chapter 11: handling the individual debtor case

Chapter 11: Handling the Individual Debtor Case Debtor and Creditor Challenges With Post-Petition Income, Estate Property,

Plan Confirmation, Payment of Attorney Fees and More

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TUESDAY, AUGUST 7, 2012

Presenting a live 90-minute webinar with interactive Q&A

Peter M. Lively, Principal, Law Office of Peter M. Lively, Culver City, Calif.

M. Jonathan Hayes, Principal, Law Office of M. Jonathan Hayes, Northridge, Calif.

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CHAPTER 11: HANDLING

THE INDIVIDUAL DEBTOR

CASE

AUGUST 7, 2012

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I. PRE-FILING PRACTICE TIPS

A. Chapter 13 Debt Limits [11 U.S.C. § 109(e)]

1. Individuals and join-debtors who owe noncontingent, liquidated, unsecured debts of less than $360,475 AND noncontingent, liquidated, secured debts of less than $1,081,400.

a) When secured debt is treated as unsecured for eligibility purposes.

b) What is contingent and liquidated debt?

Is “disputed” debt unliquidated? Not necessarily, even if the debtor denies he owes the debt at all.

Peter M. Lively, JD, MBA

Law Office of Peter M. Lively

11268 Washington Boulevard, Suite 203

Culver City, CA 90230

Telephone: (310) 391-2400 / Web: www.petermlively.com

Email: [email protected]

M. Jonathan Hayes

Law Offices of M. Jonathan Hayes

9700 Reseda Boulevard, Suite 201

Northridge, CA 91324

Telephone: (818) 882-5600 / Web: www.hayesbklaw.com


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B. Getting Paid

1. Factors in determining the retainer

a) Cash collateral

prepetition vs postpetition cash collateral

b) Source of payment after he/she goes through retainer.

c) Non-dischargeability actions – divorces.

d) Multiple representations creating potential or actual conflicts. [11 U.S.C. § 327] Proposed attorney cannot be a creditor of the debtor.

e) Lien on the retainer?

f) Payment in the budget?

g) US Trustee Compliance takes a huge amount of time.







M. Jonathan Hayes






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C. Exit Strategies (Determining the end game at the beginning)

1. If the goal of the bankruptcy is to save the home, the Debtor cannot

modify the loans and therefore must pay. [11 U.S.C. § 1124(b)(5)]

2. Have to pay net disposable income for five years or duration of

plan. [11 U.S.C. § 1129(a))(15)(B)]

3. The Debtor should make the regular monthly mortgage payments

immediately even though it is not technically required.

D. Does individual qualify as a small business? [11 U.S.C. § 101(51D)]

E. Debtor must still obtain pre-bankruptcy credit counseling. [11 U.S.C.

§ 109(h)]







M. Jonathan Hayes






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II. FILING THE PETITION

A. First Day Motions

1. Cash Collateral [11 U.S.C. § 363(a) and (c)(2)]

a) Rent from income properties. [11 U.S.C. § 552(b)(2)]

b) Cash, A/R, and inventory in business cases.

i. Form a corporation in advance?

2. Personal Budget

3. Wages

4. Utilities [11 U.S.C. § 366]

5. Procedure and Proceedings

B. Collateral Valuation Motions [11 U.S.C. § 506(a)]

1. Debtor’s residence- § 1123(b)(5) anti-modification on first deed.

2. Non-residence

C. Assumptions, Rejection, and Assignment of Executory Contracts

1. § 365- 120 day deadline for non-residential real property leases.







M. Jonathan Hayes






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III. PLAN CONFIRMATION TIPS

A. Disclosure Statement

B. Plan Confirmation Alternatives

1. 11 U.S.C. § 1129- Consensual Confirmation

a) Sections (a)(4) through (a)(6), (a)(13), and (a)(16) are generally not applicable to individual debtors.

b) (a)(1)- Requires compliance with Title 11 form and content of the actual plan. Includes proper classification of claims.

c) (a)(2)- Requires compliance with Title 11 activities of the plan proponent. Includes adequate disclosures.

d) (a)(3)- Good Faith

i. Plan must be proposed in good faith and not by any means forbidden by law.







M. Jonathan Hayes






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e) (a)(7)- Liquidation Analysis

i. Plan must be proposed in good faith and not by any means forbidden by law.

f) (a)(8)- Acceptance

i. Each impaired class must affirmatively accept the plan.

What is impaired? [11 U.S.C. § 1124]

ii. A class accepts if holders of more than half in number and at least two-thirds in amount vote to accept. Count only creditors who actually vote. [11 U.S.C. § 1126]

g) (a)(9)- Administrative Claims

i. Administrative claims must be paid cash equal to the allowed amount of such claims on the effective date of the plan, unless otherwise agreed to.

ii. Priority taxes must be paid in full with interest within five years of petition date.

iii. At the government interest rate- Section 511.







M. Jonathan Hayes






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h) (a)(10)- Acceptance by Impaired Class

i. At least one impaired class must accept the plan, unless plan leaves all classes of claim unimpaired. The dreaded “consenting class”!

ii. Problematic for individuals.

i) (a)(11)- Feasibility

i. Court must find that confirmation is not likely to be followed by the liquidation, or the need for further financial reorganization.

ii. Demonstrated if Plan has a reasonable probability of success.

j) (a)(12)- Requires payment of US Trustee Fees

k) (a)(14)- Domestic Support Obligations

i. Individual debtor must be current with all domestic support obligations that accrue postpetition.







M. Jonathan Hayes






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l) (a)(15)- Five or More Years of Disposable Income

i. Individual debtor must pay all unsecured claims in full OR devote an amount equal to the greater of five years, or the duration of the plan, worth of the debtors projected disposable income to unsecured creditors.

ii. What is due to a holder of an unsecured claim who objects to confirmation?

iii. Effect of Supreme Court decision Hamilton v. Lanning, 130 S. Ct. 264 (2010) on chapter 11 cases.

iv. 11 U.S.C. § 1325(b)(2) and disposable income individual chapter 11 cases. Does it only speak to below median debtors?







M. Jonathan Hayes






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2. 11 U.S.C. 1129(b)- Cramdown (Where not all impaired classes accept plan)

a) All requirements of 1129(a) must be met except for 1129(a)(8).

b) (b)(1)- Plan must not discriminate unfairly and must be fair and equitable as to each class that has not accepted the Plan.

c) (b)(2)(A)- Cramdown re Secured Creditors

i. Creditors must recover present value equal to allowed claim and retain lien.

ii. Sale of property. RadLAX case – Bank can credit bid pursuant to §363(k).

iii. Indubitable equivalence.







M. Jonathan Hayes






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d) (b)(2)(B)- Cramdown re Unsecured Creditors

i. Creditors must be paid in full except where the absolute priority rule does not apply, i.e., unsecured creditors vote for the plan, or is satisfied at a lesser amount.

ii. Absolute priority rule and individual chapter 11 debtors: Majority view— In re Friedman, 466 B.R.471, (9th Cir. BAP 2012). Absolute priority rule applies.

iii. Minority view—In re Kamell, 2011 WL 1760282 (Bankr.C.D.Cal.2011). Absolute priority rule does not apply.







M. Jonathan Hayes






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e) Cramdown Interest Rates

i. Creditors Application of Till (chapter 13 cramdown on a truck) in a chapter 11 bankruptcy. Footnote 14 lack of an efficient market, then look to prime plus risk adjustment (is that only plus 1-3%?).

ii. In re North Valley Mall, LLC, 432 B.R. 825 (Bankr.C.D.Cal. 2010)- Blended rate approach. Tranches to stipulate a market rate of interest.

f) Cramdown Interest rates when there is equity.

g) Cramdown Interest rates where there is no equity- “Tranches” and weighted average or “blended” rate.

h) Establishing the appropriate interest rate. Requires establishing the value of the collateral.







M. Jonathan Hayes






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3. Miscellaneous Provisions

a) 11 U.S.C. § 1115

i. What is included in property of the estate? Section 541 plus?

ii. Includes post-petition earnings.

b) 11 U.S.C. § 1123(a)(8)

i. Post-petition earnings from personal services must be contributed to the Plan. What are reasonable expenses?

c) Creditors may seek modification over the five year term. [11 U.S.C. § 1127(e)]







M. Jonathan Hayes






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C. The 1111(b) Election

1. Negates bifurcation of claim pursuant to 11 U.S.C. § 506(a) for

subject collateral and claim. Cannot be used if interest is of

inconsequential value.

2. Creditors must receive present value of its Interest in collateral and

the total amount of those payments must = Creditor’s total allowed

Claim.

3. Election can be made at any time prior to the conclusion of the

hearing on the disclosure statement unless the court orders

otherwise [FRBP 3014].







M. Jonathan Hayes






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IV. EFFECT OF CONFIRMATION

A. Chapter 11 U.S.C. § 1141(d)(5)

1. No discharge until completion of all payments to unsecured creditors.

2. Lien stripping is not finalized until discharge.

V. MOTION FOR FINAL DECREE

A. As soon as plan payments start?

B. Closes case and cuts off further US Trustee Fees.

C. 11 U.S.C. § 1127(e)- Modification of Plan after confirmation.







M. Jonathan Hayes






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chapter 11: handling the individual debtor case

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