Monthly Archives: September 2013

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.

Just as there are different types of bankruptcies, there are different kinds of debt in bankruptcy, such as an executory contract.  An executory contract is one that has not yet been fully executed or performed, that is, all parties to the contract have yet to fulfill their obligations.

Service contracts, residential leases and car leases are examples of executory contracts.

Other types of executory contracts include:

• Business leases or rental agreements
• Business contracts
• Labor contracts (including unions)
• Time-share contracts or leases
• Real estate contracts
• Personal property leases, such as business equipment
• Leases of real estate (surface and underground) for mining or harvesting purposes
• Future homeowners’ association fee requirements
• Boat docking leases or agreements
• Insurance contracts

Executory contracts may be handled differently in different types of bankruptcy cases, though they are generally classified as unsecured debt.

In Chapter 7 and 13 bankruptcy cases, the Trustee has discretion over the resolution of an executory contract. The Trustee may decide to terminate, assume, or continue to pay the lease or contract.  Should the contract be terminated, the remaining monies owed are generally discharged as unsecured debt, with the creditor receiving no further or additional payment.

In Chapter 11 cases, the Trustee has the option to reject an executory contract.  However, in a Chapter 11, unsecured creditors also are granted the right to negotiate jointly for payment via the reorganization plan.

For executory contracts in bankruptcy, there are special considerations for contracts concerning intellectual property, which includes such matters as:

• Copyrights
• Patents
• Trademarks
• Proprietary information/trade secrets

Every contract is unique, from the parties involved to the conditions contained in the contract.  Whatever the type of contract, when a bankruptcy is involved, the advice of an experienced attorney is crucial in pursuing a successful resolution.

Working with an experienced, knowledgeable Arizona creditor’s attorney can help tremendously when evaluating a bankruptcy filing.  If you would like more information about executory contracts 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.

Technical bankruptcy refers to a situation in which a person lacks assets to pay debts, but has not yet filed for bankruptcy and/or protection from creditors, nor has s/he been declared bankrupt by a bankruptcy court.  The “technically bankrupt” person might delay filing for personal reasons, or in the hopes of soon acquiring the means to pay his/her debts. Technical bankruptcy is not about missing a single payment; most likely there are several financial obligations the debtor is not meeting.

Technical bankruptcy is not the same as insolvency.  In Arizona, the definition of insolvency includes the situation of a person generally not paying debts as they become due, and having debts that total more than the assets s/he has to pay them.  Insolvency is a condition that can lead to bankruptcy, and often precedes a condition of technical bankruptcy.

What rights do lenders/creditors have when such a situation presents itself?  They may seek what is called an involuntary bankruptcy.  Creditors need to monitor payments and be ready to refer matters to an experienced attorney.

In bankruptcies, secured creditors receive priority and unsecured creditors often do not get paid in full.   When a creditor suspects or is informed of a technical bankruptcy situation, perhaps the most important and timely action to take is to seek the advice of a skilled creditors’ rights attorney.

Working with an experienced, knowledgeable Arizona creditor’s attorney can help tremendously when evaluating a bankruptcy filing.  If you would like more information about technical 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.

After filing for a bankruptcy, in some instances a debtor may choose voluntarily to enter into what is called a reaffirmation agreement.  Reaffirmation is a promise to pay a specific debt, adhering to a specific payment plan, and waives the discharge of that particular debt.   A reaffirmation of a debt does not impact the bankruptcy ruling or the actions of the bankruptcy trustee, and both the debtor and the creditor must agree to sign the reaffirmation agreement. Reaffirmation agreements are not required by law, and they may be cancelled at any time before the bankruptcy debt discharge deadline, or within 60 days after the agreement has been filed with the court.

Not all creditors or lenders will recognize or opt to participate in a reaffirmation agreement.  Also, creditors may later need to seek legal remedy, such as a judgment, against a debtor who has signed a reaffirmation agreement and then fails to pay the debt.  In the case of secured debts such as mortgages, the creditor may take action to recover any property secured by a lien.

The use of reaffirmation agreements in the District of Arizona is an intricate process.  Creditors are best served by engaging experienced attorneys to assist with this course of action.

If you would like more information about reaffirmation agreements, 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 phrase “best interests of creditors” could describe the entire point of view of this blog.  For example topics have included creditors’ rights, bankruptcy basics, and terminology for creditors.  Taken specifically in the context of bankruptcy, though, the phrase “best interests of creditors” refers to a test utilized in bankruptcy cases to aid in the determination of payment amounts to creditors.  The test is also known as the “liquidation” or “best efforts” test.

In a Chapter 7 bankruptcy, the debtor’s assets are liquidated and creditors are repaid from monies raised in the liquidation.  However, in the more complex process associated with a Chapter 13 filing, the debtor must follow a payment plan that is approved by the Bankruptcy court.  The “best interest of creditors” test is a means to assure that unsecured creditors receive at least as much in repayment (through the court-approved plan) as they would have received in a Chapter 7 filing (from liquidating assets).

Chapter 11 bankruptcies generally concern business debtors rather than individuals.  However, the “best interests of creditors” test is also utilized to protect Chapter 11 creditors, whose repayment will be affected and determined by the specifics of the debtor’s plan of reorganization. In fact, the Bankruptcy court will not approve a Chapter 11 plan if the results of the test indicate that the debtor has not adequately addressed the needs of secured as well as unsecured creditors.

Protecting the rights and claims of creditors in bankruptcy is a complicated undertaking for the trustee as well as for all parties involved.  Considerations such as the “best interests of creditors” test are not intended to serve as a guarantee of satisfaction, but more of an overall safeguard of fairness toward creditors.

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.

By now regular readers of this blog are fairly familiar with bankruptcy in general. Bankruptcy is a legal proceeding in which a person who cannot pay his or her bills can get a fresh start. The right to file for bankruptcy is provided by federal law and all cases are handled in federal court.  Though most people have heard of Chapter 7 and 13 bankruptcies, there are other types of bankruptcies of which creditors may want to have knowledge.  This blog will discuss three less common but important types of bankruptcy filings.

Chapter 11, also known as a reorganization.  It is similar to a Chapter 13 bankruptcy in that it allows the filer to draft a plan to repay some debt while retaining assets. Chapter 11 is much more complicated, and therefore expensive, making it financially feasible mainly for businesses and very wealthy individuals.  Unlike a Chapter 7 or 13 bankruptcy, a Chapter 11 bankruptcy does not automatically include a trustee to administer the case unless the court directs that one be appointed. Should that occur, the trustee proceeds as in other bankruptcies, taking charge of the debtor’s business and property in an attempt to satisfy creditor claims.

Chapter 12.  This type of bankruptcy shares features of both Chapter 11 and 13 cases, but differs in that it is utilized mainly by family farmers and family fishermen. When a family farmer or fisherman files for a Chapter 12 bankruptcy, s/he will be allowed, as a debtor, to continue doing business while creating a plan of reorganization.  When the plan is approved, the debtor will be required to make payments in a time frame similar to a Chapter 13, usually three to five years.  Creditors with secured claims may be paid over an even longer specified period; unsecured claims are handled as they are in a Chapter 7 liquidation. The U.S. Bankruptcy Trustee  will most likely appoint a “standing trustee” to preside over a Chapter 12 bankruptcy.

Chapter 15. This specialized type of bankruptcy involves corporate bankruptcy cases (also known as insolvency cases) occurring outside the United States. Section 304, Chapter 15 of The Federal Bankruptcy Code elaborates on these “Ancillary and Other Cross Border Cases”, enabling multi-jurisdictional cooperation between countries pertaining to corporate insolvency.  Parties involved in foreign bankruptcy proceedings are able to accomplish more when information is shared, but it should be noted that a Chapter 15 bankruptcy is granted only at the discretion of the U.S. court.  One major consideration is whether U.S. creditors involved in the case are treated fairly in the foreign court jurisdiction; another factor in the decision pertains to whether any U.S. laws have been infringed upon by the other court(s)’ proceedings.

Working with an experienced, knowledgeable Arizona creditor’s attorney can help tremendously when evaluating a bankruptcy filing.  If you would like more information about bankruptcy requirements, 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.

Along with the creditor and the debtor, the U.S. Chapter 7 or Chapter 13 Trustee is also a major party in a bankruptcy case. It is the trustee who determines what, why, when and how each aspect of the case works through the process.

Bankruptcy trustees are not government employees, though they are appointed by, and accountable to, the Office of the U.S. Trustee, which is a division of the U.S. Department of Justice.  Besides their duties in bankruptcy cases, trustees often practice other professions such as law or accountancy.

Chapter 7 trustees are known as “panel” or “case” trustees, while Chapter 13 trustees are called “standing trustees.” Before assuming their duties in bankruptcy proceedings, all trustees must be vetted by the FBI and bonded.

Both Chapter 7 and 13 trustee duties include:

• Reviewing all bankruptcy documentation, asset information, and other relevant information pertaining to the debtor
• Conducting the Meeting of Creditors
• Questioning the debtor about particulars of the bankruptcy filing
• Addressing creditors’ proofs of claim
• Determining the value of a debtor’s assets
• Identifying/nullifying/objecting to improperly filed liens or fraudulent transfers

In a Chapter 7 case, the trustee’s duties may also include liquidating the debtor’s non-exempt assets to begin paying unsecured creditors. Chapter 13 trustees are responsible for reviewing and administering the bankruptcy repayment plan, which includes monitoring payments and accounting, for as long as the plan is in effect (generally, three to five years).

If you would like more information about the role of the trustee 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.

The repayment plan in a Chapter 13 bankruptcy filing is essential to both creditor and debtor.  The debtor must present a plan in good faith; and, the creditor will be paid in accordance with the plan’s terms. The debtor submits the repayment plan as part of the bankruptcy petition filing.Basic elements of a Chapter 13 repayment plan include:

Basic elements of a Chapter 13 repayment plan include:

1. The duration of the plan (generally three to five years)
2. Value (total dollar amount) of the debtor’s assets and property
3. Proposed payment amounts for the following types of debts:

• Priority Debts — alimony, child support, employee wages, some types of taxes. These must be paid in full by the end of the bankruptcy period.
• Secured Debts — mortgages, vehicle loans. These debts may be addressed outside the bankruptcy plan via reaffirmation agreements, or even reduced by means of a negotiated “cramdown.”
• Non-Priority Unsecured Debts — credit card debt, medical bills, personal loans. After priority and secured debts are given attention, the unsecured creditors in this category often only receive a percentage of what is owed them.

Before the case can proceed to the point at which any creditors will begin receiving payment, the repayment plan must be confirmed by the bankruptcy court.

If you would like more information about repayment plans or any other elements of Chapter 13 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.

If a creditor in a bankruptcy disputes the discharge of certain debt(s), that creditor may file an adversary complaint with the bankruptcy court within 60 days after the Meeting of Creditors. Filing an adversary action to determine the dischargeability of a debt in bankruptcy is a case within the bankruptcy proceeding.  The creditor will file the complaint, the debtor will file an answer, there will be discovery and then the case will proceed to trial.  If the judge rules that the debts will not be discharged, repayment is required.  Adversary proceedings may also be settled before they go to trial.

The Federal Bankruptcy Code details the circumstances under which some debts may not be discharged.  Some common grounds for creditor objections include:

• The debtor received a discharge in a Chapter 7 bankruptcy any time within the past eight years
• The debt is a priority debt, such as court costs, alimony, child support, restitution, and government-issued fines
• The debt consists of federal and/or state income taxes due for the past three years, or for taxes paid late in other years
• The debtor intentionally falsified a tax return, loan application, or other financial statements
• Certain credit card cash advances and charges made by the debtor within specific periods before a bankruptcy filing
• Costs and damages relating to destructive or vindictive conduct by the debtor, such as damage to real property or DUI

The Bankruptcy Trustee may also file objections, for reasons including:

• Failure of the debtor to keep and produce adequate financial records
• The debtor does not fully disclose assets
• The debtor destroys assets within a specified period before or during the bankruptcy filing or proceeding
• Failure of the debtor to obey bankruptcy court orders

There are two types of objections to discharge:

1.  Objection to Discharge of a Particular Debt (Section 523)

A creditor can object to the discharge of his or her particular debt, which may be granted despite all other debts in the bankruptcy being discharged.

2.  Objection to the Discharge of All Debts (Section 727)

A creditor or the U.S. Bankruptcy Trustee can object to the debtor’s discharge of all debt in the bankruptcy. Usually, this objection is based on fraud committed by the debtor in connection with the case. If a debtor is convicted of bankruptcy fraud, not only will the court deny the discharge of debt, but the debtor may also face criminal charges and prison time.

If you would like more information about Objections to Discharge and other adversary proceedings 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.

Generally, tax refunds are something people look forward to receiving.  In bankruptcy cases, however, it is the creditors, the U.S. Trustee, and the bankruptcy estate that are watching for those much-anticipated checks to arrive.

In Arizona Chapter 7 or Chapter 13 cases, if the debtor receives the previous year’s tax refund after filing for bankruptcy, all or part of the refund will go to the bankruptcy estate.  This applies to both state and federal tax refunds.

In a Chapter 13 bankruptcy, the entire amount of the tax refund must go to the bankruptcy estate each year for as long as the bankruptcy repayment plan remains in force.

If you would like more information about taxation issues 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.