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Should I Rent To Someone Who Has Filed Bankruptcy?

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YES, YES and YES. Let me tell you why it makes financial sense given just not discriminating against other humans may not be enough motivation. You are in the business of renting rentals and getting paid each month so why not rent to whomever is most likely to do that. Will a mindless, soulless and heartless corporations rent to someone that filed for bankruptcy protection? I have found more problems with large corporate ran apartment complexes given the humans that work there are “just doing their job.” Which means they “just follow” follow the corporations rules and procedures to ensure they remain employed regardless of what reality actually is or harm caused. Andy yes, still do your due diligence and request pay statements to make sure they can afford the rent though with first, last month’s rent and security deposit.

What Is The Reality?

The reality is an apartment building owner or manager should rent to those who have filed for bankruptcy protection because it is in their best financial interest. For one, the potential renter has no debt (or very little). Two, the renter with a bankruptcy wants to rebuild their credit. Three, they are not eligible for a discharge for many years depending upon the chapter of bankruptcy they filed and when. Four, it is not legal to discriminate against bankruptcy filers . . . . this is a stretch though in reality. If you are an owner or manger of an apartment building and want to decrease our accounts receivable to delinquent payments rent to those who have no debts . . . make sense? Of course as a bankruptcy attorney I am biased right? Or is this drum I keep beating just true? If someone is just following the law they should not be looked upon as bad or discriminated against right? We can all agree that all types of discrimination are bad right?

One: Bankruptcy Filers Have No Debts

Okay, so this may not be completely true. If they have a vehicle loan, student loans or owed not dischargeable taxes they may still have some debts after a discharge in bankruptcy. In a Chapter 7 bankruptcy they will not have any general unsecured debts like creditor cards though after discharge. For examples:
1. Prospective Renter 1: $70,000 gross income with $40,000 in credit card debt and no bankruptcy on credit report.
2. Prospective Renter 2: $70,000 gross income no creditor debt and a bankruptcy on credit report.
Oh by the way, they both work for the same company and have the same experience etcetera. This is a simplistic example but exactly what I am trying to point out. Which prospective renter is a higher risk?
So are you going to go with the person that is struggling to pay credit card debts that have high interest rates that were once illegal and they are getting squeezed harder and harder each month to pay basic living expenses? Or rent to the person that followed the law and discharged debts to make sure they can pay their rent each month and eat?
Or are you going to illegally discriminate against my clients for following the law and obtaining a discharge according to the law written by your elected Congress and signed into law by your elected President of the United States of America? I hope you choose to not discriminate.

Two: My Clients Want To Rebuild Their Credit

No one wants to file bankruptcy and I can assure you after receiving a discharge my clients want to rebuild their credit. As a bankruptcy attorney I feel I have an obligation to provide education too. We have a number of Consumer Financial Protection Bureau free pamphlets (yes they are free; all you have to do is request them; another reason to choose our services) on a table in the front of our office include: Know Your Rights When A Debt Collector Calls; How To Spot Frauds and Scams; How To Find The Best Credit Card; and How To Rebuild Your Credit. My clients have been put through hell already with missed payments, harassing phone calls and the stress of paying the bills each month. They do not want go through it again and they want to rebuild their credit. As an apartment owner or manager you can encourage my past client to enroll in a bill paying service that reports to all three credit bureaus so that paying rent also helps rebuild credit. How about no discrimination but incentification of on-time regular rent payments that is mutually beneficial? You do want on-time regular payments of rent each and every month right? You should consider it.

Three: We Can Only Get A Chapter 7 Discharge After 8 Years From Last Chapter 7 Case Filed

Once someone files for chapter 7 bankruptcy and discharges all of their eligible unsecured debt they cannot obtain a chapter 7 discharge again for eight years. So what happens if they do not pay their rent? Well, the apartment manager/owner has every legal option available to enforce the debt. You do not have to worry about the renter filing for bankruptcy protection the day before you are supposed to evict them or discharge the unpaid rent. So why not rent to someone with a bankruptcy on their credit report?

Four: It Is Against The Law To Discriminate Against A Bankruptcy Filer

Section 525 of the Bankruptcy Code provides some specific protections. You cannot be terminated or discriminated against by a private employer. You also cannot be denied student loans. This is a very simplistic explanation of Section 525, but it exists. What about not renting to someone because there is a bankruptcy on their credit report? This kind of discrimination falls under an apartment owner/manager not renting to someone with three noisy kids or two dogs. You cannot not rent to someone because of their kids, but some other “pretext” or excuse, if any, will be given for the discrimination other than the actual horrible discriminating reason.

So rent to someone with a bankruptcy on their credit report and give them a chance just like some other human I am sure gave you a chance at some point in your life. Pay it forward. I really have no realistic hope that mindless, heartless soulless corporations will change any of their policies in this area………

50 Cent’s Bankruptcy By The Numbers As Of January 2016

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There has been a lot of mass media attention regarding 50 Cent’s personal Chapter 11 bankruptcy case. First though, a company that 50 Cent owns, SMS Promotions, LLC, also filed for bankruptcy protection under Chapter 11. The mass media is for some reason incapable of understanding that when a corporation or LLC files for bankruptcy protection the individual owners have not filed for bankruptcy. Corporations and limited liability companies are separate legal entities from the owners. That is the whole point in forming the corporation or limited liability company. Unlike Donald Trump, 50 Cent in fact has filed a personal bankruptcy case under Chapter 11, Bankruptcy Case No. 15-21233, in the District of Connecticut, Hartford Division. Donald Trump has NEVER filed for personal bankruptcy protection. Second, as of January 29, 2016, the bank account set up for the bankruptcy case, the debtor-in-possession account, has $7,449,764.30 in cash. So if 50 Cent chooses to pose for a picture with around $50,000 in cash spelling the word broke that would be analogous to me or one of my clients posing for a picture of one dollar bills spelling the work broke. I will say it is a bad look, period.

The following is an analysis of 50 Cent’s disclosed income, expenses, assets and debts based upon court documents filed by 50 Cent’s bankruptcy lawyers and creditors in the bankruptcy case.

50 Cent’s INCOME and EXPENSES

In a Chapter 11 bankruptcy reorganization a debtor must commit their monthly disposable income for the benefit of those who are owed money for a term of a minimum of five years. 50 Cent’s current monthly income and future monthly income and expenses are very important then. In Chapter 11 cases the bankruptcy filer is required to file with the bankruptcy court monthly operating reports. The reports provide the income, expenses and assets of the debtor while the bankruptcy case is progressing. These reports help creditors and the United States Trustee determine if reorganization is possible and whether the bankruptcy filer is takings steps to “right the ship” by decreasing or eliminating unnecessary expenses.

50 Cent’s January 2016 operating report provides monthly income from wages of ($1,538.68), royalties ($26,531.06) and other miscellaneous income called other receipts of ($77,000) for a total monthly income of $105,069.74. 50 Cent’s expenses for the month of January 2016 exceeded his income by about $13,000. So arguably 50 Cent does not have any monthly disposable income to pay each month for the benefit of creditors in a Chapter 11 plan of reorganization. That is if Jan. 2016 is representative of 50 Cent’s future income and expenses. 50 Cent’s creditors believe 50 Cent’s income is more and his expenses should be reduced.

On the expense side there are some high numbers as compared to the rest of us who are not on TV or in the movies. 50 Cent lists the following expenses for the month of January 2016:

Mortgage Payments $17,354.44
Real Estate Taxes $8,419.11
Utilities $12,879.73
Insurance $33,215.49
Auto Expense $3,507.59
Lease Payments $5,744.75
Repairs and Maintenance $6,593.70
ALIMONY/CHILD SUPPORT $12,097.00
Fitness Expense $3,000.00
Security $11,369.00

TOTAL EXPENSES: $118,255.81
TOTAL INCOME: $105,069.74
($13,186.07)

For the month of January 2016 if 50 Cent had not transferred $77,000 in cash from his bank accounts he would not have been able to pay his monthly expenses with his monthly income. So arguably there are some issues with 50 Cent’s ability to reorganize his debts based upon his monthly income. 50 Cent’s creditors argue that 50 Cent is underreporting his income given he has not disclosed income from recent appearances and performances since filing for bankruptcy protection. We shall see.

50 Cent’s ASSETS

In a sophisticated Chapter 11 reorganization like 50 Cent’s there are assets that are extremely difficult to value. How much is a business entity worth? What someone will pay you for it? Or is the book value the proper valuation? 50 Cent owns or allegedly has an interest in over 32 corporations or limited liability companies defined as “Related Entities” by creditors. There are also about 10 businesses defined as “Additional Entities” by creditors. The values of these business interests are extremely difficult to evaluate and 50 Cent’s creditors argue that the values of these entities are more than what was provided/disclosed in 50 Cent’s bankruptcy petition and schedules. As of Jan. 29, 2016, 50 Cent provides his total assets are worth $16,411,498.64.

50 Cent owns three pieces of real property: (1) primary residence located at 30 Poplar Hills Drive Farmington, CT 06032 with an estimated value of $8.25 million and mortgage of about $1 million owed to Suntrust Bank; (2) investment property located at 8 Gale Drive Valley Stream, NY 11581 with an estimate value of $572,000 and no debt; and (3) an investment property located at 3286 Northside Pkwy, Unit 302 Atlanta, GA 30327 with an estimated value of $464,000 and no debt. 50 Cent’s real property is worth about $8,286,000.

50 Cent’s vehicles have a scheduled total value of $500,618.00 and are as follows:

1966 Chevrolet Coupe
2015 Chevrolet Suburban
2010 Rolls Royce Phantom Drophea
2005 Chevrolet Suburban
2008 Dodge Sprinter
2003 Chevrolet Suburban
2012 Suzuki Kizashi Sport

One of the personal assets creditors of 50 Cent point out is missing from the bankruptcy petition and schedules is the trademark “50 Cent” which 50 Cent owns. Creditors argue that the trademark is very valuable and should be listed as a personal asset of 50 Cent.

50 Cent’s DEBTS

As of January 29, 2016, 50 Cent provides his debts total $32,390,319.34. The debt is comprised of $987,070.53 in secured debts, $770,412.00 in unsecured priority debts and $30,390,319.34 in general unsecured debts. The largest debt is a general unsecured debt owed to Sleek Audio, LLC, totaling $18,131,668.65 resulting from a judgment in a lawsuit over the design and sales of headphones. The other largest general unsecured debt is owed to Lastonia Leviston totaling $7,000,000 resulting from a judgment in a lawsuit about the alleged release of narrated sext tape by 50 Cent.

The unsecured priority debts are for domestic support totaling about $856,000 and taxes owed to the Internal Revenue Service totaling $175,067.91 and the State of New York totaling $1,379,687.

Status of the Chapter 11 Bankruptcy Reorganization

Right now both 50 Cent and three creditors, Sleek Audio LLC, Lastonia Leviston and Suntrust Bank, have proposed a Chapter 11 Plan of Reorganization. Of course the creditors plan provides for repayment of all of 50 Cents debts during the plan based upon his current income, assets and future earning potential. I have not yet reviewed the plan filed by 50 Cent and his bankruptcy attorneys.

Another Day, Another Scam Trying to Screw Our Bankruptcy Clients Out of Money

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It is unbelievable the amount of mail our bankruptcy clients receive after they file for bankruptcy protection because they filed for bankruptcy protection. The different types of mail they receive are even more concerning.

New Scam – THE LETTER YOU RECEIVE MAY NOT BE FROM NATIONSTAR LLC AND IT IS NOT NATIONSTAR LLC’S FAULT

If you have no debts with Nationstar LLC and you receive a letter that says it is from Nationstar LLC there is probably a problem. We just had a client, and us, receive a letter from some crook representing the letter is from Nationstar LLC. It is not of course, but the letter looks very legitimate. The phone number on the letter is 1-877-343-5602. If you are reading this because you received this letter please go to www.ftc.gov and file a complaint on-line or mail in a complaint with a copy of the letter you received. Unfortunately I did not initially identify this as a scam letter. The letter looks like other letters we legitimately receive from Nationstar LLC. The letter will have the correct address for the client and correct address for the bankruptcy attorney that filed the case including the correct bankruptcy case number. There will also be an account number on the letter. So, I emailed my client and asked the client what is going on here? We were not aware that Nationstar LLC was a creditor in this client’s bankruptcy case. So the client called the phone number listed above. Apparently almost all of the options to choose from are to make payments. Okay, that seems odd. So then apparently our client got a human being on the phone and she smartly started to ask them questions about what is going on here. THEY ASKED HER FOR HER SOCIAL SECURITY NUMBER!! Every now and then a creditor calls my office and tries to get me to disclose the last four digits of our client’s social security number. Never will we provide this information over the phone to someone who called us. Our client again smartly told them more or less to jump in a lake. I do not know how the call ended, but clearly when you call 1-877-343-5602 it is just another scam to steal identifies and collect payments fraudulently. How sad. Hopefully bankruptcy attorneys far and wide will Google 1-877-343-5602 and find this article or some other warning so they too can counsel their clients to ignore the fake letter.

Required Course When Filing Bankruptcy

As you may already know there are two required courses that must be completed when filing for bankruptcy protection. The first course is completed before the case is filed and the second course is completed after the case is filed. The first one is not a problem. How can some company send our bankruptcy client information on how to complete the first required course before the case is filed? It is not possible. So we are safe there. The problem is after the case is filed. Once the case is filed our client’s mailing address is now part of the public sphere and available to advertisers. So what happens? Our clients receive letters in the mail that they must complete the second required course. The letter includes scary language that is misleading and tries to fool our clients into completing the second required course with them for almost 5 times the cost our clients should pay for the same course when using the course provider we recommend to them. So, thank you Sage Personal Finance for marketing to our clients without their permission and trying to charge them 5 times the cost of the second required course. It just proves to our clients how much we care about them and how we will not let them get ripped off. Keep up the good work!

Credit Card or Personal Loan Applications

Everyone likes to rant that bankruptcy causes lenders to lose money blah, blah, blah. Really? So why do all of our clients receive credit card applications and personal loan applications in the mail even before they receive an order of discharge discharging their eligible debts after filing for bankruptcy protection? Hmmmm? Arguably the only thing lenders lose is gravy or icing on the cake. Why you ask? Because when you can charge interest at a rate that used to be illegal under state usury laws the borrower ends up paying three to four times the amount ever borrowed if not more. So arguably lenders only lose gross profits they should not be legally able to charge consumers to begin with. Think about it. Anyway, one the types of mail our clients receive are applications for the extension of credit.

How Do I Value My Stuff or Property When Filing Bankruptcy?

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Well, there really is no real good answer except do not intentionally undervalue the stuff you own. Value is in the eye of the beholder? Yes, sometimes that is true. Most of the time you just do the best you can and provide the fair market or replacement value of the asset. I do not know how much your used stapler that you bought in 1992 is worth. What about your house? The best we can do is look at comparable sales and how the market is at that moment in time. If the market is hot, like it is in San Mateo County, the listing price could be bid up by thousands of dollars. So was the house worth what it was listed for or what the house sold for?

Be Careful Filing A Chapter 7 Bankruptcy Case If The Client Owns A House

In the Bay Area and San Mateo County home prices are on the rise. So if you own a home and the value is close to what you owe be very careful filing a Chapter 7 bankruptcy. California has generous homestead exemptions to protect equity in primary residences, but what if there is a bidding war on the house and the price is bid up by twenty thousand dollars? Will you still be able to protect the equity and keep the house or will the house be sold out from under you in the chapter 7 bankruptcy case? The Chapter 7 Trustee assigned to the case will want to list the house for sale and let the market determine the value and see what happens. The Chapter 7 Trustee has a duty to administer the bankruptcy estate and liquidate unprotected assets for the benefit of creditors. Liquidating and disbursing funds to creditors is also how chapter 7 trustees make more money. Chapter 7 trustees get paid a percentage of the assets disbursed to creditors. So not only does the chapter 7 trustee have a duty to investigate your assets and liquidate them, but they have a financial interest in liquidating unexemptable assets also. If the chapter 7 trustee does seek to list the property for sale you can try and buyout the bankruptcy estate, oppose the listing of the property for sale or convert the case to Chapter 13 and pay the equivalent unprotected equity to creditors over 3 or 5 years to make sure you keep the home.

Do Not Intentionally Undervalue Your Assets

So after reading the preceding paragraph you may have the thought that you can just decrease the value of the asset to an amount that can be protected. Please delete that thought and never think it again. It is a dangerous game to play if you choose to manipulate the value of your assets. Just ask Jesus Bencomo. Mr. Bencomo filed for bankruptcy protection under Chapter 7 of the bankruptcy code for the first time in May of 1998. No real property was listed in his first bankruptcy case. On January 16, 2013, Mr. Bencomo’s bankruptcy lawyers filed his second Chapter 7 bankruptcy case listing in Schedule A that he owned real property located in Norwalk, California. Mr. Bencomo valued the real property at $175,000 with secured debt totaling $145,879. So there is approximately $29,121 in equity to protect. After the conclusion of the 341(a) Meeting of the Creditors the duly appointed Chapter 7 Trustee Wesley Howard Avery filed a motion with the court to employ a real estate broker to list and sell Mr. Bencomo’s house.

The trustee’s motion provides the value of the Norwalk property as around $305k to $333k. Two weeks later Mr. Bencomo’s bankruptcy attorneys amended the Schedule A to list the value of the Norwalk property as $245,000 with secured debt now totaling $214,929.27. Eventually the court approved the employment of the real estate broker.

The Chapter 7 trustee also filed an adversary proceeding, lawsuit in conjunction with the main bankruptcy case, objecting under Section 727(a)(2)(A) and (a)(4)(A). Section 727(a)(4)(A) provides that the debtor’s discharge may be denied where: (1) the debtor made a false oath in connection with the bankruptcy case; (2) the oath related to a material fact; (3) the oath was made knowingly; and (4) the oath was made fraudulently. Retz v. Sampson (In re Retz), 606 F.3d 1189, 1197 (9th Cir. 2010) (citation and internal quotation marks omitted). The adversary proceeding complaint alleges that Mr. Bencomo is an experienced real estate broker and therefore knew at the time of filing that the value of the Norwalk property was in the $300k range. Basically the Chapter 7 trustee is arguing Mr. Bencomo knowingly and intentionally undervalued the Norwalk property. Mr. Bencomo’s conduct in his first bankruptcy case became an issue in the second. Apparently Mr. Bencomo transferred the house out of his name, than back into his name, but failed to record the deed until 2002 and he failed to list the property in his first bankruptcy petition. Evidence of Mr. Bencomo’s prior bad conduct in the first case can be used in the second as impeachment evidence. So, the court ruled in the chapter 7 trustee’s favor and held that Mr. Bencomo knowingly made a false oath regarding the value of his house and that this is material. Mr. Bencomo was denied a discharge.

How To Avoid or Prevent the Necessity of Filing for Bankruptcy?

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One of the most common remarks we here from clients is, “I never thought I would file for bankruptcy protection.” Our response is usually, “No one ever does.” They probably never thought the bad thing that happened to them or, their family, that led to having to file for bankruptcy protection would happen either. Bad things happen every day that are not in our control. So unfortunately for some there is no avoiding the necessity of filing for bankruptcy. For example: being laid off from a job, medical debts, debts resulting from car accidents or a natural disaster. While these circumstances are not traditionally in our control there are plenty of other pieces of the financial puzzle that are within our control.

Credit Cards/Payday Loans/Cash Advances/Vehicle or Title Loans

These four types of debts are primarily the types of debts that can have incredibly high interest rates. If you have never heard of usury laws you are not alone. Each state has or had usury laws to limit the amount of interest a lender could charge a borrower. The laws are designed to protect all of us from unfair or unconscionable interest rates. These laws have been weakened over and over again in the name of greed and corporate profits. For more detailed information please read “How Can Credit Card Companies Charge Such High Interest Rates?” http://www.westcoastbk.com/blog/2012/07/how-can-credit-card-companies-charge-such-high-interest-rates/ So the law now allows for the ridiculous and unconscionable interest rate as high as 29% on some credit cards. If you do not pay off the credit card each month that has a high interest rate the underlying debt will balloon quickly. Spread that problem around four or five different credit cards are you are heading in the direction of a bankruptcy lawyers office unfortunately. So do your best to limit the use of creditor cards and especially the use of your highest interest rate credit cards. Payday loans and cash advances are even worse. The highest interest rate I have ever seen on an actual loan documents was over 1,000%. Somehow this is legal. Standard vehicle loans can have generous interest rates. Title loans are when your vehicle is paid in full, but you take loan and use the vehicle as collateral. The loan company will take your pick slip/title until the loan is paid in full. Title loans are traditionally horrible for the borrower. Again, very high interest rates and title loan companies rarely keep very accurate records regarding payments and accrued interest.

Home Mortgages

Do not buy too much house. Other than banks handing out questionable loans and fraudulent appraisals artificially increasing the value of homes, the next largest factor as to why so many people lost their homes in my opinion was because they bought too much house. That means they purchased a house that was too large and too expensive given their income and expenses. The cause of this was mostly interest only mortgages and adjustable rate mortgages. So do not buy too much house. If you income is reduced 20% will you still be able to afford your mortgage payment each month? How long can you pay your mortgage if you are laid off? We all hope that these unfortunate events do not happen to us, but they happen to everyone without discrimination.

Taxes

The thing with taxes is you have to pay them, period. So just let the government have the money upfront so you do not have an issue when it comes time to file your taxes each year. In California the Franchise Tax Board is does aggressively collect unpaid taxes. The FTB will garnish your wages and attached a tax lien to your home if you own real property. If you have changed your deductions on your paycheck to artificially increase your net income each month you are creating a tax debt each paycheck. Will you have the money to pay the taxes at the end of the year? No, you will not because you changed your deductions to increase your net income because you are currently having trouble paying your bills. Do not change your deductions to artificially increase your net income. It is a recipe for disaster. If you take an early distribution from a retirement account pay the penalty/taxes at the time you have the money taken out. Do not defer the penalty/taxes to when you have to file your return. Again, this is a recipe for disaster. Every bankruptcy attorney will tell you that ERISA and other qualified retirement accounts (Tax Deferred) are 100% protectable when filing bankruptcy under almost all circumstances. So another reason to not raid a retirement accounts because you can keep the retirement money and still discharge your debts.

If you are having difficulty paying your bills each month bankruptcy might be the best option to get back on track financially.

Can A California State Court Judgment or Arbitration Award Be Used In Bankruptcy Court?

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A sequence of events that takes place is a person lends money or credit is extended and then the borrower for whatever reason cannot continue to make payments and breaches the repayment agreement. The creditor then sues them in California Superior Court. There are numbers of ways to obtain a judgment, but a judgment is entered against the borrower in state court. Or an arbitration award is entered against the borrower. Can the judgment or arbitration award be used against the borrower if the borrower chooses to file for bankruptcy protection? Can the judgment be used to make the debt owed not discharged? This is an issue of issue preclusion. Can a judgment or arbitration award be entered against the borrower in Bankruptcy Court? Will the Bankruptcy Court require litigation of the same issue already decided by the judgment or arbitration award?

Like the answer to many legal questions bankruptcy attorneys must answer, the correct answer is it depends upon the judgment or language of the arbitration award. The Bankruptcy Appellate Panel for the Ninth Circuit recently discussed this issue in Richard Scott Urban vs. BCS West, LLC; BAP No. SC-13-1047. According to California state law California courts may apply issue preclusion only if certain requirements are met and if the application of issue preclusion furthers the public policies underlying the doctrine. The doctrine of issue preclusion is the theory that issues already decided in state court should or must be recognized by federal courts pursuant the Full Faith and Credit Clause of the United States Constitution. Under California law requires that (1) whether the issue sought to be precluded from relitigation is identical to that decided in the former proceeding; (2) whether the issue was actually litigated in the former proceeding; (3) whether the issue was necessarily decided in the former proceeding is final and on the merits; and (5) whether the party against whom preclusion is sought was the same as, or in privity with, that party to the state court proceeding. If these requirements are met California courts must further consider whether any overriding concerns about the fairness of the former proceeding are present or consistent with sound public policy.

Regarding an arbitrary award Federal Bankruptcy Courts can give California arbitration awards preclusive effect if the arbitration proceeding was held in an adjudicatory manner. Arbitration awards that have been confirmed by California courts have been given preclusive effect in Bankruptcy Court too. California judgments are more likely to be given preclusive effect given that they are more likely to satisfy the actually litigated factor listed above. Many arbitrations are not held in an adjudicatory manner.

One of the most important factors is the wording of the judgment or arbitration award and the facts that came to light in the California State Court matter. One of the main areas of Bankruptcy cases that California State Court judgment are used for issue preclusion purposes area in adversary proceedings to determine whether a debt or claim is discharged or if the debtor should receive a discharge of their debts at all. A bankruptcy attorney may not have been retained to represent the creditor or debtor in the California State Court litigation. The wording of the judgment or arbitration award will be extremely important for the Bankruptcy Court’s analysis if issue preclusion can be used. In Urban case the Bankruptcy Appellate Panel held that the arbitration award was ambiguous. In Federal Bankruptcy Court the question of whether all of the requirements for a debt to be deemed not discharged is an uphill battle and any ambiguity in the California State Court case will be decided in favor of the debtor or bankruptcy filer. What is proven in the California State Court will most likely not be exactly the same as a fraud charge, breach of fiduciary duty or willful or malicious injury. If you believe a person you are suing is going to file for bankruptcy protection in the future you must carefully craft your allegations and the wording of any judgment or arbitration award so that it can be used in bankruptcy court.

Detailed Look and Examination of Ex-NFL Football Player Jamal Lewis’ 2012 Bankruptcy Filing – Part III

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This is Part III in a series of blog articles analyzing and discussing the bankruptcy filing of former NFL player Jamal Lewis. Many celebrity bankruptcy cases are routine and not very interesting. Unfortunately for Jamal Lewis as bankruptcy cases go his is extremely interesting.

In Part II F.Xavier Baldera and Regions Bank asked the bankruptcy court for relief from stay to initiated the foreclosure sale of the 2007 Fountain Lightning 47’. The court of course granted their request since Mr. Lewis did not make payment to them to quite some time. But wait, there is far more to the F.Xavier Balderas and Regions Bank story. On July 6, 2012, prior to the case being converted to a case under Chapter 7, F.Xavier Balderas and Regions Bank filed a joint motion to extend the deadline to file a complaint to determine the dischargeability of the debt owed to them by Mr. Lewis. This means these creditors believe they have grounds to sue Mr. Lewis and obtain a judgment ruling that any debt owed to them should not be discharged in the bankruptcy case of Mr. Lewis. F.Xavier Baldera and Regions Bank want more time to gather evidence and determine if they should sue Mr. Lewis or not. This is basically as bad as it gets when filing for bankruptcy protection. It is one thing for a creditor to be given relief from the automatic stay. It is a whole other story when a creditor is trying to make a debt not ever go away. The whole point in filing for bankruptcy is to make debts go away forever. On July 6, 2012, the court granted their motion for more time. The deadline for F.Xavier Baldera and Regions Bank to file an adversary proceeding against Mr. Lewis was extended to September 14, 2012. There is more to come about F.Xavier Balderas’ and Regions Bank’s issues with Mr. Lewis. For now we need to discuss the other creditors and their interests in the bankruptcy estate of Mr. Lewis.

4. Navistar Financial Corporation

On July 6, 2012, Navistar Financial Corporation filed its motion to extend the deadline to file an adversary complaint pursuant to 11 U.S.C. §523 to object to the discharge of the debt owed to Navistar Financial Corporation. Navistar is an unsecured creditor in Mr. Lewis’ case listed in Schedule F as having a claim regarding possible personal guarantee on a business debt. No dollar amount is listed as owed. There is more to come regarding this creditor and whether or not they sue Mr. Lewis.

5. Hit-Em Hard Corporation

On July 11, 2012, Hit-Em Hard Corporation filed a stipulation for extension of the deadline to file an adversary complaint against Mr. Lewis pursuant to 11 U.S.C. §523 to object to the discharge of the debt owed to them. Hit-Em Hard Corporation is an unsecured creditor in Mr. Lewis’ case listed in Schedule F as having a claim regarding possible personal guarantee on a business debt. No dollar amount is listed as owed. There is more to come regarding this creditor and whether or not they sue Mr. Lewis.

6. Alpha Jordyn, LLC

On July 11, 2012, Alpha Jordyn, LLC, filed a stipulation for extension of the deadline to file an adversary complaint against Mr. Lewis pursuant to 11 U.S.C. §523 to object to the discharge of the debt owed to them. A stipulation is an agreement between two parties. Alpha Jordyn, LLC contacted Mr. Lewis’ bankruptcy lawyers and they agreed to an extension of the deadline. Alpha Jordyn, LLC, is also an unsecured creditor in Mr. Lewis’ case listed in Schedule F as having a claim regarding possible personal guarantee on a business debt. No dollar amount is listed as owed. There is more to come regarding this creditor and whether or not they sue Mr. Lewis.
So now F.Xavier Baldera and Regions Bank, Navistar Financial Corporation, Hit-Em Hard Corporation and Alpha Jordy, LLC, have until September 14, 2012, to sue Mr. Lewis and prove the debts owed to them should not be discharged in his bankruptcy case.

7. Transportation Alliance Bank

On August 8, 2012, John A. Thompson on behalf of Transportation Alliance Bank filed a motion for relief from stay. Transportation Alliance Bank is an industrial loan corporation with its principal place of business located in Utah. Transportation Alliance Bank alleges that Mr. Lewis owns a one-half undivided interest in real property located at Section 21, Township 12 – North, Range 21-West, Refugee Lands in Franklin County, Columbus, Ohio and more commonly known as Fort Rapids Water Park. Fort Rapids Water Park is an indoor waterpark with hotel accommodations and conference rooms. Transportation Alliance Bank alleges that Mr. Lewis took title to the property, as a joint tenant with a third party named Brownlee Reagan by warranty deed dated July 20, 2010. For some reason Mr. Lewis’ schedules of assets does not list Fort Rapids Water Park as an asset in Schedule A, but Schedule D does list Transportation Alliance Bank as having a second secured priority interest with the claim secured by Fort Rapids Indoor Waterpark Resort. Transportation Alliance Bank perfected its security interest by recording deed of trust against the waterpark on October 29, 2010. Keep in mind that Mr. Lewis filed for bankruptcy protection a mere 17 months later. The terms of the loan to Mr. Lewis by Transportation Alliance Bank were interest only payments to be made for 47 months with a balloon payment at the end of the 47 month term. As of April 10, 2012, Transportation Allican Ban is owed $2,338,803.58 by Mr. Lewis.

According to Transportation Alliance Bank Mr. Lewis only made the interest only payments until December 22, 2010, a couple months after receiving the loan. It also appears that on or around the same exact time Mr. Lewis was obtaining a loan from Transportation Alliance Bank he was also obtaining a loan for $5.1 million from Tennessee State Bank and using the same waterpark property as collateral to secure this loan too. It appears that the Tennessee State Bank won the race to record their security interest with assignment of rents before Transportation Alliance Bank recorded their deed of trust. Arguably then as, Mr. Lewis’ schedules of debts indicate, Transportation Alliance Bank has a second priority interest and Tennessee State Bank has the first position. In Transportation Alliance Bank’s motion for relief from stay they allege that the combined amount of the loans secured by the waterpark exceed the value of waterpark. They argue that Mr. Lewis is failing to adequately protect them due to Mr. Lewis no longer making interest only payments to them. In addition to receiving no payments, their loan being underwater or under secured, they argue the waterpark property is not necessary for Mr. Lewis to reorganize her debts in bankruptcy. When this motion for first filed Mr. Lewis was still in a Chapter 11 case. The case had not yet been converted to Chapter 7. While Transportation Alliance Bank’s motion was awaiting hearing Mr. Lewis converted his case to Chapter 7. Given the above facts Transportation Alliance Bank has grounds to obtain relief from the automatic stay and foreclosure on the waterpark pursuant to Ohio state law. There is more to come regarding Transportation Alliance Bank’s claim against Mr. Lewis totaling approximately $2.4 million.

To recap, this case started out as a Chapter 11 reorganization of debts case but was quickly converted to a case under Chapter 7. Mercedes Benz Financial Services USA, LLC agreed to allow Mr. Lewis to keep the 2010 Mercedes-Benz CL63 AMG with adequate protection payments from Mr. Lewis of $2,320.00 per month. Porsche Financial Services, Inc. asked permission from the court and received relief from the automatic stay to repossess the leased 2010 Porsche Panamera. F.Xavier Baldera and Regions Bank, Navistar Financial Corporation, Hit-Em Hard Corporation and Alpha Jordy, LLC, have until September 14, 2012, to sue Mr. Lewis and prove the debts owed to them should not be discharged in his bankruptcy case. Now Transportation Alliance Bank is asking the court for permission to foreclose on Mr. Lewis interest in a waterpark located in Ohio.

This concludes Part III. There are still six parties to discuss and find out what their interests are in Mr. Lewis’ bankruptcy case.

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.

Underwater Second Mortgages, Third Mortgages or Equity Lines of Credit and Bankruptcy

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Are you struggling with paying your first mortgage, second mortgage or even third mortgage each month?  Is your house worth thousands less than what you owe?  You are not alone.  Millions of Americans have watched the value of their homes decrease month after month the last four or five years.

Many homebuyers purchased their homes with an 80% first mortgage and 20% second mortgage.  This allowed the homebuyer to avoid private mortgage insurance and put 20% down on the home.  To make matters worse either one or both loans could have been interest only loans.  Interest only loans allow the home buyer to only pay the interest for a period of time.

So you have a home that is worth less than what you owe and you are only making the minimum interest only payment each month on the first and second mortgage.  Any little financial problem will send you into a financial tailspin.  The good news is that bankruptcy can help.

In Chapter 13 and Chapter 11 unsecured liens or loans can be stripped off the property in the plan of reorganization.  How can you get rid of a mortgage in bankruptcy?  Well, if the value of your house is less than what is owed on the first mortgage, then the second mortgage is completely unsecured or underwater.  If the house was sold or foreclosed on the second mortgage company would get nothing, and that is how they are treated when reorganizing your debts in a Chapter 13 or Chapter 11 bankruptcy case.

The key is the value of the house.  The first thing that needs to be completed is a valuation of the house by the bankruptcy court.  A motion is filed with the bankruptcy court asking the bankruptcy court to value your home based upon comparable sales in your neighborhood.  If the second mortgage company accepts the value you believe to be true there will be very little more to do.  If the second mortgage company objects to the valuation an evidentiary hearing or mini-trial as to the value of the house will be scheduled.  Of course the second mortgage company is trying to prove that your house is worth more than is owed on the first mortgage.  If they are successful then the second mortgage is not completely underwater and not removable.  If it is held that your house is in fact worth less than the first mortgage you will be able to strip off the underwater second mortgage or equity line of credit.  You will only have to pay the first mortgage and the lien securing the second mortgage will be reconveyed once the Chapter 13 plan or reorganization is completed.

For more information about underwater mortgages from our bankruptcy lawyers or how bankruptcy can help you, please call our experienced bankruptcy attorneys at 1-877-963-9543.

Covanta Harrisburg, Inc. Seeks Dismissal of Harrisburg Bankruptcy

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The incinerator operator, Covanta Harrisburg, Inc., drew first blood today by filing their objection and brief in support, seeking the dismissal of the bankruptcy petition of the City of Harrisburg.  Covanta is at the center of the cities bankruptcy filing given that the bonds used to fund the incinerator are what the city is having trouble paying back.

Covanta cites section 921(c) and section 109(c) for authority to dismiss the bankruptcy petition.  Under section 921(c) the court may dismiss a petition if the debtor did not file the petition in good faith or the petition does not meet the requirements of Title 11.  Covanta is arguing that the petition was not filed in good faith because of Pennsylvania Act 26 of 2011 and that the petition makes no mention of this state law.  They are also arguing the requirements of section 109(c) are not met.

Covanta argues that Harrisburg is not eligible to be a debtor pursuant to section 109(c) of the bankruptcy code.  You may remember in a previous article in the Bay Area Bankruptcy Blog details about who can be a debtor and who may not.  A municipality must be specifically authorized to be a debtor by state law or by a governmental officer or organization empowered by State law to authorize the municipality to be a debtor.  The Commonwealth of Pennsylvania passed a law providing a city such as Harrisburg cannot file for bankruptcy protection.  Rather the state can step in and appoint a receiver to help the city form a plan to become solvent.  The State of Pennsylvania did just that on October 20, 2011, when Governor Tom Corbett signed Senate Bill 1151.  This bill declares a fiscal emergency and provides a receiver may be appointed to create a plan of recovery.  See Act 26 of 2011, 72 P.S. Section 1601-D.1 (2011).

Covanta also is arguing that the petition is invalid because the person who signed the petition did not have authority.  Just like the Mayor of Harrisburg, Covanta argues that all laws and legal matters must be presented to the City Solicitor for approval.  The four council members that voted for and authorized the filing of bankruptcy by the city have been called “unauthorized council members.”  The Mayor argues that only she as the executive can sign the petition and bind the city to filing bankruptcy, not a council member.

This is probably one of many more objections and briefs to be filed in support of dismissal of this bankruptcy case.  The Commonwealth of Pennsylvania has already passed a law appointing a receiver, the Mayor of Harrisburg representing the City of Harrisburg has opposed the filing, and now the incinerator operator has lined up against this bankruptcy case.  The question still is whether the Tenth Amendment of the U.S. Constitution will force the Bankruptcy Code to defer to the state law of the Commonwealth of Pennsylvania which arguably forbids this bankruptcy filing by Harrisburg.

For more information from an experienced bankruptcy lawyer or from a Redwood City bankruptcy attorney visit us at www.westcoastbk.com or call us toll free at 1-877-963-9543.