These companies typically earn big commissions for signing up as many customers as possible. Therefore, customers are generally not screened to determine if debt settlement is appropriate.  The debt settlement companies usually charge a large up front fee for signing up with their service. Once a customer has signed up with a debt settlement company and has been paid the large upfront fee, the customer will be told to stop making any payments to credit cards and to not respond to any credit card telephone calls or letters. The customer takes the money they would have used to pay credit cards and pays the debt settlement company.  These monthly payments, minus the monthly service fee the company charges, are supposedly placed into a type of “savings account.”  However, usually the customer has no way to access the funds held in this account. When there is a large sum of money in the savings account (usually after 2- 3 years worth of payments), the debt settlement agency will make an offer to settle the credit card debt with a lump sum or the amount in the so called “savings account.” If successful, the debt settlement agency may be able to settle the debt for 40 to 60 cents on the dollar. The customer may owe taxes on the amount of forgiven debt.

However, the debt settlement process is not always successful and this may have dire consequences to a customer. Over the course of the three years that a customer is paying into a debt settlement account, late fees and interest continue to accumulate on the credit card debt.  The debt gets larger and larger and the customer’s credit score will decrease rapidly.  Credit card companies will start calling continuously and send harassing letters; the debt may be sent to a collection agency and a customer will likely be sued on the debt during this time.  Also, during this time, many debt settlement companies will instruct the customer not to speak to any creditors and will not offer any assistance in dealing with the harassing phone calls, letters or lawsuits. At the end of this process, the debt settlement agency may not be able to settle with all credit card accounts and the customer will be stuck with a debt that has increased exponentially due to added late charges and interest. Most unfortunate is that the customer has paid a large up front fee in addition to the debt relief agency’s monthly service fee only to be given a larger debt, not smaller credit card bills.  Faced with a much larger debt and a poor credit score, many customers are then forced into bankruptcy which is probably where they should have been before all those fees were paid the agency.

Texas Based “Credit Solutions” Under Attack: While we encourage all people to avoid for-profit debt settlement companies, one local company has recently come under fire. Credit Solutions is one Dallas based “debt settlement” company.  They are supposed to be one of the largest debt settlement firms in the United States. The Better Business Bureau of Dallas, Texas has given Credit Solutions an “F” rating, citing at least 1,600 complaints in the last 3 years. The Texas Attorney General has filed suit against Credit Solutions alleging deceptive business practices and false advertising in connection with their debt settlement service. For more information see the Better Business Bureau review linked below: 

http://www.bbb.org/dallas/business-reviews/debt-settlement-companies/credit-solutions-in-dallas-tx-90005445

An expose of Credit Solutions was also featured on the Today Show. See the link below to watch the video: 

http://www.msnbc.msn.com/id/38130515/38379217   

If you are in debt and thinking about signing up for a debt settlement company, please review your options carefully. There may be other ways to reduce your debt without engaging in these services or going into bankruptcy.

Leslie Asman

The road to this point has been anything but linear. The process has involved many late nights, not only for the participants in the process, but also for the Judges. Recall that Judge Lynn, who has the case, issued an order that all parties participate in mediation in order to attempt to resolve the many disputes. Moreover, the mediation was to be handled by his fellow Judge, Judge Nelms. That mediation reportedly went on for hours and hours, also late into the night and the result was basically nil. The parties could not reach any agreements. Period; even with a sitting Bankrutpcy Judge acting as mediator! That is rare.

However, in this case the personalities and the parties= positions often caused collisions. Reports erupted of lawyers cussing each other in the hallways as last night’s proceeding went on (and on). However, although the proof will be in the outcome of the confirmation hearing, one anticipates a positive result.  The Baseball Commissioner, who has already approved the Nolan Ryan group as a buyer, will likely have no problems with this outcome. Likewise, now that the lenders have had a public auction and driven up the price for the assets being sold, they should presumably withdraw any opposition to the sale/confirmation. And finally, the other bidders have had their chance to make their bids and the outcome has been established, so there should be no further griping from that corner. Thus, one expects that, later today, an Order of Confirmation will be entered and Judges Lynn and Nelms can chalk up one more successful case in their record books! (Now people are realizing why big cases get filed in this District!)

Michael

“The winning bid was made just after midnight. Although the Cuban-Crane group had made a $390 million cash offer, part of a $598 million bid, the Greenberg-Ryan bid was considered higher because of how the bids are structured — including a $10 million to $13 million breakup fee that would have been paid to the Greenberg-Ryan group if it lost.

The stop-and-start showdown was delayed for hours at a time Wednesday by closed-door haggling over the complicated nature of each bid. The bidding picked up late Wednesday and the courtroom grew more crowded as the night wore on, with attorneys and even fans crammed on the wooden benches or standing along the walls.

Each group’s bid included more than $200 million of the team’s debt — including $24.9 million in deferred compensation owed to Alex Rodriguez six years after he was traded to the New York Yankees.

In the previous bidding round, the Greenberg-Ryan group bid $365 million and dropped provisions worth $12 million — showing that it was back in the game after trying in vain to stop the auction and a $355 million cash bid from Cuban and Houston businessman Jim Crane.”

Here is a link to that article: http://www.nbcdfw.com/news/sports/Home-Run-for-Ryan-at-Rangers-Auction-Plate-100010024.html

Michael

This link is to a blog from a reporter who is on the scene following the events in the Fort Worth Courtroom and posting information often by the minute.

http://www.nbcdfw.com/news/sports/Live-Blog-Rangers-Auction-99939404.html

That author, NBCDFW reporter Grant Stinchfield, makes a couple of observations about the process thus far in the following quotes: that the auction started some 5 hours late; that Cuban has claimed to have made the high offer (allegedly 25 million more than the other one); that there are only two qualified bidders (Mark Cuban on one hand and the Nolan Ryan - Chuck Greenberg group on the other); that Cuban has made revisions to his offer and the other players are taking time to review the revised offer; and that the Judge has asked that the A/C be left on in the Courthouse until midnight. That link provides the most up to date information about the auction process.

Now, some background: Judge Lynn aptly set out the background of the case and the parties to it in a recent opinion:

“Faced with an impasse, in that the Lenders would not consent to the sale to Express and the BOC [Office of the Commissioner of Baseball ("BOC")] would not agree to seek and consider alternate offers for the Rangers, Debtor filed this chapter 11 case. Upon filing, Debtor also filed the Plan, by which it proposes to consummate the APA [the proposed Asset Purchase Agreement ("APA")]. Under the Plan, the Lenders are to be paid $75,000,000 “in full satisfaction, settlement, release, and discharge of . .” their claims. Plan §§ 4.2(b) and 4.3(b). As this is the maximum Debtor can be required to pay the Lenders (Amended and Restated First Lien Credit and Guaranty Agreement (the “Loan Agreement”) §§ 7.1 and 7.2), Debtor contends the Lenders are unimpaired under section 1124(1) of the Bankruptcy Code (the “Code”)11 and not entitled to vote on the Plan. Plan §§ 4.2(a) and 4.3(a).

The Lenders, however, insist that, due to HSG’S [The Rangers Equity Owners are indirect subsidiaries of HSG Sports Group, LLC ("HSG") which, through other subsidiaries, has interests in other professional sports franchises] default, no sale of the Rangers can be agreed to by the Rangers Equity Owners other than through Chase’S [JP Morgan Chase Bank, N.A., as agent for the first lien lenders ("Chase")] action. They further argue that payment of the capped amount of $75,000,000 does not equate to unimpaired treatment under section 1124(1) of the Code.”

Judge Lynn authored this opinion on June 22, 2010. In it, the Court addressed some threshold legal questions about the Rangers case. The Court addressed the legal duties of the debtor to its creditors if it indeed pays 100% of their claims, the duties of two related equity owners of the club, who may speak for the equity owners and whether the owners and/or the lenders are “impaired” under the terms of the pre packaged plan.

Here is a link to that 26 page opinion where all of these issues are explained and addressed:

http://www.txnb.uscourts.gov/opinions/pdf/20100622_10-43400.pdf

Please note that this is not legal advice and may not be relied upon. That being said, here are a couple of general thoughts on the bankruptcy auction process: the Court is obligated to take the highest and best offer made for the assets being sold. However, it is often quite hard to determine who the high bidder really is as the terms of competing complex offers can vary greatly. For example, this author was involved in one such sale where the low bidder, dollar wise, was actually a much higher and better offer as that “low” bidder undertook to clean up some environmental waste which was otherwise the debtor’s/seller’s obligation. Also, although the sale is first subject to Bankrutpcy Court approval, there are often third parties who have a veto, barring unusual circumstances. In one sale where this author represented a national franchise, the franchiser essentially held a veto over who could buy the various stores. Frequently, there are also governmental approvals which must be obtained in order to effect the sale even after the Court approves it. Finally, although there is typically a detailed bid procedure in place before the auction, the terms of these are routinely ignored in order to get the best offer. The Judge and the creditors are always after the best price/deal and if, in order to get that, the terms of a previous order setting out the conditions under which the sale may proceed have to be altered, then so be it.

Michael McBride

• If a bankruptcy trustee sues to recover monies, he must file it in the district where the defendant resides (not where the bankruptcy is filed) if the trustee seeks (1) to recover a money judgment of property that is less than $1,100, or (2) to recover a consumer debt that is less than $16,425, or a non-consumer debt that is less than $10,950.  See 28 § 1409(b). 

• Sometimes the most valuable asset of a failed business are intangible, such as the company’s name, logo, trademark, customer list and phone number. Often, these items may be purchased from the trustee in a bankruptcy proceeding.

• A creditor may move for a dismissal of a bankruptcy if certain grounds can be proven. A dismissal of the bankruptcy case restores the status quo so that it is as if the bankruptcy had never been filed. See 11 U.S.C. § 707(a).

• A creditor may request copies of a chapter 13 debtor’s tax returns and a statement of the debtor’s income and expenditures for the most recently completed tax year and a statement of monthly income and expenditures.   See 11 U.S.C. § 521 (e)(2)(c).

• When a creditor files a proof of claim, it is prima facie evidence that the claim is valid until the trustee or debtor objects to it and then proves otherwise at a hearing.

• Note that by filing a proof of claim in a case, a creditor consents to the bankruptcy court’s jurisdiction and waives any right to a jury trial it might otherwise have had under applicable state or federal law.  See Langenkamp v. Culp, 498 U.S. 42 (1990).

Michael

·        The Means Test is the standard adopted in the 2005 amendments to the Bankruptcy Code to prevent individual high wage earners from filing a Chapter 7 liquidation. However, if more than half of the individual’s debt is related to a failed business, the Means Test may not apply, thus making them eligible to file regardless of income.

·        Bankruptcy cases must be filed in the Federal District where the debtor’s domicile, residence, principal place of business, or principal assets have been located for the 180 days immediately proceeding the filing -or- for the longest portion of such 180-day period (i.e., 91 days).  See 28 U.S.C. §1408, 1409.  A recent case defining “principal place of business” as the “nerve center” of that business is Hertz Corp. v. Friend, 559 U.S. ___ (2010) out of the US Supreme Court.

·        Unlike an individual, a business or corporation is not discharged under Chapter 7 bankruptcy proceeding. See 11 U.S.C. § 727(a)(1).

·        When a defendant in a state civil action files for bankruptcy, typically the state court judge will stay the entire case until:

a.   The plaintiff files a notice of non-suit against defendant debtor;

b.   Where there are multiple defendants, defendant debtor is severed from the others and the case continues without that defendant debtor; or

c.   An order to lift the automatic stay is granted in the bankruptcy court.  See 11 U.S.C. § 362.

·        In the case of an individual filing serial bankruptcy cases, a complete automatic stay is put in place for the first filing only.  The debtor must request a stay for the second bankruptcy filing.  Creditors may object to the stay request and the stay may not then be imposed by the judge. However, surprisingly, creditors rarely do this.  There is no automatic stay of proceedings for a third bankruptcy filing subject to further court order.  See 11 U.S.C. 362(c).

·         Chapter 13 bankruptcy relief is generally available to: (i) individuals (not corporations or partnerships); (ii) with regular income; and (iii) who owe less than $307,675 in noncontingent, liquidated unsecured debts and less than $922,975 in noncontingent, and liquidated secured debts. If the debtor falls outside these categories/limits, a motion to dismiss the bankruptcy would generally be appropriate. See 11 U.S.C. § 104(b).

**The aforementioned list does not constitute the rendering of legal advice nor should it be relied upon as such. The attorney-client relationship is not established with the firm absent a signed engagement letter.

 Here is a link: http://motherjones.com/politics/2010/07/elizabeth-warren-banking-lobbying-blitz

Michael

Here is a link to this interesting article: http://finance.yahoo.com/banking-budgeting/article/110126/the-feds-near-death-and-rebirth-experience?mod=bb-budgeting&sec=topStories&pos=3&asset=&ccode=

Michael

 Here is a link: http://www.reuters.com/article/idUSN2010140720100721

 Michael