Bankruptcy. Presented by: Glen Roberts Colorado Title Examiner Seminar Date: May 6,

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1 Bankruptcy Presented by: Glen Roberts Colorado Title Examiner Seminar Date: May 6,

2 Stewart Fueling Your Success BANKRUPTCY 1978 Debtors get time and fresh start Creditors maybe get something

3 WHAT WE NEED TO KNOW HAS BK BEEN FILED? WHEN? WHAT CHAPTER? STATUS OF BK? OPEN DISCHARGE DISMISSED CLOSED

4 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

5 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

6 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

7 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

8 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

9 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?

10 SCENERIO 1 CONT JUDGMENTS AND TRUST DEED ENCUMBER PROPERTY? PAYOFF USING PROCEEDS ORDER AVOIDING LIEN ORDER TO SELL FREE AND CLEAR OF LIENS.

11 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

12 SCENERIO 3 DISMISSAL ENTERED OR BK CLOSED NO BK ISSUE BUT WHAT ABOUT JUDGEMENT LIENS AND TRUST DEED?

13 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

14 CHAPTER 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

15 CHAPTER 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

16 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

17 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?

18 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

19 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

20 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

21 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

22 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

23 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

24 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?