Happy Anniversary, Detroit Bankruptcy

Posted in: General Bankruptcy

Detroit’s historic bankruptcy was filed on July 18, 2013, one year ago today.  When the bankruptcy was filed by emergency manager Kevyn Orr , the city was nearly $20 billion in debt.  In the five preceding years, the city spent an average of $100 million more than it brought in.  Orr had failed to reach agreements with creditors to restructure Detroit’s debt outside of court and believed that bankruptcy was the best option.

In a December 2013 ruling following a nine-day trial, Judge Steven Rhodes declared Detroit eligible to proceed with Chapter 9 bankruptcy.  He held that the city met all factors for insolvency, was unable to pay its debts, and was unable to provide a minimum level of basic services to residents.

Opponents of the bankruptcy had argued that the city did not negotiate in good faith with creditors, particularly those retired city workers receiving pensions.  Those workers also argued that their pensions were protected by the Michigan state constitution.

In February 2014, Orr filed a proposed plan of adjustment in the city’s bankruptcy case. The plan called for spending $1.5 billion over the next ten years on improvements to the city, including blight removal, technology upgrades, and infrastructure repairs.  The investments aimed to prevent further population loss and revitalize the city once known as the Paris of the West.  The plan’s impact would be felt heaviest by non-uniformed city retirees, who would see their pensions cut by nearly one-third if the plan was approved.  The plan would spare pensions for police and firefighters somewhat, with those pensions cut by only ten percent.

In April 2014, Detroit reached a settlement with a large group of unsecured bondholders.  In June 2014, Michigan lawmakers passed a series of bills with bi-partisan support to allocate $194.8 million for Detroit in a one-time influx of money.  The bills help alleviate cuts to the city’s pensioners and insulate artwork at the Detroit Institute of Arts from sale.  The bills also indemnify the state from lawsuits relating to the bankruptcy filing and provide for a nine-member committee to oversee the city’s finances, budget, and contracts.  The state’s contribution added money to the $366 million already pledged by charitable foundations and the $100 million pledged from the Detroit Institute of Arts.

City employees and retirees were given an opportunity to vote on Orr’s plan of adjustment, and the results will be announced on July 21.  Next, Judge Rhodes will hold a hearing in August and rule whether or not to accept the plan of adjustment.

Argentina Hope For World Cup Win and Debt Settlement

Posted in: Other Areas of the Law

World Cup finalists Argentina will play Germany on Sunday, with superstar Lionel Messi and his teammates hoping to prevail against the team that showed no mercy in its last game.

In another high-stakes clash, Argentinian officials met with a mediator Friday in New York to attempt to settle a looming debt crisis.

Argentina defaulted on $100 billion in debt in 2001, throwing the country into economic chaos. Argentina again risks defaulting on its debt obligations.  The current crisis involves $1.5 billion owed to investors who bought bonds during the 2001 default.  The due date of July 1 has come and gone, and the 30-day grace period will soon expire.

Leading the group of investors is billionaire Paul Singer, who has previously sued Peru and the Republic of the Congo to pay bond obligations.  The investors sought and received a US Supreme Court ruling that Argentina must make the payment.

President Cristina Fernandez has said that the country cannot make the payment and keep up with interest payments to other creditors.  Argentinians also worry that payment of this obligation would set a dangerous precedent and invite lawsuits from other investors demanding to be paid on the same terms.

Restitution Is Not Discharged in Bankruptcy

Posted in: General Bankruptcy

Section 523 of the Bankruptcy Code provides that a Chapter 7 discharge does not include debts for “fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny” nor does the discharge include debts that are for a “fine, penalty, or forfeiture payable to and for the benefit of a governmental unit.”

A Michigan woman recently sought to discharge a large restitution debt owed to her former employer.  The former Kentwood parks clerk was convicted of  fabricating reservations for city parks, canceling the reservations, and refunding the money into her own pockets.  Upon her sentencing, she was ordered to repay the city $331,000 as restitution.

After filing Chapter 7 bankruptcy with her husband, she argued that the city would recover the money from insurance payments and that she should not have to pay the money back.  The bankruptcy judge denied her request.

Bouncing Back (Fashionably) From Bankruptcy

Posted in: General Bankruptcy

Fashoin designer Michael Kors is the embodiment of the self-made success story.  He designed and sold clothing from a very young age.  He set up a fashion boutique in his basement at the age of 11.  Working in a department store in sales, he ended up designing the store’s clothing line.  He started his own women’s clothing line in 1981.

Going through a Chapter 11 bankruptcy in 1993 did not deter the designer.  Chapter 11 provides (generally) for reorganization, usually involving a corporation or partnership. A Chapter 11 debtor proposes a plan of reorganization to keep its business alive and pay creditors over time.

The designer expanded into the realm of reality television in the early 2000s.  He served as a judge on the television show “Project Runway” for ten seasons, known for his fair but rigid comments towards the contestants.

His company went public in December 2011.  Earlier this year, his fortune topped $1 billion.  Once just sold in department stores, the Michael Kors brand is now found in stand-alone stores around the world.  From fragrances, women’s shoes, men’s shoes, eyeglasses, and handbags, the classic staples of the line appeal to many.  In fact, a quick office survey here at The McKellar Law Firm, PLLC found a pair of coral platforms and a patent handbag.  The Kors story illustrates that massive success is sometimes punctuated by the restructuring or shedding of debt.

 

Tennessee Woman Sentenced to Prison For Bankruptcy Fraud

Posted in: General Bankruptcy

Tennessee woman Janet Brown was sentenced on Thursday to one year in federal prison for bankruptcy fraud.

Accused of participating in a Ponzi scheme along with her late husband Jack Brown, the only charge against Ms. Brown to date is the bankruptcy fraud charge, to which she entered a guilty plea in February.  That Ponzi scheme was allegedly run under the guise of Brown’s Tax Service in Soddy Daisy, and defrauded investors of $12 million.  Many local residents say they lost their savings in the scheme.  A group of the investors filed an involuntary Chapter 7 bankruptcy against the couple.

The bankruptcy fraud charge stems from a question at Ms. Brown’s 341 Meeting of Creditors in which she was asked under oath if she had turned over all of her jewelry to the Chapter 7 trustee.  Ms. Brown said that she had except for the three pieces she was allowed to keep (her wedding band, high school ring, and mother’s ring).  The Trustee produced photos of her wearing missing diamond jewelry.  Three days after the meeting, Ms. Brown delivered a bag of jewelry later appraised at $25,000 to her attorney, who was bound to turn it over to the Trustee.  Her lie about her assets at the 341 Meeting was the basis of the bankruptcy fraud charge, which can carry a sentence of up to five years and a fine of up to $250,000.

A Debt Collector Is Calling Me

Posted in: Debt Collection

You are at home, and someone calls you.  It’s a number you don’t recognize.  You pick up and quickly realize that the person on the other end of the line is a debt collector.  They tell you that you owe money to a company you have never heard of.  Or, they talk about a debt you recognize but the amount doesn’t sound right.  What do you do next?

You may have more options than you realize.  If you are tired of the telephone calls or just don’t seem to be getting anywhere with the collectors, you may want to put it in writing.  The Consumer Financial Protection Bureau (CFPB) has published five form letters you may want to use to communicate to the collector about the debt.

The first letter requests more information about an unfamiliar debt.

The second letter indicates you, the consumer, are disputing the debt and do not want the collector to contact you again.

The third letter may be used if you want to communicate with the collector to resolve the debt, but only want them to call or contact you at certain times.

The fourth letter notifies the collector you have hired an attorney and that they must contact them and not you.

The fifth letter is a request to stop contact.  The collector could pursue other remedies such as bringing a lawsuit to collect the debt, but this letter could provide some temporary relief.

The CFPB provides general information to consumers.  For a free consultation regarding your specific debts and legal rights, contact The McKellar Law Firm, PLLC.

Michigan Bill Will Send $194.8 Million to Detroit

Posted in: General Bankruptcy

Michigan lawmakers passed a series of bills with bi-partisan support on Tuesday with the goal to help reach a settlement of Detroit’s bankruptcy case.  The bills allocate $194.8 million for Detroit in a one-time influx of money.  The bills will help alleviate cuts to the city’s pensioners and insulate artwork at the Detroit Institute of Arts from sale.  The bills will also indemnify the state from lawsuits relating to the historic bankruptcy filing and provide for a nine-member committee to oversee the city’s finances, budget, and contracts.

Tim Sowton of Business Leaders for Michigan stated “We are dedicated to making Michigan a top 10 state for jobs, and to get there we need our largest city at its best.”

The bills are on their way to Governor Rick Snyder for approval.  He stated, “This is what bipartisanship is all about.  This was about great teamwork.”

Opponents of the bill held strong opinions, such as this one from Senator Coleman Young of Detroit opposing the state oversight of the city’s finances: “This bill is like me at Buffalo Wild Wings. Once you let them in you never leave.”

The state’s contribution would add money to the $366 million already pledged by charitable foundations and the $100 million pledged from the Detroit Institute of Arts.

Bankruptcy Filing Fees Increase on June 1

Posted in: Before Filing

On June 1, the filing fees for bankruptcy cases will increase.  Chapter 7 filing fees will increase to $335.00, and Chapter 13 filing fees will increase to $310.00.

The filing fee is separate from your bankruptcy attorney’s fee and is paid to the court.  The fee defrays the court’s cost in opening your case file, maintaining the file, providing notice of your bankruptcy case to your creditors, maintaining court clerks and staff, and various other administrative functions.

Filing fees periodically increase in bankruptcy courts, federal courts, and state courts.  For the most up-to-date information on filing fees, click here to access the filing fee schedule for the United States Bankruptcy Court, Eastern District of Tennessee.

Dr. Dre Fights For a Claim in Death Row Records Bankruptcy Case

Posted in: General Bankruptcy

Dr. Dre’s Beats Electronics headphones company may soon be sold to Apple in an acquisition worth billions.  However, the recording artist recently had bad news from the bankruptcy court where Death Row Records’ case is pending.

Dr. Dre and Marion “Suge” Knight were co-founders of the record label, but after a falling out Dr. Dre left to form Interscope Records.  Dr. Dre claims that during the split from Death Row Records, an agreement was reached for Dr. Dre to receive royalties and sales from his album The Chronic.

The bankruptcy case of Death Row Records and Suge has been pending since 2006.  Dr. Dre is involved in the bankruptcy case as a creditor. He claims he is owed over $3 million dollars for royalties and sales allegedly earned from the digital release of The Chronic between 2006 and 2009 by the company that bought part of Death Row’s musical catalog in the bankruptcy.

The bankruptcy judge dismissed the request, ruling that Dr. Dre failed to allege certain facts necessary to support the claim and also based in part on the fact that issues regarding the oral contract for royalties had already been litigated.

The bankruptcy trustee has $6.3 million available to distribute to creditors.  The judge approved a plan for the trustee to begin making payments to creditors last week.

The Median Household Income in Tennessee And What It Means To Your Case

Posted in: Uncategorized

A debtor filing bankruptcy must complete Form 22A, a document more commonly known as the Means Test.  The Means Test determines the debtor’s eligibility to file a Chapter 7 bankruptcy by comparing his or her income with the median household income of other families of the same size in their state.  Plainly stated, you will probably have to file a Chapter 13 bankruptcy if you make too much money.

Even if you make over the median income for a family your size, that does not necessarily mean that you won’t qualify for Chapter 7. You may still qualify depending on your monthly expenses and disposable income that you have left over.

Every few months, the Department of Justice gathers census data and lists the median income for household sizes in each state.  For example, a couple with two minor children in Tennessee may file a Chapter 7 bankruptcy if their combined income is below $63,725.  Click here to see the Tennessee median income used for cases filed since May 1, 2014.