Category Archives: Creditor’s Rights

In certain cases, in order to receive a distribution in a bankruptcy case, it is incumbent upon the creditor to file a proof of claim. Filing a proof of claim is the first step in getting paid. Once the claim is filed, it is critical that the creditor monitor the bankruptcy, because there may be an objection to the claim lodged. A Chapter 7 trustee, or debtors-in-possession (in Chapter 11 cases), can object to a creditor’s proof of claim. In response to the objection, the creditor will need to file a response within fourteen (14) or twenty-one (21) days, depending upon the notice provided by the objecting party.

There are many reasons why a trustee or debtor-in-possession may file an objection to a creditor’s claim; however, it is critical that the objection be a valid reason under the Bankruptcy Code. Often times, objections are filed to claims because the claim is ‘secured’. Even though the creditor has security for its claim, that fact alone is not the end of the inquiry.

The existence and enforceability of the debt to a creditor, in a Chapter 7 bankruptcy case, is governed by state law. 11 U.S.C. § 502(b)(1) (a claim cannot be allowed if it is not enforceable under state law). In re Miller, 292 B.R. 409, 412 (9th Cir. BAP 2003). A claim may not be denied for just any reason, but only for one of the reasons Congress has included in §502(b). In re Taylor, 289 B.R. 379 (Bankr. N.D. Ind. 2003). An objection to a claim, based only on the fact that the claim was filed as a secured claim, does not meet any of the exceptions under § 502(b) and does “nothing to undermine the prima facie validity of either the creditors’ right to payment or the amount they say was due on the date of the petition.” In re Muller, 479 B.R. 508 (Bankr. W.D. Ark. 2012) citing to In re Taylor, 289 B.R. at 385.

In determining allowance of claims, the Court “must find a basis in section 502 to disallow a claim, and absent such basis, we must allow it.” In re SNTL Corp., 571 F.3d 826, 838 (9th Cir. 2009); In re Rodriguez, 375 B.R. 535, 545 (9th Cir. BAP 2007), citing Travelers Cas. & Sur. Co. of Am. v. Pac. Gas & Elec. Co., 549 U.S. 443, 452, 127 S. Ct. 1199, 1206, 167 L. Ed. 2d 178 (2007) (“we generally presume that claims enforceable under applicable state law will be allowed unless they are expressly disallowed” under section 502).

The attorneys at Windtberg & Zdancewicz, PLC provide clients with experienced legal representation in all litigation and bankruptcy 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 bankruptcy cases, the law generally provides a higher payment priority to secured creditors.  By removing liens through a procedure known as lien stripping, a Chapter 13 debtor is empowered to turn secured creditors into unsecured ones.

Stripping a lien can only be applied to mortgage debt.  If a debtor owns a home and its value is less than the liens on it, the procedure will “strip” the second and any other subsequent mortgages, literally removing them from public records.  The subordinate debt must be wholly unsecured to strip the lien.  The remaining first mortgage will remain a secured debt, but the other mortgages transform into unsecured debt, which reduces the likelihood of their being paid in full.  There are many conditions, or hoops, the debtor must get through to strip a lien.

There are measures in place to protect creditors against lien stripping.  Working with an experienced and knowledgeable Arizona creditor’s attorney can be a tremendous help.  If you would like more information about lien stripping 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.

A property is foreclosed upon by a lender, but the property remains unsold after a foreclosure auction or Trustee’s sale. The lender still retains the property, which is now classified as an REO – “Real Estate Owned.”

The original term from which REO is derived is OREO –“Other Real Estate Owned.” This is a term found on a financial institution’s financial statement to describe real property that is owned by, but that does not materially relate to the business of, that institution.

Holding a portfolio of REO properties may not offer tremendous value to a financial institution.  They may not even have the potential to recoup what is owed on a loan.

REO disposition refers to the business of handling, selling and otherwise managing REO properties.  As unattractive as these distressed assets may be to lenders, REOs have assumed a substantial position in the portfolio holdings of some real estate managers.

Working with an experienced, knowledgeable Arizona creditor’s attorney can help tremendously when evaluating creditor options.  If you would like more information about bankruptcy filings, REO properties, foreclosures, 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.

Readers of this blog may be learning about how bankruptcy and creditor actions may impact a debtor’s property.  Now, let’s consider a less-common entity that is also subject to Arizona laws regarding creditors and personal property:  self-storage facilities.  There are occasions when liens may be placed against a debtor’s storage locker and its contents.

Suppose a storage facility tenant who was behind on rent for a long time files for bankruptcy.  An automatic stay then goes into effect. Can the storage facility owner proceed to place a lien against the locker contents and sell them to recoup the lost rent? Or should the facility owner file as a creditor in the bankruptcy proceedings, and request the court’s permission to conduct a lien sale?

Actually, until the Bankruptcy court lifts the automatic stay (or rules in favor of a motion against the stay) a creditor may not proceed with any action against a debtor. Should the court dismiss the bankruptcy filing, a creditor may proceed with a lien sale.  If the court discharges the debt, however, the debtor is no longer required to pay the rent owed on the storage unit.

Perhaps the best way a storage facility owner/creditor can protect his/her interests is to act quickly when any tenant becomes delinquent on rent, and upon doing so exercise their legal rights prior to any indication of bankruptcy.  This same proactive thinking can help creditors in other situations as well.  Engaging an experienced creditors attorney will help navigate the legal process.

Most standard rental agreements in Arizona ought to include some form of remedy authorizing the owner to sell the contents should delinquency occur.  The contract rights and remedies must conform to Arizona statutes.  Should the bankruptcy filing take place before the contract can be enforced, however, the owner/creditor should enlist the help of a skilled bankruptcy attorney to assert the claim for unpaid rent.

Working with an experienced and knowledgeable Arizona creditor’s attorney can be a tremendous help.  If you would like more information about personal property and bankruptcy, possessory 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.

A typical contract may contain a clause allowing one party to terminate the contract should the other party encounter financial trouble such as insolvency or bankruptcy. This type of provision is known as a “Termination Upon Bankruptcy” clause.  The specific contract language in such a provision is known as an ipso facto (i.e. “by the fact itself”) clause, meaning that the existence of a bankruptcy filing is reason enough to terminate the contract.

Termination clauses are often found in different types of contracts:

• Licenses
• Leases
• Development agreements

Factors that may trigger the termination clause may include:

• Filing for bankruptcy by contract party
• Having an involuntary bankruptcy filed against the party
• Becoming insolvent
• Written statement of insolvency by the party
• Making a general assignment for the benefit of creditors
• Invoking the contract’s financial condition covenant

According to Section 541(c) of the US Bankruptcy Code, a contract that terminates because of the financial condition of the debtor will be unenforceable once a bankruptcy case has been filed. Section 365(e)(1) pertains to termination- type ipso facto clauses in executory contracts – stating that such a contract may not be enforced, terminated or modified based on the financial condition of the debtor/party.

Whichever side of a contract or bankruptcy is in question, a knowledgeable attorney is best qualified to address the complexity of interpreting contract language.

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

Recently, news outlets across the country reported that government mortgage lenders Fannie Mae (FNMA) and Freddie Mac (FDMC) may soon be taking more aggressive legal steps against debtors who carry out a strategic default on their mortgage loans.

Strategic default can be defined as what occurs when a borrower/debtor intentionally defaults on a loan, even if s/he is capable of making payments.

The Federal Housing Finance Agency, which oversees FNMA and FDMC, experienced billions of dollars in losses on bad loans during the recent economic downturn.  In 2014, this agency may be pursuing litigation against strategic defaulters at an increasing rate.  This proactive approach may aid in recouping losses suffered over the past few years; ideally, it may also serve as a deterrent to those who do not intend to honor their loan commitments. This step toward greater debtor accountability may prove to be significant in the category of creditors’ rights, both inside and outside of bankruptcy.

Working with an experienced, knowledgeable Arizona creditor’s attorney can help tremendously if you are facing litigation resulting from a strategic default.  If you would like more information about creditors’ rights or defending claims, 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 represent creditors enforcing loan documents and debtors that have been sued by creditors.  If you need assistance with your collection matters, please contact us at (480) 584-5660.

In the business entity known as a limited liability company (LLC), the individual members of the LLC are not responsible for the company’s debts and financial obligations when money problems arise.

An LLC can have a single member or more than one member.  Depending on the circumstances, even though there is a single member, the LLC can be recognized as a separate entity, or it may not be treated as an entity separate from its individual members.  However, the extent of that protection may depend on the type of creditor seeking payment from the LLC, as well as the composition of the LLC itself.

When the company is liable.  A creditor may have a claim or receive a judgment against the LLC when the problem or nonpayment derives from the company as an entity, rather than from the actions of an employee or member of the LLC. Should that situation arise, members of the LLC are generally not liable for those claims.

When a member of the LLC is liable.  Another scenario involves obtaining a judgment against a member of the LLC rather than against the company itself.  In these cases, the member is responsible for the judgment.  The creditor may have an avenue for collection from any assets flowing from the LLC to the member.

When a member files for bankruptcy.  In Arizona, when a single member LLC files for bankruptcy, or if a single member LLC adds a member and subsequently files bankruptcy, the filing may raise certain legal issues.

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 issues relating to LLCs, 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 limited partnership (LP) is a type of business entity that provides a method to own property while also maintaining control over the management, supervision, and transferability of the ownership of the property interests.  Limited partnerships can also be structured in certain ways to protect assets from the reach of creditors.

While a limited partnership does not provide absolute protection from creditors, it does serve to limit the legal extent to which a creditor can lay claim to the assets of the partnership and its partners.  LPs add a layer of protection for both the partnership and its partners.  Depending on whether the creditor has a claim against an individual partner or against the partnership, there are rules in place that define just what assets are subject to execution.

Generally it is important to note that the LP structure is meant for business purposes, not as a means of avoiding creditors. An experienced creditor’s attorney can usually tell a well-crafted partnership from one that might be ill-conceived or poorly constructed.

Working with an experienced, knowledgeable Arizona creditor’s attorney can help tremendously when evaluating a whether or not to pursue the assets of a limited partnership.  If you would like more information about limited partnerships relating to 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.

Default risk, also called insolvency risk, refers to a situation in which a person or company is potentially unable to make payments on their financial commitments.  Nearly all lenders, investors and creditors must take default risk into account before offering mortgages, choosing investment vehicles, and when evaluating potential borrowers/debtors.

To gauge an individual or business’s level of default risk, lender/creditors often use tools such as consumer credit ratings (FICO scores).  Personal relationships may influence a lender/creditor as well in assessing default risk.  That being said, though, generally interest rates offered will correspond to the borrower/debtor’s level of risk – often, high risk means higher rates.

Evaluating default risk in regards to an entity such as a government or city may also affect the actions of entities not directly involved in a particular transaction.  For example, laws concerning credit may become more stringent; lenders may tighten their requirements; and certain types of investments, such as bonds, may fall from favor because of the perceived risk of default.  Conversely, a borrower may qualify as an excellent, low-risk candidate at the time of the transaction, and later encounter financial difficulties or even file for 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 default risk, 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 “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.