Monthly Archives: April 2012

Should I File Bankruptcy Before Getting Divorced?

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First of all you should call your divorce attorney or retain a divorce attorney to inquire about how to enforce the divorce decree against your ex-spouse.  This article is not intended to provide information about enforcement of divorce decrees.  What this article is about is a way to just make the drama, frustration and repeated trips to court all go away so you can finally move on with your life without your ex-spouse or the debt.  And yes, filing bankruptcy is part of finally making it all go away.

The issue is that you got divorced, say 2-3 years ago, and the divorce decree split the community debts incurred during marriage between both your spouse and you.  You are now both responsible to pay half of the community debts.  What happens if your ex-spouse does not pay their half?  Will you, the spouse that is making payments, have to pay the half your ex-spouse is failing to pay?  Will your ex-spouses failure to pay cause you to have negative history on your credit report?  Why deal with any of this.

How do you make all this go away?  Believe it or not a bankruptcy can make the divorce process much simpler when debts are taken out of the equation.  Unfortunately many divorcees do not have any assets of significance to divide and there are only debts to deal with.

File bankruptcy before you get divorced and discharge all of the unsecured debts incurred during marriage.  Depending upon your income, expenses and assets you may qualify to file a Chapter 7 bankruptcy and discharge all of your eligible unsecured debts.  You will be able to move on with your life and not look back.  And yes, you have to file bankruptcy to do it.  If you have a domestic support obligation such as child support or spousal support it is not dischargeable under any chapter of the bankruptcy code.  Section 523(a)(5) excepts this type of debt from a discharge.  This is true in both Chapter 7 and Chapter 13 bankruptcy cases.

Filing bankruptcy is no easy decision though and both you and your soon to be ex-spouse have to agree to file bankruptcy.  This is usually where the problems start to arise. Often times the bankruptcy lawyer is caught in the middle.  One spouse refuses to file bankruptcy and saddles both spouses with debts for years to come.  Some spouses just find it easier to pay the debts off than pay an attorney to enforce a divorce decree/order against their former spouse.  This is always an option as well.

What are the Differences Between Chapter 13 and Chapter 11 Reorganizations?

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There are many differences between reorganizing under Chapter 13 than reorganizing your debts under Chapter 11.  This article discusses some of the basic differences between these chapters of the Bankruptcy Code.  This article does not cover each and every difference or go into great detail about the differences.  For more information about your specific circumstances, please consult an experienced bankruptcy attorney in your jurisdiction for more information.

First of all, why file a chapter 11 reorganization case at all?  Section 109(e) of the Bankruptcy Code has something to say about this.  Only individuals may reorganize under Chapter 13, not corporations.  If you own a corporation the only chapter available to reorganize is Chapter 11.  To be eligible to be a debtor under Chapter 13 you must not have unsecured debts exceeding $360,475 or secured debts exceeding $1,081,400.  If you exceed either of these debt limitations you cannot reorganize under Chapter 13 and can only reorganize your debts by filing a Chapter 11 case.

Another huge difference between the chapters is that creditors in a Chapter 11 get to vote on acceptance or rejection of the proposed plan or reorganization.  Creditors in Chapter 11 that are part of the impaired classes, those creditors whose legal rights are being changed in the plan, get to vote on the plan of reorganization.  The different types of debts are listed as classes, secured debts, priority debts and unsecured debts are all split up into classes.  Each class gets to vote and a class of impaired creditors must accept the plan by a majority vote in number of claims and at least two-thirds in dollar value.  In a Chapter 13 the standing chapter 13 trustee recommends confirmation of the plan and the Court confirms the plan if it meets the requirements for confirmation under Section 1325 of the Bankruptcy Code.  Creditors in a Chapter 13 may object to confirmation of the plan.  The Court can either sustain the objection or overrule the objection and confirm/approve the plan.  Creditors commonly object to a plan because of issues over valuation of collateral, the plan is not possible/feasible or the plan of reorganization was not filed in good faith.

So what happens if creditors reject a Chapter 11 plan of reorganization?  Then the debtor must prove the Chapter 11 plan of reorganization is fair and does not unfairly discriminate between treatments of different classes, is equitable and does not discriminate against the class of creditors that rejected the plan.  If the Court agrees, then the Court can confirm/approve the plan of reorganization and cram the plan down the throats of the rejecting creditors.

Add Warren Carlos Sapp to the List of Celebrity and Professional Athlete Bankruptcy Cases

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On March 30, 2012, ex-NFL star and broadcaster Warren Carlos Sapp filed for bankruptcy protection under Chapter 7 of the Bankruptcy Code, Bankr. Case No. 12-17819-RBR, in the Southern District of Florida.  Like many before him bad business deals, unpaid income tax and mounting missed child support payments led to Mr. Sapp’s bankruptcy filing.  Mr. Sapp’s petition lists $6,457,207.92 in assets and $6,724,631.62 in liabilities.

Also like many Americans Mr. Sapp has suffered from the mortgage crisis.  M. Sapp owns two homes in Florida.  One home is worth approximately $149,000 less than what Mr. Sapp owes on mortgage.  The other house has over $1.3 million in equity.  Florida is a state that has an unlimited homestead exemption to protect equity in your home if you are lucky enough to have equity in a home when filing bankruptcy.

Mr. Sapp schedules list quite a bit of personal property including approximately 10 annuities and life insurance policies valued at approximately $1 million.  Mr. Sapp also has a NFL Annuity Program worth $439,450 and NFL Player 2nd Career 401k worth $469,812.  One interesting note, which drives bankruptcy lawyers crazy, is that Mr. Sapp claims in his Schedule B that his 1999 National Championship Ring and 2002 Super Bowl Ring were both lost, not stolen, and neither ring was covered by insurance.

Mr. Sapp’s liabilities include unpaid child support or alimony totaling $885,000 to four different women, Akilah Akins, Angela Sanders, Jamiko Sapp and Sara Matt Lamothe-Kindred.  Mr. Sapp has six kids ranging in age from 3 to 14 years old.  The Internal Revenue Service is one of Mr. Sapp’s major creditors as well.  Schedule E lists unpaid taxes for 2006 totaling $853,003 and 2010 totaling $89,775.

Mr. Sapp’s financial condition may become a lot worse.  Mr. Sapp’s current monthly income includes the NFL Network: last contract payment ($45,000), CAA Sports: one-time appearance fee ($48,000), CAI Studios ($2,000) and Literary Agency East, book advance, ($18,675).  If the NFL Network does not choose to renew their contract with Mr. Sapp it will result in Mr. Sapp having a negative monthly cash flow of approximately over ($100,000).  His single largest monthly expense is child support and alimony totaling $75,495 per month.  This represents about 60% of Mr. Sapp’s monthly expenses.

Like many Americans struggling with bills because of lost employment or a reduction in pay Mr. Sapp is no different.  It is not about how much money you make each month, but how much you spend.  Hopefully Mr. Sapp will have his contract renewed with the NFL Network.  Without that income Mr. Sapp is going to have a hard time moving on financially.

Did Stockton, California File Bankruptcy Under Chapter 9?

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No, not yet. On February 28, 2012, the Stockton City Council voted to begin the confidential neutral evaluation process.  Like many municipalities across the nation Stockton is being squeezed by increased retirement costs, bond payments and decreased revenue from property tax, sales tax, business license and utility user tax.

California recently passed a law, AB 506, or Government Code Section 53760, that provides two possible paths to municipal bankruptcy under California law.  One path is the “Neutral Evaluation Process.”  The other path is declaring a fiscal emergency and adopts a resolution by a majority vote of the governing board pursuant to Government Code Section 53760.5.

What is the Neutral Evaluation Process?

The Neutral Evaluation Process (“NEP”) is initiated by the request of the public entity and giving notice by certified mail to all interested parties.  The interested parties then have 10 business days from the receipt of the request for NEP to respond.  If the interested parties choose to participate in the NEP then the public entity and interested parties need to agree on whom the neutral evaluator will be and what process will be used to resolve the dispute.  If the no evaluator can be agreed upon within 7 business days after the parties agree to the NEP then the public entity shall select five qualified neutral evaluators and provide their names, references and backgrounds to the participating interested parties.  The participating parties then have 3 business days a majority of the participating parties can strike up to four of the neutral evaluator proposed by the public entity.  If the participating parties strike less than four of the proposed neutral evaluators, then the public entity may choose which of the remaining evaluators will be selected.

A neutral evaluator should have experience and training in dispute resolution and should meet at least one of the following qualifications: (1) At least 10 years of high-level business or legal practice involving bankruptcy or service as a United States Bankruptcy Judge; (2) Professional experience or training in municipal finance and one or more of the following issue areas: (A) Municipal organization; (B) Municipal debt restructuring; (C) Municipal finance dispute resolution; (D) Chapter 9 bankruptcy; (E) Public finance; (F) Taxation; (G) California constitutional law; (H) California labor law and (I) Federal labor law.

The NEP can only last 60 days from the date the evaluator is selected unless the parties agree otherwise.  The public entity will pay for half of the costs of for the evaluator.  The NEP will end if any of the following occur: (1) The parties execute an settlement agreement; (2) The parties reach an agreement or proposed plan of readjustment that requires the approval of a bankruptcy judge; (3) The neutral evaluation process has exceeded 60 days following the date the neutral evaluator was selected, the parties have not reached an agreement, and neither the local public entity or a majority of the interested parties elect to extend the neutral evaluation process past the initial 60-day time period; (4) The local public entity initiated the neutral evaluation process pursuant to subdivision (a) and received no responses from interested parties within the time specified in subdivision (b) and (5) The fiscal condition of the local public entity deteriorates to the point that a fiscal emergency is declared pursuant to Section 53076.5 and necessitates the need to file a petition and exercise powers pursuant to applicable federal bankruptcy law.  If the NEP is unsuccessful then the public entity may file for protection under Chapter 9 of the Bankruptcy Code.  See California Government Code Section 53760.3.

What is declaring a Fiscal Emergency?

A public entity may also file for bankruptcy protection under Chapter 9 in California if the public entity declares a fiscal emergency and adopts a resolution by a majority vote of the governing board at public hearing.  At the public hearing, a finding that the financial state of the local public entity jeopardizes the health, safety or well-being of the residents of the public entity. See California Government Code Section 53760.5.

Stockton, California Participating Parties in the NEP

The City of Stockton, California has started the NEP and the participating parties are as follows: Association of Retired Employees of the City Of Stockton; Assured Guaranty; California Public Employees Retirement System (CalPERS); Dexia Credit Local, New York Branch; Franklin Advisers, Inc.; Jarvis/MUD case; Mid-Management/Supervisory Level Unit (Management B&C Employees); National Public Finance Guarantee Corp.; Operating Engineers’ Local 3; Price case; Stockton City Employees’ Association (SCEA); Stockton Firefighters’ Local 456; Stockton Fire Management Unit; Stockton Police Management Association; Stockton Police Officers’ Association (SPOA); Union Bank, NA; U.S. Department of Housing and Urban Development; Wells Fargo Bank, National Association, as indenture trustee for the following bonds: (1) Redevelopment Authority of the City of Stockton Revenue Bonds, Series 2004 (Stockton Events Center Arena Project) (2)Stockton Public Financing Authority Lease Revenue Bonds, Series 2004 (Parking and Capital Projects) (3) Stockton Public Financing Authority 2006 Lease Revenue Refunding Bonds, Series A (4) Stockton Public Financing Authority Variable Rate Demand Lease Revenue Bonds, 2007 Series A and 2007 Series B (Taxable) (Building Acquisition Financing Project) (5) City of Stockton 2007 Taxable Pension Obligations Bonds, Series A and Series B (6) Stockton Public Financing Authority Lease Revenue Bonds, 2009 Series A (Capital Improvement Projects) (7) Stockton Public Financing Authority Variable Rate Demand Water Revenue Bonds, Series 2010A (Delta Water Supply Project).

Stockton and the participating interested parties have selected a neutral evaluator and are beginning the negotiation process.  Hopefully the parties can find some common ground and avoid having to file bankruptcy under Chapter 9.

For more information about the municipal bankruptcy process under California law or information from a bankruptcy attorney you may reach us toll free at 1-877-963-9543.