Bankruptcy

Presented by: Glen Roberts

Colorado Title Examiner Seminar

Date: May 6, 7 2014

Stewart – Fueling Your Success

BANKRUPTCY 1978

Debtors get time and fresh start

Creditors maybe get something

WHAT WE NEED TO KNOW

• HAS BK BEEN FILED?

• WHEN?

• WHAT CHAPTER?

• STATUS OF BK?

– OPEN

– DISCHARGE

– DISMISSED

– CLOSED

WHO IS THE BOSS?

• WHO HAS AUTHORITY OVER THE PROPERTY?

– TRUSTEE

– DEBTOR

• HOW DO WE GET PROPERTY OUT OF BK ESTATE?

– ORDER APPROVING SALE

– ORDER OF ABANDONEMENT

– CLOSED BK

– RELIEF OF STAY?

– DEED FROM TRUSTEE/DEBTOR

HOW DO WE GET CLEAR TITLE?

ORDER OF ABANDONMENT

ORDER APPROVING SALE FREE AND CLEAR

BANKRUPTCY PLAN

TERMS

AUTOMATIC STAY

– Injunction on creditors prohibiting actions against debtor

DISCHARGE

-releases debtor from personal liability from specific

debts listed on petition

-prohibits creditors from taking action against the

debtor to collect debts

-does not remove liens against debtors property

DISMISSAL

-court dismissed case, as if petition never filed

CLOSED

-BK is over, no stay, no authority of trustee over

estate

TYPES OF PROCEEDING

• CHAPTER 7 - LIQUIDATION BY INDIVIDUAL, PARTNERSHIP,

CORPORATION OR OTHER BUSINESS ENTITY

• CHAPTER 11 – BUSINESS REORGANIZATION BY

INDIVIDUAL, PARTNERSHIP, CORPORATION, OR OTHER

BUSINESS ENTITY

• CHAPTER 12 – ADJUSTMENT OF DEBTS OF FAMILY

FARMER OR FISHERMAN WITH REGULAR ANNUAL INCOME

• CHAPTER 13 – ADJUSTMENT OF DEBTS OF INDIVIDUALS

WITH REGULAR INCOME

DEBTS NOT DISCHARGED

• ALIMONY

• CHILD SUPPORT

• SCHOOL LOANS

• DEBTS ARISING FROM WILLFUL AND

MALICIOUS INJURY BY DEBTOR

• DEBTS FOR DEBTS AND INJURY CUASED

BY DEBTORS DUI

• CRIMINAL RESTITUTION ORDER

CHAPTER 7

• TRUSTEE ALWAYS APPOINTED

• TAKES CONTROL OF DEBTORS ESTATE

• REDUCES ASSETS TO CASH TO PAY

CREDITORS

• DUMPS ASSETS THAT HAVE NO VALUE TO

CREDITORS

CHAPTER 7 THREE SCENERIOS

• 1. CASE IS OPEN

– DEBTOR WANTS TO SELL

– HOW DO WE GET PROPERTY OUT OF THE

ESTATE?

• ORDER OF ABANDONMENT

• ORDER AUTHORIZING SALE

– WHO SIGNS SALE DOCUMENTS?

– NET PROCEEDS FROM SALE

WHAT ABOUT ORDER FOR RELIEF OF STAY?

SCENERIO 1 CONT

• JUDGMENTS AND TRUST DEED ENCUMBER

PROPERTY?

– PAYOFF USING PROCEEDS

– ORDER AVOIDING LIEN

– ORDER TO SELL FREE AND CLEAR OF LIENS.

SCENERIO 2

• DISCHARGE ENTERED DEBTOR BUYING

– WHERE IS CASH COMING FROM?

– PREFER TO WAIT FOR BK TO CLOSE

– CONTACT TRUSTEE

– IF BORROWING TAKE EXCEPTION TO BK

SCENERIO 3

• DISMISSAL ENTERED OR BK CLOSED

• NO BK ISSUE

• BUT WHAT ABOUT JUDGEMENT LIENS AND

• TRUST DEED?

CHAPTER 13

• WAGE EARNER PLAN – REGULAR INCOME

AND PLAN TO PAY CREDITORS

• PLAN SUBMITTED AND APPROVED BY

COURT (ORDER)

• PLAN CONFIRMED SIGNED BY COURT

– PMTS TO TRUSTEE WHO DISTRIBUTES FUNDS

TO CREDITORS OVER THREE TO FIVE YEAR

PERIOD

– CONFIRMATION OF PLAN USUALLY REVESTS

PROPERTY BACK IN DEBTORS NAME

– DISCHARGE OCCURS UPON COMPLETION OF

PMTS UNDER THE PLAN

CHAPTER 13

• 1. DEBTOR SELLING

– MUST REVIEW PLAN

– CAN DEBTOR SALE (WAS PROPERTY

REVESTED?) (SEC VI OF PLAN)

– ANY LIMITATION IN PLAN?

– IF NONE THEN DEBTOR CAN SELL

– BUT NET PROCEEDS? NOW WHAT?

• NEED APPROVAL FROM TRUSTEE

• IF LIENS/JUDGEMENTS NEED

– ORDER AVOIDING LIEN; OR

– ORDER SELLING FREE AND CLEAR

CHAPTER 13

• 2. PLAN CONFIRMED DEBTOR WANTS TO

BUY

– OBTAIN WRITTEN APPROVAL FROM TRUSTEE

NO BK ORDER NEEDED

IF NO PLAN CONFIRMED THEN NEED SPECIFIC

COURT ORDER APPROVING SALE

CHAPTER 11

• BUSINESS REORGANIZATION PLAN

• DEBTOR IN POSSESSION

• OPERATES BUSINESS DURING BK

• TRUSTEE TYPICALLY NOT APPOINTED

• UNTIL PLAN IS CONFIRMED (SIGNED BY

JUDGE)

• PLAN CREATES NEW CONTRACT

• PLAN DISCHARGES DEBTS

CHAPTER 11

• DEBTOR WANTS TO SELL

• IS PLAN CONFIRMED?

• ORDINARY COURSE OF BUSINESS?

• DOES PLAN PROVIDE FOR SALE?

• DEBTOR WANTS TO ENCUMBER

PROPERTY?

• ALLOWED UNDER PLAN?

ACTUAL CASE

• Bob Denver left charter boat business

• Sold Minnow and movie rights

• He and MaryAnn bought a condo in Cherry

Creek and a home in Vail

• Purchases 13 tire stores along the front range

• Pays cash for two of them and gets financing on

• other 11

• After 1 year, business has been good but not

good enough. Margins tight

• Bob finds new source for tires

More Bob

• Tiresrus.com

• After 6 months profits way up

• But, few months later gets letter from Parley the

personal injury attorney

• Parley’s client bought tires at Bob’s Tires

• Tire blew coming down Vail pass

• Death and injury

• Send Parley check for $15 mill

• Soon all of Parley’s golf buddies also going after

Bob.

• Tires are exploding on a regular basis

Piece of Bob

• Bob was gone for number of years, not

sophisticated, default judgments for millions

• Bob’s Tires makes the news

• Business is bad

• Can’t pay mortgages

• Bob meets with Barney the “tired of creditors”

BK attorney

• Barney surprisingly recommends bankruptcy

Bob has seen better days

• November 1, 2008 Bob files Chapter 7 BK

• All 13 properties go up for sale

• Condo in Cherry Creek for sale

• Discharge Jan 10, 2009

• Tom makes cash offer on all 13 stores brings

the deal to you.

• And you pull title and find Bob’s mess

Plan of Action

• Can Bob sell?

– Who has title?

– What do we need to close the deal?

Case is closed. Now what do we need?

-clear title?

-judgments, trust deeds

Chapter 11 Reorganization

-No Plan

-Plan

Bob starts to see the light

• Bob files Chapter 13

– Is there a Plan?

– Who can sign closing documents?

– Excess proceeds, who gets them?

2 Years later Bob is getting back on his feet, wants back

into the tire business

-wants to acquire Lex’s tire store

-you get the order

More Lights

• Chapter 7

– Status of Case: discharge, dismissal, closed

Chapter 11

- Is Plan in place?

- Can Bob buy property?

Chapter 13

- Status of Plan

- Can Bob buy property?