Frequently Asked Questions

Bankruptcy

    1.     Will Bankruptcy Help My Business?
    2.      Can Bankruptcy Save My Home?
    3.      Can I file for Bankruptcy? What are my Bankruptcy options?
    4.      What do I do When a Vendor Files for Bankruptcy?
    5.      What do I do When a Tenant Files for Bankruptcy?

Out of Court Workouts

    1.      Are Special Servicers Negotiating Loans?
    2.      What is an Assignment for the Benefit of Creditors?    
    3.      Can You Negotiate My Credit Cards?
    4.      Will My Landlord Re-Negotiate My Lease?

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Bankruptcy


1.          Will Bankruptcy Help My Business?

Sometimes the hardest question we are asked.  The Bankruptcy Code is a great tool for over-leveraged businesses, companies with negative margins, and over-extended short term and long term obligations.  Through Bankruptcy, a business has the ability to re-position their negotiation strength with their creditors and often times, emerge as a viable and healthy restructured entity.  While not easy, and often uncomfortable, the results from a reorganization can save investor contributions, relations with vendors, landlords, and lenders, and preserve equity positions in newly formed, healthy companies.  Each case is different.  Come speak with us about possible solutions and options for your business.

2.          Can Bankruptcy Save My home?

In most cases, the Bankruptcy Code currently does not protect homeowners from foreclosure of their main residence other than by providing time and bargaining position to prevent a foreclosure sale and/or modify the loan.  Congress continues to work to try to find options for homeowners.  However, at present, the Bankruptcy Code has limited options to structurally modify home loans.  That being said, the Firm routinely and aggressively uses the protections afforded by the Bankruptcy Code to assist homeowners in preventing foreclosure.

3.          Can I file for Bankruptcy? What are my Bankruptcy options?1 

There are many chapters of bankruptcy, each one specifically suited for the individual and business needs of those needing such protection.

               A.      Chapter 7

Often referred to as the "complete" Bankruptcy or the "liquidation" Bankruptcy, Chapter 7 allows individuals, including a husband and wife, to eliminate credit card debt, lawsuit judgments other than for fraud, medical bills, unpaid utility bills, deficiency balances on repossessed automobiles and other unsecured debts while at the same time allowing the filers to keep their homes, furniture, and other assets (provided they fall within applicable exemptions).  With the adoption of the Bankruptcy Abuse Prevention and Consumer Protection Act in 2005, individuals now must meet a financial "means test" to qualify for an individual consumer bankruptcy case (Chapter 7).  Please contact the Firm for further information on whether you qualify for a Chapter 7 case.
      
                B.     Chapter 13

Those that do not qualify for a Chapter 7 bankruptcy or are in need of a workable repayment solution for their creditors have a safe harbor in Chapter 13.  This "mini" reorganization allows consumers to cure house payments, spread out credit card debt, repay taxes, and other obligations from anywhere between 36 to 60 months. Unfortunately, Congress placed certain debt limits in this bankruptcy chapter.  As such, if you owe more than $1,149,525.00 in secured debt (mortgages, car payments, equipment and machinery leases, etc.) or in excess of $383,175.00 in unsecured debts, you do not qualify for a Chapter 13.  Great care must be taken to determine which bankruptcy case is best for you.

                 C.     Chapter 11

Perhaps the most widely accepted mechanism for restructuring debt, Chapter 11 serves both corporate and individual debtors with a powerful and effective statutory framework to alter, affect, and modify contractual and business relationships with creditors.  The process of Chapter 11 in cumbersome, complicated and requires a professional with experience, knowledge and foresight to maneuver through the myriad of business relationships, United States Trustee guidelines and statutes to successfully restructure a business or individual debts.  The Firm works with other legal professionals, accountants, financial advisers and trained experts in developing plans of reorganization that seek to rehabilitate and revive distressed companies and over-extended individuals. 

4.        What do I do When a Vendor Files for Bankruptcy?

In most cases, the vendor will owe you money when it files a bankruptcy case.  Upon receiving notice of the case, you need to determine whether your product was recently shipped to that vendor.  If so, you may have rights under the Bankruptcy Code to demand that those goods be returned to you (also known as "reclamation"). Secondly, you will need to determine whether the debtor properly listed your debt in the bankruptcy schedules, thus prompting a decision to file a Proof of Claim in the case.  Depending upon the size of your claim, in a Chapter 11 case, you may be asked to participate in a Creditor's Committee, which oversees the Debtor's reorganization.  In a Chapter 7, however, the key is to either reclaim your goods or ensure a proper claim amount in the case in the event a Chapter 7 Trustee locates assets for distribution to creditors.

5.        What do I do When a Tenant Files for Bankruptcy?

The Debtor has an obligation, while in bankruptcy, to continue to make lease payments until a determination is made to assume or reject the lease.  Under the Bankruptcy Code, your tenant will be able to remain in possession of the premises until the earlier of a post-petition default followed by a Motion for Relief from the Automatic Stay by you seeking court approval to evict the tenant or rejection of the lease by the Debtor.  This process can take up to 210 days before your tenant is required to assume or reject your lease.  Typically, the tenant will have owed you monies for rent, CAM, taxes and insurance before filing its case.  These items need to be included in any Proof of Claim filed by you in the case.  Additionally, these items become important in any assumption and/or assignment of the lease by the Debtor. Careful consideration of these issues is necessary to protect the landlord's interests in a Chapter 11 case.  If the Debtor files a Chapter 7 case, the landlord may seek relief from the Bankruptcy Court to evict the tenant.


Out of Court Workouts

1.          Are Special Servicers Negotiating Loans?

Perhaps one of the most complicated yet pervasive matters for lawyers today is the negotiation of collateral backed mortgage securities loans ("CMBS Loans") with Special Servicers.  Typically, the average commercial property is anywhere from 20% to 40% over-leveraged based upon rental revenue, net cash flow and fair market value of the property.  Additionally, most CMBS Loans have guaranty provisions that preclude the borrower from utilizing all protections available to it, including Bankruptcy; also known as "bad boy" provisions.  Nonetheless, the Pool and Servicing Agreements which govern CMBS Loans provide options and alternatives for owners of commercial property.  Depending upon the financial and economic condition of the property, coupled with the ability of equity to contribute new funds, most Special Servicers are willing to provide modifications to the loan that enable borrowers to continue to own and manage their properties through the term of the loan, extended term or modified term of the loan.  The Firm has successfully negotiated numerous CMBS Loans through modification and has developed sound and reliable relations with key Wall Street Special Servicers.

2.          What is an Assignment for the Benefit of Creditors?

As an alternative to bankruptcy, California law provides for a reorganization/transfer of assets through an Assignee, who assumes the role of a Debtor-In-Possession/Liquidating Trustee in reorganizing a business entity.  Typically less cumbersome and costly, the Assignment provides a mechanism for businesses to restructure and rehabilitate within the protections afforded by California Law.  Careful consideration must be taken by a business before electing the remedy of an Assignment.  The Firm works closely with many professionals who act as Assignees and Receivers throughout California and the United States.

3.          Can You Negotiate My Credit Cards?

Yes.  Today, more than ever, credit card companies are feeling the squeeze and pain from its card holders not able to make even the minimum monthly payments.  With aggressive yet calculated negotiations, credit card companies are routinely modifying both interest rates and principal balances to relieve their borrowers from the pressures of credit card debt.  While this process typically affords great relief, it is not without consequences such as negative reporting on credit reports and cancellation of debt income.

4.          Will My Landlord Re-Negotiate My Lease?

Landlords, too, are experiencing the same financial strains as their tenants.  As such, workouts with landlords is one of the more difficult negotiations facing tenants today.  Typically, one of the largest fixed operating expenses of a business, when modifying the rental obligation, this often alleviates tremendous day-to-day pressures on any business.  Understanding the inner details and complexities in the Lease while appreciating the landlord's fiscal position with the space allows the Firm to anticipate negotiation press points and successfully modify lease terms for the benefit of both landlords and tenants.









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1    There are other chapters of Bankruptcy including Chapters 9, 12 and 15 that protect individuals, Cities, Municipalities, Farmers and Cross Border entities.  This Firm does not handle those types of Bankruptcy Cases.  We are happy to refer you to other professionals in the event you qualify for such Chapters.