The phrase “forced into bankruptcy” is often used when an individual or business files for bankruptcy.  But the fact is, there are only two instances in which a bankruptcy is not considered voluntary.

1.  Forced, but voluntary.  When a business or person voluntarily files for a Chapter 7 or Chapter 11 bankruptcy, that is a voluntary action, though it may have been “forced” by necessity in response to the pressure or legal actions of creditors.  A voluntary filing of bankruptcy immediately makes a debtor subject to the Bankruptcy Code and the proceedings that follow, under the supervision of the court and generally, the U.S. Trustee.

2.  Involuntary filing.  In certain instances, creditors can execute a bankruptcy filing that literally forces a debtor into bankruptcy.

The requirements for an involuntary bankruptcy filing are generally contained within Section 303 of the Federal Bankruptcy Code:

• When a company has 12 or more creditors, three or more of these creditors in good standing (i.e. with legitimate claims and no liability attached to the claims) must file the petition.  For a company with fewer creditors, only one creditor is necessary to file.  If additional creditors are identified, they may later join the petition, sanctioned by the court.
• The company concerned must also generally not be paying its debts.  Exceptions to this include existing disputes or the presence of an appointed custodian in charge of assets.
• The creditors filing the involuntary bankruptcy must designate either Chapter 7 or Chapter 11 for the type of bankruptcy they seek to force.

Once the filing has taken place, an automatic stay immediately goes into effect.  From that point forward, however, there are significant differences in an involuntary bankruptcy:

• The debtor/company may continue doing business without restrictions, as though the bankruptcy filing has not taken place.
• The court does not automatically impose restrictions or appoint a trustee
• The debtor may contest the involuntary petition by filing a response or a motion for dismissal within 21 days after service of the summons/filing.
• The debtor can consent to the filing after the fact.  If the creditors have designated Chapter 7, the company may respond by filing its own Chapter 11 plan and therefore reclaim control as a debtor in possession.
• The debtor may litigate as to whether the involuntary bankruptcy requirements have been met.
• Should the bankruptcy court ultimately rule in favor of the petitioning creditors, the debtor is officially placed into bankruptcy and becomes subject to the laws and proceedings under the Bankruptcy Code.

Working with an experienced, knowledgeable Arizona creditor’s attorney can help tremendously when evaluating a bankruptcy filing.  If you would like more information about involuntary bankruptcy, creditors’ rights, or if you need assistance from an attorney, contact Windtberg & Zdancewicz to schedule an initial consultation.

The attorneys at Windtberg & Zdancewicz, PLC, provide clients with experienced legal representation in all collection matters.  We are experienced in creditor’s rights including garnishments, charging orders, attachment, property execution, trustee’s sales, foreclosures, judgments, judgment collection, domestication of foreign judgments, and creditor’s issues in bankruptcy cases.  If you need assistance with your collection matters, please contact us at (480) 584-5660.

A Real Estate Investment Trust (REIT) is defined as a corporation, trust, or association that acts as an investment agent in real estate and real estate mortgages. In the recent economic crisis and recession, many REITs encountered problems; as a rule they are highly leveraged and are likely to be affected by everything from stringent credit and mortgage requirements to downturns in commercial real estate.  Adverse economic conditions can affect the ability of an REIT to meet its financial obligations.

Should an REIT file for bankruptcy, whether as a Chapter 7 liquidation or a Chapter 11 reorganization, creditors may find another group waiting to be paid:  REIT shareholders who hope to recoup at least some of their investment.  Creditors may well wonder who takes priority in an REIT bankruptcy.

In Chapter 7 liquidation all assets are sold and generally speaking, secured creditors, unsecured creditors, and shareholders all end up receiving little or none of what is owed to them.

In a Chapter 11 bankruptcy however, an REIT can take advantage of  debtor-in-possession (DIP) financing, which facilitates the REIT’s ability to continue doing business. Secured creditors may also negotiate equity positions in the REIT in lieu of repayment or in exchange for DIP financing.  The laws governing Chapter 11 require that every “class”, or type of creditor, be addressed.  Prioritization begins with those holding secured debt, followed by creditors with unsecured debt.  The claims of equity and bond shareholders of the REIT are the last to be considered.

Any bankruptcy situation can lead to financial disappointment.  Yet even in the difficult instance of REIT bankruptcy, creditors may experience more favorable outcomes than the original investors.

Working with an experienced, knowledgeable Arizona creditor’s attorney can help tremendously when evaluating a bankruptcy filing.  If you would like more information about REITs and bankruptcy, creditors’ rights, or if you need assistance from an attorney, contact Windtberg & Zdancewicz to schedule an initial consultation.

The attorneys at Windtberg & Zdancewicz, PLC, provide clients with experienced legal representation in all collection matters.  We are experienced in creditor’s rights including garnishments, charging orders, attachment, property execution, trustee’s sales, foreclosures, judgments, judgment collection, domestication of foreign judgments, and creditor’s issues in bankruptcy cases.  If you need assistance with your collection matters, please contact us at (480) 584-5660.

Intellectual property (IP) can be defined as the product that results from the use of intellectual capacity. Some recognizable examples of IP include:

• A specific recipe, pattern, device or formula, including copyrights, patents, trademarks
• Other proprietary information (“trade secrets”) vital to the success of the company that possesses it

Within bankruptcy proceedings, the role and assignment of intellectual property can prove quite complex.  The proliferation of IP, IP license agreements and the increase in business bankruptcies have presented more frequent conflicts between what bankruptcy law directs and how non-bankruptcy law affects both debtors and creditors.

Under Federal Bankruptcy Code Section 365, intellectual property falls under the penumbra of executory contracts, which as part of the bankruptcy estate are assumed, terminated, or assigned at the discretion of the bankruptcy trustee.  However, the specifics of the IP covenants themselves may determine what legal directives affect their disposition:  bankruptcy law, state property law, or other law.  Intellectual property generally found to be assignable within a bankruptcy includes:

• Non-exclusive patents
• Non-exclusive patent applications
• Non-exclusive IP licenses
• Intellectual property generally considered non-assignable:
• Trademarks
• Trademark applications
• Trade names
• Exclusive IP licenses

It is important to note that if a debtor holds an exclusive IP license to a certain property, that debtor may opt to sell that particular property to someone other than the creditor or the bankruptcy estate.

Creditors involved in disposition of intellectual property within a bankruptcy should obtain as much as information as possible about the types of IP and licenses that relate to their claims.

The assistance of an experienced, knowledgeable Arizona creditor’s rights attorney can be essential towards pursuing claims on intellectual property. If you would like more information about IP in bankruptcy, creditors’ rights, or if you need assistance from an attorney, contact Windtberg & Zdancewicz to schedule an initial consultation.

The attorneys at Windtberg & Zdancewicz, PLC, provide clients with experienced legal representation in all collection matters.  We are experienced in creditor’s rights including garnishments, charging orders, attachment, property execution, trustee’s sales, foreclosures, judgments, judgment collection, domestication of foreign judgments, and creditor’s issues in bankruptcy cases.  If you need assistance with your collection matters, please contact us at (480) 584-5660.

Creditors often go to court in an effort to collect what is owed them.  Or, they may use arbitration, a less formal but also legally binding and enforceable process.

In an arbitration, a neutral third party (arbitrator) hears both sides of the dispute.  The proceedings can be filed either by original creditors or by an assignee who has purchased debts from others.  Some kinds of debt, including credit cards and medical services, include in their contract a provision that their consumers/debtors use arbitration to settle their disputes.

Creditors are not required to bring an attorney to arbitration proceedings, but engaging a competent attorney is often the best possible step toward successful resolution of a dispute.  Arbitration is a legally binding process.  An attorney’s experience and understanding may make the difference between an arbitration “win” or loss.

While most hearings are held in person, occasionally phone, email or written communications are acceptable as alternate forms of proceedings.  After the proceeding, if the arbitrator decides the debt is valid, the creditor or debt collector must then go to court to obtain a judgment and then can request that the court issue garnishment orders as a result of the judgment.

Arbitration involving creditors may take place before bankruptcy is even a consideration by the debtor.  There are also conditions during bankruptcy proceedings in which a creditor may request arbitration, and may take the dispute in question back to a bankruptcy judge.

Working with an experienced and knowledgeable Arizona creditor’s attorney can be a tremendous help.  If you would like more information about creditors and bankruptcy, creditors’ rights, or if you need assistance from an attorney, contact Windtberg & Zdancewicz to schedule an initial consultation.

The attorneys at Windtberg & Zdancewicz, PLC, provide clients with experienced legal representation in all collection matters.  We are experienced in creditor’s rights including garnishments, charging orders, attachment, property execution, trustee’s sales, foreclosures, judgments, judgment collection, domestication of foreign judgments, and creditor’s issues in bankruptcy cases.  If you need assistance with your collection matters, please contact us at (480) 584-5660.

 

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Legally and linguistically speaking there are hundreds of types of individual liens, both secured and unsecured.  These range from mortgage liens to medical liens, auto liens, and many more.  It is important and beneficial for creditors to be well informed about the origins and categories of lien obligations.

Voluntary Liens

This type of secured debt, such as a mortgage or car loan, is created when a debtor creates a voluntary lien with a creditor.

Non-Consensual Liens

A nonconsensual lien, generally an unsecured debt, is given to a creditor without the agreement of the debtor.  This usually occurs after the debtor fails to meet a financial obligation.  There are two types of non-consensual liens:

1.     Statutory liens are those rights specified in, and created by federal or state laws, and concerning the debtor, are non-consensual. For example:

• Tax liens, which by law may attach to the property on which the tax is owed.
• Mechanic’s liens: if the debtor fails to pay for work done on his or her property, the construction professional to whom payment is owed may file a lien against the property.

2.     Judicial liens are non-consensual liens that result from a court-ordered action.  Examples include:

• Judgment Liens.  Bankruptcy is a prime example of a judgment lien.
• Garnishment or Attachment Liens:  A method of collecting payment via garnishing (attaching) a judgment debtor’s wages or bank accounts.
• Child Support Liens can be obtained against the property of a person who has failed to pay court-ordered child support.

The better informed a creditor is, the better prepared they are to take the proper action against a debtor.  Taking timely and proper action increases the likelihood that a lien can be resolved to the benefit of a creditor. The advice of a skilled legal professional can also be to the creditor’s advantage when liens are at issue.

Working with an experienced, knowledgeable Arizona creditor’s attorney can help tremendously with understanding various types of liens and the rights and obligations each type of lien confers.  If you would like more information about liens, creditors’ rights, or if you need assistance from an attorney, contact Windtberg & Zdancewicz to schedule an initial consultation.

The attorneys at Windtberg & Zdancewicz, PLC, provide clients with experienced legal representation in all collection matters.  We are experienced in creditor’s rights including garnishments, charging orders, attachment, property execution, trustee’s sales, foreclosures, judgments, judgment collection, domestication of foreign judgments, and creditor’s issues in bankruptcy cases.  If you need assistance with your collection matters, please contact us at (480) 584-5660.

Unlike the proverbial certainty of death and taxes, the death of a debtor during the period of a bankruptcy proceeding can be an occasion of uncertainty for creditors.  Many times after the death of a debtor in bankruptcy creditors question whether they are still owed money, who will pay their claim, or they may even wonder if they will be paid at all.

Federal Bankruptcy Rule 1016 has specific directives for specific types of bankruptcies.  The rule states that in a Chapter 7 bankruptcy, the estate shall be administered and the case concluded in the same manner, so far as possible, as though the death had not occurred.  In a Chapter 11, 12 or 13, the case may be dismissed; or if further administration is possible and in the best interest of the parties, the case may proceed and be concluded in the same manner, so far as possible, as though the death had not occurred.  Simply put, debts owed to creditors do not go away with the death of a debtor until they are discharged.

Creditors may pursue the debtor’s estate, if one exists, or the debtor’s survivors for payment if a bankruptcy case is dismissed or discontinued. If an estate exists, the executor of the estate would be empowered to pay the debts.  In Arizona and other community property states, laws specify that debts can pass to a surviving spouse.  Co-signers of loans must pay the remaining term of the loan after the other signed has died. Family members or others who stand to inherit money or property from a debtor must pay off the late debtor’s existing debts before they can collect any inheritance due them.

An unfortunate situation such as the death of a debtor in a bankruptcy can add difficulty to the position of any creditor. Working with an experienced, knowledgeable Arizona creditor’s attorney can help make the proceedings less disruptive all around.

If you would like more information about creditors’ rights, or if you need assistance from an attorney, contact Windtberg & Zdancewicz to schedule an initial consultation.

The attorneys at Windtberg & Zdancewicz, PLC, provide clients with experienced legal representation in all collection matters.  We are experienced in creditor’s rights including garnishments, charging orders, attachment, property execution, trustee’s sales, foreclosures, judgments, judgment collection, domestication of foreign judgments, and creditor’s issues in bankruptcy cases.  If you need assistance with your collection matters, please contact us at (480) 584-5660.

 

The term “clawback” can be defined as money that is paid out or distributed, and then that payment is revoked (taken), or “clawed back,” as the result of certain circumstances.  In bankruptcy proceedings, the trustee may use the clawback provision to void or undo certain debtor actions.

Generally speaking, the two categories of transactions subject to clawback are:

• Fraudulent transfers:  Assets that a debtor intentionally moves or hides to avoid including them in a bankruptcy
• Preferential transfers: Payments made to a creditor within 120-180 days before filing for bankruptcy, might be clawed back by the bankruptcy trustee under the rubric of preferential payout.

If the bankruptcy trustee determines that there is the likelihood of a preferential or fraudulent transfer, they are empowered to file an adversary proceeding, also known as a “clawback suit”, to begin resolving (undoing) them and putting the assets back into the bankruptcy estate.

A clawback has the effect of restoration of assets that have been transferred back into the bankruptcy estate, to the eventual benefit of creditors.  Additionally, the clawback provision protects creditors and their claims from unequal treatment by the debtor.

Working with an experienced, knowledgeable Arizona creditor’s attorney can help tremendously when evaluating a bankruptcy filing.  If you would like more information about clawbacks in bankruptcy, creditors’ rights, or if you need assistance from an attorney, contact Windtberg & Zdancewicz to schedule an initial consultation.

The attorneys at Windtberg & Zdancewicz, PLC, provide clients with experienced legal representation in all collection matters.  We are experienced in creditor’s rights including garnishments, charging orders, attachment, property execution, trustee’s sales, foreclosures, judgments, judgment collection, domestication of foreign judgments, and creditor’s issues in bankruptcy cases.  If you need assistance with your collection matters, please contact us at (480) 584-5660.

In a Chapter 11 business bankruptcy, a debtor decides to restructure or reorganize.  The debtor is permitted to continue running the business as “debtor in possession.”  Whether, and in what financial condition, the debtor and the business might emerge from bankruptcy depends on the success of the reorganization plan, which must be approved by the Bankruptcy court.

After filing for Chapter 11, a debtor has 120 days to propose a plan of reorganization that satisfies the court as well as the creditors, who are granted the opportunity to vote on the plan.  If the 120-day period passes and if no plan has been submitted, creditors may instead propose their own plans.  If a debtor’s plan does not receive court approval, the bankruptcy may be converted to a Chapter 7 liquidation plan or even dismissed outright. If the bankruptcy petition is dismissed, creditors may exercise the remedies afforded to them under state law to pursue their claims.

What is included in a Chapter 11 reorganization plan?

In a Chapter 11 bankruptcy reorganization plan, each claim or debt must be specified and classified by the debtor.  Debts are prioritized by type and amount, and non-priority debts may not be paid in full, or at all.  Only when one class of debts has been completely paid will the next tier be considered for payment. Priority of payment is:

1. Secured debt
2. Unsecured debt
3. Additional classifications of debt with differing priority, such as employee claims.

A Chapter 11 bankruptcy reorganization plan must also specify how each debt will be handled in terms of payment, length of time, and how the specific steps will be implemented. A plan could also include liquidation of assets, such as in a Chapter 7 bankruptcy, though in a Chapter 11 the monies raised may not all be applied to debts; some may go toward the continued operation of the bankrupt business.

Working with an experienced, knowledgeable Arizona creditor’s attorney can help tremendously when evaluating a bankruptcy filing.  If you would like more information about Chapter 11 reorganization plans, creditors’ rights, or if you need assistance from an attorney, contact Windtberg & Zdancewicz to schedule an initial consultation.

The attorneys at Windtberg & Zdancewicz, PLC, provide clients with experienced legal representation in all collection matters.  We are experienced in creditor’s rights including garnishments, charging orders, attachment, property execution, trustee’s sales, foreclosures, judgments, judgment collection, domestication of foreign judgments, and creditor’s issues in bankruptcy cases.  If you need assistance with your collection matters, please contact us at (480) 584-5660.

The term “cramdown” refers to a situation in bankruptcy in which secured creditors are required to accept a reduction in what is owed.

Interest rates, payment amounts and principal balances may be lowered, or “crammed down” in order to facilitate a debtor’s ability to pay.  In the recent mortgage crisis, cramdowns were prominent in bankruptcy proceedings to assist many debtors facing foreclosure.

In a Chapter 7 or 13 bankruptcy proceeding, cramdowns may be applied to secured debts such as property mortgages (except on the debtor’s primary residence) or car loans.  With a cramdown  Chapter 13 debtor might be granted a longer period in which to pay;  while a Chapter 7 bankruptcy debtor may see secured liens or debts disappear as a result of the cramdown modification.

The cramdown mechanism in bankruptcy is one any creditor would prefer not to encounter.  Whatever the situation, however, the proactive assistance of an experienced creditor’s rights attorney can be the best-advised first step for any creditor asserting claims in a bankruptcy.

Working with an experienced, knowledgeable Arizona creditor’s attorney can help tremendously when evaluating a bankruptcy filing.  If you would like more information about cramdowns in bankruptcy, creditors’ rights, or if you need assistance from an attorney, contact Windtberg & Zdancewicz to schedule an initial consultation.

The attorneys at Windtberg & Zdancewicz, PLC, provide clients with experienced legal representation in all collection matters.  We are experienced in creditor’s rights including garnishments, charging orders, attachment, property execution, trustee’s sales, foreclosures, judgments, judgment collection, domestication of foreign judgments, and creditor’s issues in bankruptcy cases.  If you need assistance with your collection matters, please contact us at (480) 584-5660.

 

 

 
 

Creditors encounter debts that go by many different names.  This blog will address several different ways in which debt is triggered, and how debt is classified in these instances.

Covenant default

A loan covenant specifies the conditions and requirements the borrower must fulfill, as well as what is forbidden, in a loan agreement.  If the loan is for a business, agreements may include financial, ownership, and informational covenants, for example.  Covenant default is also known as technical default.  Should a borrower/debtor violate a loan covenant, penalties can be brought to bear or the loan itself can be called with a demand for immediate payment in full.

Debt service default (Payment default)

These terms are interchangeable, and refer to when a borrower/debtor has missed or not made a scheduled payment, whether on loan principal or interest.

Maturity default

A loan’s maturity date is the time when a note becomes due and payable, or when the amortization schedule of a loan indicates the last payment should be made.  Maturity default occurs when a mortgage borrower/debtor fails to pay to the lender/creditor the balance due at maturity.  In the recent financial and mortgage crisis, maturity defaults were more common than perhaps any other time in history.  In the instance of a maturity default, a lender/creditor may agree to refinance or restructure the loan in order to recoup losses rather than see the loan go into default.

Strategic default

Whether triggered by an economic crisis or by personal reasons, this term refers to a debtor who intentionally defaults on a loan, even if s/he is capable of making payments.

Event Of Default

Business contracts, loans, and lease agreements often contain clauses pertaining to an “event of default” situation.  These articles protect the parties involved should the debtor cease payment.  An event of default may be triggered by:

• Maturity default on a loan
• Breach of contract
• Declaration of bankruptcy
• Transferring collateral without creditor consent

Working with an experienced, knowledgeable Arizona creditor’s attorney can help tremendously when evaluating a bankruptcy filing.  If you would like more information about defaults pertaining to bankruptcy, creditors’ rights, or if you need assistance from an attorney, contact Windtberg & Zdancewicz to schedule an initial consultation.

The attorneys at Windtberg & Zdancewicz, PLC, provide clients with experienced legal representation in all collection matters.  We are experienced in creditor’s rights including garnishments, charging orders, attachment, property execution, trustee’s sales, foreclosures, judgments, judgment collection, domestication of foreign judgments, and creditor’s issues in bankruptcy cases.  If you need assistance with your collection matters, please contact us at (480) 584-5660.