and individuals.  Essentially, the debtor will request permission of the Bankruptcy Court for approval of the DIP financing.  The loan would normally be characterized as a priority security interest.  Existing creditors or lienholders will want adequate assurances that their interests will be protected.

The bottom line is that the DIP financing procedures can enable a debtor to obtain the kind of financing that it would not normally be able to obtain outside of bankruptcy.  Because the DIP loan is not subject to a legal challenge, a lender is going to have a higher level of comfort participating in the transaction.  Frequently in Chapter 11 cases there are situations where assets are being sold.  The Chapter 11 protections mean frequently that assets can be bought or sold under more favorable conditions than if there were no bankruptcy, and the ability to get DIP financing can also help expedite the process.

The end result is a greater flexibility given to the debtor, and a greater ability for the debtor to plan a Chapter 11 plan of reorganization that meets the specific needs of the case.

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

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