Storage Liens and bankruptcy …

As a bankruptcy attorney in Mount Vernon, IL for over 20 years, I read through and analyze court rulings throughout the country, as they may be a harbinger of things to come in districts in which I practice and can be used to help Debtors get the financial relief they need.

***

The bankruptcy court here allowed a storage lien for pre-petition repossession costs but held that post-petition storage costs violated the automatic stay, as the storage lot, Collateral Bankruptcy Services, had violated the automatic stay by retaining possession of the vehicle and not turning it over to the Trustee.

UNITED STATES BANKRUPTCY COURT

MIDDLE DISTRICT OF FLORIDA

TAMPA DIVISION

http://www.flmb.uscourts.gov

In re: Case No. 8:16-bk-10041-MGW

Chapter 7

Stefan Kaschkadayev,

Debtor.

___________________________________/

ORDER AND MEMORANDUM OPINION ON STAY RELIEF MOTION

Before filing for bankruptcy, the Debtor surrendered his car to Collateral Bankruptcy Services, a towing and storage company. Collateral Bankruptcy Services, which has continued to maintain possession of the Debtor’s car, now seeks stay relief to foreclose a statutory lien for unpaid storage charges. Because Collateral Bankruptcy Services’ postpetition storage charges were incurred in violation of the automatic stay, the Court will grant Collateral Bankruptcy Services limited stay relief to foreclose its statutory lien for unpaid prepetition storage charges.

Background

Under the Bankruptcy Code, debtors are prohibited from retaining personal property that secures a debt unless they redeem the collateral or reaffirm the debt. But debtors who want to surrender collateral—instead of redeeming it or reaffirming the debt—complain that they sometimes have difficulty doing so. Some debtors complain that they are told to deliver the collateral to the secured creditor at a specified time and place, only to find that the secured creditor is not there. Other debtors have been told the secured creditor will pick up the collateral only to be left holding the collateral even after they have received a discharged and their case has been closed. Apparently, there is a burgeoning new industry of companies willing to take possession of collateral from debtors and store it for their benefit.

One of those companies is Collateral Bankruptcy Services. Collateral Bankruptcy Services, which is owned by a chapter 7 panel trustee, offers to safely retrieve and secure surrendered collateral at no cost to the debtor, the debtor’s lawyer, or the debtor’s estate. Collateral Bankruptcy Services says its calling card is its excellent customer service: its agents, the company says, show up on time (wearing clean uniforms) at the debtor’s preferred location. In Collateral Bankruptcy Services’ view, there is a market for a debtor friendly (and trustee friendly) alternative to repossession agents.

As the Court understands the business model, debtors contact Collateral Bankruptcy Services to pick up secured collateral—e.g., a car—and tow it to Collateral Bankruptcy Services’ storage facility.

If Collateral Bankruptcy Services is required to pick up the collateral, it charges a towing fee (around $3 per mile) for transporting the collateral to its storage facility. Naturally, it charges a storage fee as well (usually $55 per day). According to Collateral Bankruptcy Services, its towing and storage charges are “middle of the road” for those services.

Collateral Bankruptcy Services, however, has been struggling to make its business practices comport with the Bankruptcy Code. Early on, in In re Ervin, Collateral Bankruptcy Services took possession of the debtor’s car, imposed a storage lien for unpaid storage charges, foreclosed its storage lien, took title to the car at the foreclosure, and resold it to a third party—all without relief from the automatic stay.

In another case, In re Galvez, Collateral Services imposed a storage lien on a car before seeking stay relief.

Collateral Bankruptcy Services’ conduct in Ervin and Galvez was, to say the least, problematic. By taking possession of the debtors’ cars after the petition date in those cases, Collateral Bankruptcy Services took possession of property of the estate in violation of the automatic stay.

In Ervin, this Court ordered Collateral Bankruptcy Services to pay the secured creditor the value of its collateral as a sanction for the stay violation. In Galvez, Collateral Bankruptcy Services agreed to withdraw its belated stay relief motion and consented to the Court granting the secured creditor’s stay relief motion.

It is worth noting that the Court would not have necessarily granted a timely stay relief motion in Ervin or Galvez because, by taking possession of the debtor’s car postpetition, Collateral Bankruptcy Services was interfering with the debtor’s duty under § 521 to first surrender the car to the Trustee and, if the Trustee abandoned it, to then surrender the car to the secured creditor.

But this case presents a different problem: Here, unlike in Ervin and Galvez, Collateral Bankruptcy Services took possession of the Debtor’s car before the petition date. One month before the petition date, Collateral Bankruptcy Services picked up the Debtor’s 2014 Chrysler Town & Country and towed it 62 miles to its storage facility.

One week later, Collateral Bankruptcy Services served a claim of lien on JP Morgan Chase Bank, which has a lien on the Debtor’s car.10 According to the claim of lien, Collateral Bankruptcy Services has incurred $183 in towing charges (62 miles at $3/mile), $330 in storage charges (6 days at $55/day), $125 in recovery charges, and $75 in administrative fees, for a total of $713.11

When he filed this case, the Debtor did not list his 2014 Chrysler Town & Country on Schedule B. Instead, he says in his Statement of Financial Affairs that the Bank repossessed his car in October, and he lists them on Schedule F. But Collateral Bankruptcy Services says it picked the car up at the Debtor’s request.

Collateral Bankruptcy Services now asks the Court to grant it stay relief so it can foreclose its storage lien since there is no equity in the car.

Conclusions of Law

On its face, Collateral Bankruptcy Services’ stay relief motion seems straightforward. Collateral Bankruptcy Services alleges that the value of the Bank’s lien exceeds the value of the car. So there is no equity in the car. And because this is a chapter 7 case, the car is not necessary for an effective reorganization. On top of that, Collateral Bankruptcy Services has a statutory lien for unpaid storage charges under section 713.78, Florida Statutes, which primes the Bank’s, as well as any other lien on the Debtor’s car. In fact, absent this bankruptcy case, Collateral Bankruptcy Services would have been entitled to sell the Debtor’s car as early as December 12, 2016, at a public auction under section 713.78(6), Florida Statutes.13 But there is one problem with Collateral Bankruptcy Services’ motion.

Although Collateral Bankruptcy Services has sought stay relief before foreclosing its storage lien, it has nonetheless violated the automatic stay in this case. Bankruptcy Code § 362(a)(3) explicitly prohibits any act to exercise control over property of the estate. The Debtor’s car, of course, was property of the estate as of the petition date. So Collateral Bankruptcy Services violated the automatic stay by maintaining possession of the Debtor’s car. In fact, Bankruptcy Code § 542(a) requires Collateral Bankruptcy Services to turn the car over to the Trustee.

Collateral Bankruptcy Services’ stay violation is not a mere technical violation. By continuing to maintain possession of the Debtor’s car, Collateral Bankruptcy Services is increasing its storage charges at a rate of $55 per day. The increased storage charges, in turn, increase the amount of the statutory lien imposed to secure those charges, which reduces any potential recovery by the Bank.

Acts taken in violation of the automatic stay, however, are automatically void.15 So Collateral Bankruptcy Services is not entitled to any storage charges incurred since the petition date. And its storage lien is limited to the amount of its unpaid prepetition storage charges. Accordingly, it is

ORDERED:

  1. The automatic stay imposed by 11 U.S.C. § 362 is hereby lifted to allow Collateral Bankruptcy Services to impose a storage lien on the Debtor’s 2014 Chrysler Town & Country (VIN# 2C4rC1BG9ER271800) for unpaid storage charges incurred before the petition date.
  2. The 14-day stay under Rule 4001(a)(3) shall be waived to permit Collateral Bankruptcy Services to immediately enforce its in rem relief under this Order.
  3. Collateral Bankruptcy Services shall be allowed to exercise its state and common law in rem remedies with respect to the Debtor’s car, including giving notice and taking all actions necessary to protect its rights. Under no circumstances, however, shall Collateral Bankruptcy Services seek to exercise any in rem relief with respect to postpetition storage charges. Nor shall Collateral Bankruptcy Services seek or obtain an in personam judgment against the Debtor.

***

About the blogger:

Michael Curry of Curry Law Office in Mount Vernon, Illinois (http://michaelcurrylawoffice.com/) has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, Lawrenceville, Centralia, Louisville, Xenia, Grayville, Effingham, Dieterich, Vandalia, McLeansboro, Dahlgren, Albion, Flora, Clay City, Kinmundy, Chester, Sparta, Olney, Mount Carmel, Nashville, Fairfield, Cisne, Wayne City, Carmi, Grayville, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

You can also access my website at http://www.mtvernonbankruptcylawyer.com

 

 

Advertisements

Discharging Student Loans: Ripe time, Ripe place …

As a bankruptcy attorney in Mount Vernon, IL for over 25 years, I read through and analyze court rulings throughout the country, as they may be a harbinger of things to come in districts in which I practice and can be used to help Debtors get the financial relief they need.

Here is another in a long line of Student Loan dischargeability cases …

***

Student Loans Discharge Action Dismissed because the issue is not ripe!

In Re: David Wayne Sheppard and Tena Marie Sheppard, Debtors; vs. the U.S. Department of Education; West Virginia Junior College, Defendants.

Case # 16-20208; Adversary # 16-2049; Southern District of West Virginia

February 21, 2017

Memorandum Opinion and Order

Pending is the motion to dismiss by the Defendant, the United States Department of Education, filed December 5, 2016. The Plaintiff, Tena Marie Sheppard, responded in opposition to the motion to dismiss on December 12, 2016, and the United States Department of Education (“the Department”) replied on January 18, 2017. The motion to dismiss is ready for adjudication.

Although the Department has filed its motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, the grounds for dismissal better align with Rule 12(b)(1).

I.

Mrs. Sheppard and her husband have been deemed permanently disabled by the Social Security Administration. On April 22, 2016, Mrs. Sheppard, along with her husband, filed a joint Chapter 13 petition. The Sheppards have proposed a Chapter 13 plan that provides for a monthly payment of $854.69 for 66 months. However, their disposable income amounts to only $444.68. At this time, the proposed Chapter 13 plan remains unconfirmed. A confirmation hearing is scheduled for March 1, 2017.

Mrs. Sheppard filed this adversary proceeding to discharge her student loans on August 17, 2016. In the complaint, Mrs. Sheppard alleges that the Department and West Virginia Junior College are non-priority unsecured creditors in the associated bankruptcy case. Further, she alleges that the repayment of her student loans imposes an undue hardship because she is disabled and unable to work. Mrs. Sheppard seeks a declaratory judgment as to the dischargeability of the debt pursuant to 11 U.S.C. § 523(a)(8), arguing both that the subject loans do not qualify as educational loans and, in the alternative, that the loans cause undue hardship. On October 7, 2016, the Department filed a Proof of Claim asserting Mrs. Sheppard owed $15,310.73 for unpaid student loans. On December 5, 2016, the Department moved to dismiss the adversary proceeding, stating that the matter was not prudentially ripe. Mrs. Sheppard answered and the Department replied. As of this date, West Virginia Junior College has neither answered nor otherwise moved.

II.

  1. Governing Standard

As noted, the Department moves to dismiss pursuant to Rule 12(b)(6).Inasmuch as it argues lack of ripeness, however, the Department challenges the Court’s subject-matter jurisdiction. Accordingly, the Court analyzes the matter pursuant to Rule 12(b)(1), as made applicable to this proceeding by Federal Rule of Bankruptcy Procedure 7012(b).

Rule 12(b)(1) provides for a dismissal if the court lacks subject-matter jurisdiction. The Court has statutory subject-matter jurisdiction under 28 U.S.C. § 1334(b). A bankruptcy court “may hear and determine all cases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11.” 28 U.S.C. § 157(b)(1). The Court “may hear and determine” cases and core proceedings “arising under” the Bankruptcy Code or “arising in” a case under the Code. § 157(b)(1). The determination of the dischargeability of a debt is specifically listed as a core proceeding under 28 U.S.C. § 157(b)(2)(I).

A defendant may challenge subject-matter jurisdiction facially or factually. Kerns v. U.S., 585 F.3d 187, 192 (4th Cir. 2009). A facial challenge asserts the allegations in the complaint are insufficient to establish subject-matter jurisdiction. Lovern v. Edwards, 190 F.3d 648, 654 (4th Cir. 1999). This type of challenge involves the same procedural protections customarily available to a plaintiff under Rule 12(b)(6). Kerns, 585 F.3d at 192. In sum, “the facts alleged in the complaint are taken as true, and the motion must be denied if the complaint alleges sufficient facts to invoke subject matter jurisdiction.” Id.

When a defendant asserts “that the jurisdictional allegations of the complaint [are] not true,” he is asserting a factual challenge. Id. (internal quotation marks omitted)(quoting Adams v. Bain, 697 F.2d 1213, 1219 (4th Cir. 1982). When a challenge is factual, “the court may look beyond the pleadings and the jurisdictional allegations of the complaint and view whatever evidence has been submitted on the issue to determine whether in fact subject matter jurisdiction exists.” Stahlman v. U.S., 995 F. Supp. 2d 446, 451 (D. Md. 2014). The presumption of truthfulness available under Rule 12(b)(6) does not apply. Kerns, 585 F.3d at 192.

Here, the Department asserts that the complaint fails to allege sufficient facts to support the exercise of subject matter jurisdiction. That is a facial challenge. The Court will thus treat as true the facts alleged in the complaint, along with affording Mrs. Sheppard the reasonable inferences flowing therefrom.

  1. Law and Analysis

The Department asserts that Mrs. Sheppard’s undue hardship challenge lacks prudential ripeness. It contends the dischargeability of a student loan does not ripen until at or near the time a Chapter 13 discharge is granted. Although a bankruptcy court is given statutory and adjudicatory subject-matter jurisdiction under 28 U.S.C. § 1334(b) and 28 U.S.C. § 157, ripeness involves constitutional and prudential subject-matter jurisdiction. U.S. Const. art. III, § 2, cl. 1. “Ripeness has two components: constitutional ripeness and prudential ripeness.” Educ. Credit Mgmt. Corp. v. Coleman, 560 F.3d 1000, 1004 (9th Cir. 2009).

  1. Constitutional Ripeness

For constitutional ripeness to exist, the matter presented must amount to a “case or controversy.” Babbitt v. UFW Nat’l Union, 442 U.S. 289, 298 (1979). This requires asking whether the “conflicting contentions of the parties . . . present real, substantial controversy between parties having adverse legal interests, a dispute definite and concrete, not hypothetical or abstract.” Id. (internal quotation marks omitted) (quoting Railway Mail Ass’n v. Corsi, 326 U.S. 88 (1945)). Precedent indicates the constitutional ripeness of a student loan discharge action arises when the debtor files for bankruptcy. Cassim v. Educ. Credit Mgmt. Corp., 597 F.3d 432440 (6th Cir. 2010); Coleman, 560 F.3d at 1005. Our court of appeals has not spoken directly to the point, indicating instead that it would “decline- to adopt a hard and fast rule which would preclude bankruptcy courts from ever entertaining a proceeding to discharge student loan obligations until at or near the time the debtor has completed payments under a confirmed Chapter 13 plan.” Ekenasi v. Educ. Res. Inst., 325 F.3d 541, 547 (4th Cir. 2003).

Inasmuch as Mrs. Sheppard has sought relief under Chapter 13, her dischargeability suit is constitutionally ripe.

  1. Prudential Ripeness

As noted, a matter that is constitutionally ripe must also be prudentially ripe. The Supreme Court has held that “[p]roblems of prematurity and abstractness may well present ‘insuperable obstacles’ to the exercise of the Court’s jurisdiction, even though that jurisdiction is technically present.” Socialist Labor Party v. Gilligan, 406 U.S. 583, 588 (1972) (quoting Rescue Army v. Mun. Ct. of L.A., 331 U.S. 549 (1947)). On the precise question respecting prudential ripeness of a student loan dischargeability action, the United States Court of Appeals for the Eighth Circuit concluded prudential ripeness is absent until “relatively close” to the actual date that a Chapter 13 discharge is granted. Bender v. Educ. Credit Mgmt. Corp., 368 F.3d 846, 848 (8th Cir. 2004).

Our court of appeals appears to tip toward this position. It has concluded that the matter would have to qualify as an “exceptional circumstance” to be considered ripe prior to discharge: it will be most difficult for a debtor, who has advanced his education at the expense of government-guaranteed loans, to prove with the requisite certainty that the repayment of his student loan obligations will be an “undue burden” on him during a significant portion of the repayment period of the student loans when the debtor chooses to make that claim far in advance of the expected completion date of his plan. Ekenasi, 325 F.3d at 547.

In Ekenasi, the debtor claimed undue hardship when attempting to discharge his student loan obligations. Id. at 544. At the time that the adversary proceeding was filed, the debtor’s Chapter 13 plan had been confirmed for three months. Id. The bankruptcy court granted the debtor a complete discharge of his student loan obligations because the debtor was unlikely to increase his income or his disposable income after the plan’s conclusion. Id. On appeal, the district court affirmed. Id. The court of appeals disagreed, concluding that a dischargeability determination so early in the case required too much speculation. Id. at 548. Although the plan had been confirmed, completion was two years away. Id. Our court of appeals noted that when the plan was scheduled to conclude, three of the debtor’s six children would no longer be dependents. Id. at 549. Further, the debtor’s obligations to general unsecured creditors would be discharged in their entirety. Id. These changes would have potentially increased the debtor’s disposable income during the life of the plan, which would have relieved any undue hardship. Id.

Here, Mrs. Sheppard asserts that the repayment of her student loans creates an undue hardship because both she and her husband are deemed permanently disabled by the Social Security Administration. Because of their disabilities, the Sheppards contend that their circumstances will not change in the future (Id.). Although their incomes appear to be fixed, discharging Mrs. Sheppard’s student loans would still require a great deal of speculation on the Court’s part. Unlike the Chapter 13 plan in Ekenasi, Mrs. Sheppard’s Chapter 13 plan has not been confirmed. Further, her proposed plan is unfeasible because her plan payments greatly outweigh her disposable income. Allowing this adversary proceeding to continue would require the Court to speculate not only regarding the confirmability of the proposed plan, but also that the Sheppards will obtain a Chapter 13 discharge at the plan’s conclusion, which is at least five years away. Assuming a modified plan produced a feasible path forward, at least one bankruptcy court has astutely observed as follows:

Roughly 60% of Chapter 13 cases in this district do not result in a discharge, usually because of the debtor’s inability to make the required plan payments for the requisite three or five years. Given the strong possibility that a Chapter 13 case will be dismissed long before discharge can occur, a determination of undue hardship early in the case would likely be rendered unnecessary and irrelevant. In re Brantley, No. 15-81516-WRS, 2016 WL 3003429, at *3 (Bankr. M.D. Ala. May 17, 2016)

In view of this necessary speculation, the Court concludes that Mrs. Sheppard’s adversary proceeding is premature and outside the boundaries of prudential ripeness.1 Additionally, the Court concludes that dismissal does not work a sustainable hardship on the parties. See In re Brantley, at *4 (While Brantley would understandably want to know whether the Chapter 13 payments she is making will obtain a discharge of her student loans, the Defendants have an equally compelling interest in avoiding potentially unnecessary litigation. Also, the Court is disinclined to keep the proceeding open in perpetual stasis, draining the Court’s resources, for five years while Brantley completes her plan payments.”).

III.

Based upon the foregoing discussion, it is, accordingly, ORDERED that the United States Department of Education’s Motion to Dismiss be, and is hereby, GRANTED.

***

The Court isn’t kicking the ball down the road – it makes a very logical and reasonable statement: why look into the dischargeability of a debt until we are more confident these Debtors will even receive a discharge? Who knows what will happen in the intervening years? As of April 2018, the Debtors are still paying into their Chapter 13 Plan … two-plus years to go!

But I worry about this issue – I have seen many objections to dischargeability of student loans fall apart in a Chapter 13. “If the Debtor can afford five years of monthly plan payments why can’t they afford monthly student loan payments afterwards?”

Heads, they win; Tails, you lose…

***

About the blogger:

Michael Curry of Curry Law Office in Mount Vernon, Illinois (http://michaelcurrylawoffice.com/) has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, Centralia, McLeansboro or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

You can also access my website at http://www.mtvernonbankruptcylawyer.com

 

 

Celebrity Spotlight: Gary Burghoff – Bankruptcy is Painless…

Bankruptcy affects people of every age, creed, sex or ethnicity from every part of the country. Even celebrities both loved and disliked have their financial problems and depend on the bankruptcy laws to get out from under crippling debt.

***

GaryBurghoff03

From Wikipedia (mostly):

Gary Burghoff

Born May 24, 1943, in Bristol, Connecticut. He studied tap dance and became a drummer, despite having a congenital deformity of three fingers on his left hand. He gained early experience acting with the Belfry Players of Williams Bay, Wisconsin

In 1967 Burghoff originated the role of Charlie Brown in the original Off-Broadway production of You’re a Good Man, Charlie Brown.

He was the drummer for a band called the Relatives in 1968. Actress Lynda Carter was the band’s singer. The group opened at the Sahara Hotel and Casino lounge in Las Vegas, Nevada, and played there for three months. He and Carter remained friends, and she helped cast him in an episode of her later hit series The New Adventures of Wonder Woman, in the 1978 episode “The Man Who Wouldn’t Tell”.

He is of course best known as Radar O”Reilly from the film and television show M*A*S*H.  Burghoff was nominated for six Emmy Awards for M*A*S*H in the category of Outstanding Supporting Actor in a Comedy Series and, of those nominations, he won an Emmy in 1977. Burghoff’s co-star Alan Alda accepted the award on his behalf.

Burghoff left the television show M*A*S*H after seven years. In the 1980s, Burghoff was the TV spokesman for BP gasoline and IBM computers. In 2000, Burghoff was a spokesman for dot-com era auction aggregation site PriceRadar.com. Burghoff is a self-taught amateur wildlife painter who is also qualified to handle injured wildlife in California. He also worked as a professional jazz drummer, heading the trio The We Three.

Burghoff is also the inventor of (and holds a patent on) the “Chum Magic”, a fishing tackle invention that attracts fish toward the user’s boat. Other Burghoff inventions include a toilet seat lifting handle and a new type of fishing pole.

Despite the accomplishments, he filed for bankruptcy in 1991

Burghoff was married to Janet Gayle, from 1971 to 1979. They had one child before their divorce. In 1985, he married Elisabeth Bostrom. The couple had two children and divorced in 2005.

Today the actor sells his wildlife drawings for up to $25,000 each, and except for the 2010 movie Daniel’s Lot, has retired from acting.

***

About the author:

Michael Curry of Curry Law Office in Mount Vernon, Illinois (http://michaelcurrylawoffice.com/) has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (probate, wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Salem, Centralia or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

You can also access my website at http://www.mtvernonbankruptcylawyer.com

Bankruptcy FAQs: Can I keep my car?

Frequently Asked Questions about Bankruptcy

I help people file for bankruptcy throughout southern Illinois to help eliminate their crushing debt and protect their assets.  For almost 25 years and in over five thousand bankruptcy filings, I answer many questions people have about the process. I thought I would share some of the more common questions here.

“Can I keep the vehicles that I own free and clear?”

That depends on the value.

Every state uses exemptions to determine how much value in a vehicle you are allowed to keep. In Illinois you are allowed $2,400.00 in ONE vehicle.

It does not matter if it is your only vehicle. “It’s the only car I got!” “It’s a 2014 Ferrari F12berlinetta and you owe nothing on it!”

I exaggerate to prove a point, of course.

And you can’t split the exemption up: if you have one car worth $1,500.00 and another worth $900.00 you cannot use the $2,400.00 exemption on both – only one of them. This means the $900.00 is not protected by Illinois’ vehicle exemption.

Don’t panic – there are other exemptions that might cover any excess equity.

Another option is the Chapter 13 consolidation: people file a Chapter 13 if they might lose something in a Chapter 7: if they are behind on the car or house and they want to prevent repossession or foreclosure and/or if there is too much equity in their property.

Your attorney will be happy to discuss these options with you.

***

About the author:

Michael Curry of Curry Law Office in Mount Vernon, Illinois (http://michaelcurrylawoffice.com/) has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (probate, wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Salem, Centralia or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

You can also access my website at http://www.mtvernonbankruptcylawyer.com

Tweeking your mortgage in a Chapter 13 … part 2.

Read a summary of this case.

 

From the United States Bankruptcy Court for the Northern District of Illinois

In re: ANDRES HUERAMO, Case No. 16-32350

Opinion by the Honorable Judge Deborah L. Thorne

 

Andres Hueramo (“Debtor”) is attempting to save his home (the “Residence”) through confirmation of a chapter 13 plan. Both the Debtor and the lender, Byline Bank agree that the Residence’s value is far less than the remaining balance owed to Byline. Debtor has asked this court to determine the value of the Residence, through the adversary case and through his proposed plan, to modify Byline’s secured claim. Byline has filed a motion to modify the automatic stay and has objected to the proposed plan.

For the reasons stated below, the court holds that the Debtor’s attempt to defeat the prohibition against modification of the secured claim on the Residence is not authorized under the Bankruptcy Code. Both the Debtor and Byline agree that there is no equity in the Residence if the secured claim is not reduced and for this reason, the motion to modify the automatic stay is granted.

  1. Jurisdiction

The court has subject matter jurisdiction to decide this matter under 28 U.S.C. § 1334(b) and the Internal Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. A motion to modify the automatic stay under section 362 and plan confirmation are core proceedings under 28 U.S.C. § 157(b)(2)(A), (G) and (O).

  1. Background & Procedural History

The Debtor is a co-owner with his wife of the Residence located at 2503 S. 57th Court, Cicero, Illinois 60804. Debtor previously had an interest in an investment commercial property located at 2346 S. Central Avenue, Cicero, Illinois 60604 (the “Commercial Property”). The note held by Byline1 was originally secured by both the Residence and the Commercial Property.

Prepetition, the Commercial Property was foreclosed upon by Byline or sold and is no longer collateral for the Byline note. The loan secured by the Residence matured on December 22, 2013 and Byline proceeded with a state court foreclosure. On August 13, 2015, the state court entered

a Judgment of Foreclosure and Sale in the amount of $392,810.49. Debtor’s right to redemption expired on November 13, 2015 and a judicial sale was scheduled.

On October 11, 2016, the date scheduled for the judicial sale, Debtor filed for relief under chapter 13. The Debtor has proposed a chapter 13 plan which modifies the secured claim of Byline to $140,0002 and proposes to pay the secured portion of the claim with a balloon payment during the last month of the plan. Byline filed a motion to modify the stay and objects to the proposed plan for a number of reasons, including that the plan violates the anti-modification prohibition of section 1322(b)(2) of the Bankruptcy Code and further that the payments to be made to Byline are not regular, equal monthly payments as required under section 1325(a)(5)((B)(iii)(1).

  1. Discussion

The crux of the matter before the court is whether the Debtor can modify the rights of Byline in the Debtor’s Residence. If the Debtor cannot modify the rights of Byline, the value of the Residence is not relevant as the Debtor’s proposed plan cannot be confirmed. The Debtor, while not disputing that the 2503 S. 57th Court property is the Debtor’s Residence, is trying to distinguish the prohibition against modifying the rights of a lender in a debtor’s primary residence contained in section 1322(b)(2). The Debtor asserts that section 1322(b)(2) does not apply for two reasons: (1) at the time the loan was made, it was secured by the Residence and the Commercial Property, and (2) the loan documents include as security, personal property and, therefore, the loan is collateralized by more than just the primary residence.

Byline counters this argument by asserting that the Petition Date is the relevant date to make the determination of whether the anti-modification provisions of section 1322(b)(2) apply.

Using the Petition Date eliminates the argument that the original collateral, which included the Commercial Property, allows the strip-down of Byline’s lien on the Residence. Byline further argues that the inclusion of incidental personal property in its security interest cannot be used to circumvent the anti-modification prohibition of section 1322(b)(2).

  1. Section 1322(b)(2)

Section 1322(b)(2) prohibits the modification of “a claim secured only by a security interest in real property that is the debtor’s principal residence….” 11 U.S.C. § 1322(b)(2). A security interest, however, that is in property other than the debtor’s principal residence may be subject to modification. Thus, the issue in this case is whether the Byline loan is a “commercial loan” and subject to modification or whether the loan only includes Debtor’s primary residence.

If this court uses the Petition Date as the proper time to determine the nature of the loan, the claim may not be modified under Section 1322(b)(2), while it may be modified if the loan origination date is controlling.

A majority of courts have determined that the petition date is the appropriate date for determining whether the anti-modification provision of § 1322(b)(2) applies to a claim. In re Landry, 462 B.R. 317 (Bankr. D. Mas.2011). see also In re Benafel, 461 B.R. 581, (B.A.P. 9th Cir.2011) (holding that the determination of whether the debtor is using real property as his principal residence is made as of the petition date for the purposes of section 1322(b)(2)); In re Abdelgadir, 455 B.R. 896, (B.A.P. 9th Cir.2011) (same but construing section 1123(b)(5)); In re Leigh, 307 B.R. 324, 331–32 (Bankr.D.Mass.2004) (whether claim is secured by collateral in addition to debtor’s principal residence is determined as of the petition date). This court agrees.

On the Petition Date, the Debtor retained only the Residence as Byline’s lien had been released against the Commercial Property through a foreclosure. The fact that the Commercial Property was no longer part of the collateral base leaves the Debtor squarely in the prohibition of the anti-modification under section 1322(b)(2). In re Amerson, 143 B.R. 413 (Bankr. S.D. Miss. 1992) (release of lien against chapter 13 debtor’s car prior to the filing of the petition left only the debtor’s primary residence as security for the loan and thus, anti-modification benefit existed under section 1322(b)(2)).

Finally, Debtor contends that because the mortgage also grants a security interest in personal property related to the Residence, the anti-modification provision of section 1322(b)(2) is defeated. While the Bankruptcy Code is clear that if a security interest was granted in property other than the debtor’s residence, section 1322(b)(2) might not apply, but if the security interest granted as part of a mortgage in the debtor’s principal residence also grants an interest in rents or other “incidental property”, the anti-modification provision is not impacted.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) applicable to bankruptcy cases filed on or after October 17, 2005 added the following definitions:

(13A) The term “debtor’s principal residence”—

(A) Means a residential structure, if used as the principal residence by the debtor, including incidental property, without regard to whether the structure is attached to real property . . .

BAPCPA also added section 101(27B) which defines “incidental property”:

(27B) The term “incidental property” means, with respect to a debtor’s principal residence—

(A)Property commonly conveyed with a principal residence in the area where the real property is located;

(B) All easements, rights, appurtenances, fixtures, rents, royalties, mineral rights, oil or gas rights or profits, water rights, escrow funds, or insurance proceeds; and (C) All replacements or additions.

Thus, under the express terms of these provisions added by BAPCPA, it appears that a lender does not lose its section 1322(b)(2) protection by taking a security interest in any of the listed “incidental property.” In re Inglis, 481 B.R. 480, 482-3 (Bankr. S.D. Ind. 2012). The Debtor has not pointed to any personal property other than “incidental property” that would otherwise destroy the anti-modification provision of section 1322(b)(2). Thus, the Debtor may not modify the rights of Byline. The Debtor’s proposed plan is not confirmable.

  1. Modification of the Stay

Section 362 states that the automatic stay may be modified for property when the debtor does not have any equity in the property and the property is not necessary for reorganization. 11 U.S.C. Section 362(d). Both parties acknowledge that Debtor holds no equity in the property.

The only question remains is whether the property is necessary for reorganization. In order to successfully demonstrate that a successful reorganization is possible, the Debtor must cure the arrearage owed to Byline and the Debtor has not done so in his proposed plan. See In re Stincic, 559 B.R. 890 (Bankr. W.D. Wis. 2016)(holding that debtor failed to satisfy burden of showing that property was necessary to any reorganization reasonably in prospect, where debtor did not have the ability, based on his earnings, to cure his more than $56,000 arrearage on mortgage debt even over the full term of 60-month plan.)

In this case, Debtor has not satisfied his burden. The only method of potential reorganization presented to the court was by modifying Byline Bank’s secured claim. As discussed above, Debtor is not permitted to avoid the anti-modification provisions of Section 1322(b)(2). The court remains unconvinced that there is a reasonable possibility that Debtor can successfully reorganize. As a result, Byline Bank’s motion to modify the stay is granted. Byline has also requested that this court dismiss the case.

  1. Conclusion

Confirmation of the proposed plan is denied for the reasons discussed above. Byline’s Motion to Modify the Automatic Stay is granted. A status on the future of this case is continued to March 1, 2017 at 10:30.

Deborah L. Thorne

United States Bankruptcy Judge

Dated: February 9, 2017

***

About the blogger:

Michael Curry of Curry Law Office in Mount Vernon, Illinois (http://michaelcurrylawoffice.com/) has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, Lawrenceville, Centralia, Louisville, Xenia, Grayville, Effingham, Dieterich, Vandalia, McLeansboro, Dahlgren, Albion, Flora, Clay City, Kinmundy, Chester, Sparta, Olney, Mount Carmel, Nashville, Fairfield, Cisne, Wayne City, Carmi, Grayville, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

You can also access my website at http://www.mtvernonbankruptcylawyer.com

 

 

Tweeking your mortgage in a Chapter 13 … part one

As a bankruptcy attorney in Mount Vernon, IL for over 20 years, I read through and analyze court rulings throughout the country, as they may be a harbinger of things to come in districts in which I practice and can be used to help Debtors get the financial relief they need.

***

Very rarely can you manipulate your home mortgage in a Chapter 13 – that is, you can change the payment terms, interest or amount owed.

One of the criteria is if the home mortgage includes collateral OTHER than your home – another piece of real or personal property for example.

In this case we have a debtor trying to change his home mortgage because at one time the debt was also tied in with commercial real estate and business (non-real) property.

A bankruptcy attorney needs to keep track of these opinions if his clients wish to affect his mortgage payments in a Chapter 13. Especially as this case is from northern Illinois, the opinion and ruling here will be strongly considered in our District!

If a client seeks the advice of a bankruptcy attorney and it is similar to the facts in this case – he or she may face the same result!

***

Bankr ND Illinois: Chapter 13 Debtor could Not Modify rights of Secured Creditor in Primary Residence, even though Mortgage also gave creditor Security Interest in Personal Property

The crux of the matter before the court is whether the Debtor can modify the rights of Byline in the Debtor’s Residence.

If the Debtor cannot modify the rights of Byline, the value of the Residence is not relevant as the Debtor’s proposed plan cannot be confirmed. The Debtor, while not disputing that the is the his residence, is trying to distinguish the prohibition against modifying the rights of a lender in a debtor’s primary residence contained in section 1322(b)(2).

The Debtor asserts that section 1322(b)(2) does not apply for two reasons: (1) at the time the loan was made, it was secured by the Residence and the Commercial Property, and (2) the loan documents include as security, personal property and, therefore, the loan is collateralized by more than just the primary residence.

A majority of courts have determined that the petition date is the appropriate date for determining whether the anti-modification provision of § 1322(b)(2) applies to a claim.

On the Petition Date, the Debtor retained only the Residence as Byline’s lien had been released against the Commercial Property through a foreclosure. The fact that the Commercial Property was no longer part of the collateral base leaves the Debtor squarely in the prohibition of the anti-modification under section 1322(b)(2).

Finally, Debtor contends that because the mortgage also grants a security interest in personal property related to the Residence, the anti-modification provision of section 1322(b)(2) is defeated. While the Bankruptcy Code is clear that if a security interest was granted in property other than the debtor’s residence, section 1322(b)(2) might not apply, but if the security interest granted as part of a mortgage in the debtor’s principal residence also grants an interest in rents or other “incidental property”, the anti-modification provision is not impacted.

Thus, under the express terms of these provisions added by BAPCPA, it appears that a lender does not lose its section 1322(b)(2) protection by taking a security interest in any of the listed “incidental property.” In re Inglis, 481 B.R. 480, 482-3 (Bankr. S.D. Ind. 2012). The Debtor has not pointed to any personal property other than “incidental property” that would otherwise destroy the anti-modification provision of section 1322(b)(2). Thus, the Debtor may not modify the rights of Byline. The Debtor’s proposed plan is not confirmable.

***

Read the entire opinion here.

***

About the blogger:

Michael Curry of Curry Law Office in Mount Vernon, Illinois (http://michaelcurrylawoffice.com/) has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, Lawrenceville, Centralia, Louisville, Xenia, Grayville, Effingham, Dieterich, Vandalia, McLeansboro, Dahlgren, Albion, Flora, Clay City, Kinmundy, Chester, Sparta, Olney, Mount Carmel, Nashville, Fairfield, Cisne, Wayne City, Carmi, Grayville, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

You can also access my website at http://www.mtvernonbankruptcylawyer.com

Celebrity Spotlight: Mike Tyson

Bankruptcy affects people of every age, creed, sex or ethnicity from every part of the country. Even celebrities both loved and disliked have their financial problems and depend on the bankruptcy laws to get out from under crippling debt.

And speaking of crippling …

***

Mike_Tyson_m

From Wikipedia:

Michael Gerard Tyson (born June 30, 1966) is an American former professional boxer who competed from 1985 to 2005. He reigned as the undisputed world heavyweight champion and holds the record as the youngest boxer to win a heavyweight title at 20 years, 4 months and 22 days old. Tyson won his first 19 professional fights by knockout, 12 of them in the first round. He won the WBC title in 1986 after stopping Trevor Berbick in two rounds, and added the WBA and IBF titles after defeating James Smith and Tony Tucker in 1987. This made Tyson the first heavyweight boxer to simultaneously hold the WBA, WBC and IBF titles, and the only heavyweight to successively unify them.

In 1992, Tyson was convicted of rape and sentenced to six years in prison, but was released on parole after serving three years. After his release in 1995, he engaged in a series of comeback fights. He won the WBC and WBA titles in 1996, after defeating Frank Bruno and Bruce Seldon by knockout. With his defeat of Bruno, Tyson joined Floyd Patterson, Muhammad Ali, Tim Witherspoon, Evander Holyfield, George Foreman as the only men in boxing history to have regained a heavyweight championship after having lost it. After being stripped of the WBC title in the same year, Tyson lost the WBA title to Evander Holyfield by an eleventh-round stoppage. Their 1997 rematch ended when Tyson was disqualified for biting Holyfield’s ears.

Tyson was well known for his ferocious and intimidating boxing style as well as his controversial behavior inside and outside the ring. Nicknamed “Iron” and “Kid Dynamite” in his early career, and later known as “The Baddest Man on the Planet,” Tyson is considered one of the best heavyweights of all time. Tyson holds the 3rd longest unified championship reign in heavyweight history at 8 consecutive defenses. He currently ranks #15 in BoxRec’s ranking of the greatest heavyweight boxers in history. He was ranked No. 16 on The Ring’s list of 100 greatest punchers of all time, and No. 1 in the ESPN.com list of “The Hardest Hitters in Heavyweight History.” Sky Sports described him as “perhaps the most ferocious fighter to step into a professional ring.” He has been inducted into the International Boxing Hall of Fame and the World Boxing Hall of Fame.

***

Tyson earned $400 million during his career, but filed for Chapter 11 bankruptcy in 2003. His debts included, $13.4 million to the IRS, legal fees of $600,000.00 to various law firms, and $800,000.00 to his former trainer. Tyson’s total indebtedness on his schedules was $27 million.

***

Check my blog for more Celebrity Spotlights.

***

Michael Curry is the author of helpful ebooks on bankruptcy and debt relief, available on Kindle: What Bankruptcy Can Do, What Bankruptcy Can’t Do and Finally Be Financially Free.

 

At Curry Law Office in Mount Vernon, IL, we are here to help you through your financial difficulties. Our down-to-earth bankruptcy attorney offers common sense advice and solutions for your bankruptcy filing.

Debt problems come in all shapes and sizes. For some of our clients, the issue that drives them to seek a lawyer’s advice is mounting credit card bills. For others, it may be an abusive creditor or a home foreclosure. At Curry Law Office in Mount Vernon, IL, we offer a free debt-relief planning session to discuss your financial problems and identify solutions. Call or text today (618) 246-0993 or email michael.curry.law@gmail.com. Finally Be Financially Free by calling now.

FAQs: Is foreign debt discharged in bankruptcy?

Frequently Asked Questions about Bankruptcy

I help people file for bankruptcy throughout southern Illinois to help eliminate their crushing debt and protect their assets.  For almost 25 years and in over five thousand bankruptcy filings, I answer many questions people have about the process. I thought I would share some of the more common questions here.

“Is foreign debt discharged in bankruptcy?”

In today’s world traveling and living in different countries is not very difficult.  It is no surprise that people may owe debts in different countries as well since credit can be obtained easily.  What do you do when you owe debts in different countries and you need to file bankruptcy in Mount Vernon?

First of all, if you live in the United States, it would be difficult for a foreign creditor to enforce their debts against you.  Different states have different rules about whether or not a foreign creditor can collect or enforce a judgment of a foreign debt.  In order for a debt to be recognized and enforceable, the foreign creditor would need to “domesticate” their debts.  Different states have different rules regarding domestication of debt.  In some states a foreign creditor can enforce their debts against you if they meet the requirements of the Uniform Foreign Money Judgments Recognition Act (“UFMJRA”).  In addition to meeting the requirements of UFMJRA the foreign creditor must have had personal jurisdiction over you or subject matter jurisdiction over the matter.  Most states courts have a lot of discretion over whether to allow enforcement of these debts even if the foreign creditor met all the requirements.  Therefore, a lot of foreign creditors may not go through all these steps to try to enforce their judgment against you unless it is was worth their effort to do so.

Regardless of whether or not a foreign creditor domesticates their debt, all creditors are subject to the automatic stay that is in place when you file for bankruptcy in the United States with a bankruptcy attorney in Mount Vernon (or anywhere).  It does not matter if the debt is from the United States or from another country.  This means that if the foreign creditors try to collect from you or file a lawsuit against you after you have filed for bankruptcy protection they are subject to sanctions as applicable under the Bankruptcy Code.

This does not mean you are home free however.  Filing for bankruptcy protection in the U.S. only protects you from the collection of the debt while you are in the U.S.  As soon as you return to the foreign country the foreign creditors may still pursue the collection of the debt.  For example, if you lived in Canada and moved to the U.S. and filed for bankruptcy protection in the U.S., the Canadian creditor cannot collect from you in the U.S., but if you return to Canada, the Canadian creditor can still pursue you for the Canadian debt unless you file for bankruptcy protection in Canada.

***

About the author:

Michael Curry of Curry Law Office in Mount Vernon, Illinois (http://michaelcurrylawoffice.com/) has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (probate, wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Salem, Centralia or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

You can also access my website at http://www.mtvernonbankruptcylawyer.com

Guys and Dolls. Hey! Er, that is, Guys and Action Figures. The Bankruptcy of Mego, 1982

Walk into my bedroom in early 1977 and you found a museum of Mego action figures.

Action figures.

Not dolls. My sisters played with dolls. I played with action figures.

And Mego was the champ. Oh, I had GI Joe, the Six Million Dollar Man, Big Jim and their comrades and playsets. But in my pre-teen world, Mego was king. Within six years, the king was dead.

download

From Wikipedia: Mego was founded in 1954 by D. David Abrams and Madeline Abrams. The company thrived in the 1950s and early 1960s as an importer of dime store toys until the rising cost of newspaper advertising forced Mego to change its business model. In 1971, the Abrams’ son Martin, a recent business school graduate, was named company president.

Under Martin Abrams’ direction, the company shifted its production to action figures with interchangeable bodies. Generic bodies could be mass-produced and different figures created by interposing different heads and costumes on them.

In 1972 Mego secured the licenses to create toys for both National Periodical Publications (DC Comics) and Marvel Comics. The popularity of this line of 8″ figures — dubbed “The World’s Greatest Super Heroes” — created the standard action figure scale for the 1970s.

Mego began to purchase the license rights of motion pictures, television programs, and comic books, eventually producing action figure lines for Planet of the Apes, Star Trek, and the Wizard of Oz. Mego also obtained licenses from Edgar Rice Burroughs for his creations, such as Tarzan.

Beginning in 1974 Mego released the Planet of the Apes action figures, the first such toys sold as film tie-ins. 1974 also saw the release of figures from Star Trek: The Original Series, which was steadily gaining fandom in syndication. The Planet of the Apes and Star Trek figures proved popular and inspired the rise of action figure series based on popular culture franchises.

During this period, Mego was known for the lavish parties the company threw at the annual New York American International Toy Fair. In 1975, Mego launched its Wizard of Oz film dolls with a gala whose special guests were every surviving member of the film’s main cast. Mego’s party at the Waldorf-Astoria with Sonny and Cher introducing their dolls drew a thousand people. Both dolls were formally unveiled on The Mike Douglas Show. The Cher doll was the number-1-selling doll in 1976, helping to make Mego the sixth-ranked American toy manufacturer, based on retail sales.

In 1976, Martin Abrams hashed out a deal with the Japanese toy manufacturer Takara to bring their popular lucite 3″ fully articulated Microman figures to the United States under the name “Micronauts.” David Abrams, meanwhile, rejected a deal to license toys for the upcoming motion picture Star Wars, reasoning that Mego would go bankrupt if they made toys of every “flash-in-the-pan” sci-fi B movie that came along. This decision seemed of little consequence to Mego at first, because the Micronauts figures initially sold well, earning the company more than $30 million at their peak. On the other hand, the Star Wars film was extremely popular and competitor Kenner Products sold substantial numbers of Star Wars action figures.

Following Star Wars’ huge cultural impact, and Kenner’s great success with its action figure line, Mego negotiated licenses for the manufacturing rights to a host of science fiction motion pictures and television shows, including Moonraker, Buck Rogers in the 25th Century, The Black Hole, and Star Trek: The Motion Picture. Although these lines of Mego figures were of much higher quality than Kenner’s 12″ Star Wars figures, none were as successful. The widespread success of Kenner’s Star Wars 3-3/4″ toy line soon made the newer, smaller size the industry standard, shifting sales away from the 8″ standard popularized by Mego.

In the late 1970s, Mego was earning about $100 million in sales. Around this time, Mego began shifting their focus toward electronic toys like the 2-XL toy robot and the Fabulous Fred hand-held game player, but sales were not commemsurate with the company’s investment, and Mego went deeply into debt. In the fiscal years 1980 and 1981, Mego reported combined losses of $40 million. In fiscal year 1982, the company reported losses of between $18 and $20 million.

In February 1982 the remaining staff was let go and the Mego offices were closed.

On June 14, 1982, Mego filed for Chapter 11 bankruptcy in the Southern District of New York, case number 82-11117.

image_13_-_figures

From the New York Times; 6/16/1982:

Some analysts interviewed mostly blamed the company’s line of toys. ”There was a lack of exciting new product,” said David S. Leibowitz, vice president of the American Securities Corporation, a New York brokerage firm.

But there is also a legal cloud over the company. Its chairman, Martin B. Abrams, and two former Mego executives and a current vice president, are scheduled to go on trial in Federal District Court in Manhattan on July 6 on charges of defrauding Mego and its stockholders of more than $100,000 over a 10-year period. Fraud Charges

The grand jury indictment, issued in January, charged that Mr. Abrams and his associates sold company inventory and used the proceeds ”to bribe others and to enrich themselves,” according to Scott Campbell, the Assistant United States Attorney handling the case. He refused to specify the exact amount involved. The accused have pleaded not guilty and are free under bond.

One analyst familiar with the company was critical of its management. But the analyst, who refused to be quoted by name, also said that Mr. Abrams was ”the creative genius of the company.”

Mego, founded in 1969 and based in New York, had fallen to about 14th place among American toy manufacturers in 1981 as measured by retail sales, according to the Toy Market Index compiled by NPD Research Inc., of Floral Park, L.I. The company had been ranked sixth in the mid-1970’s.

The immediate problem contributing to Mego’s bankruptcy filing was an ”overburdence of debt,” Michael Bauer, the company’s executive vice president, said. Mego, which reported sales of $73.7 million for the fiscal year that ended Feb. 28, has more than $50 million in debt, Laurence Usdin, its senior vice president for finance, estimated.

The company said its problems came to a head for three reasons: Bank creditors in Hong Kong, where Mego manufactures 60 percent of its toys, filed court documents on April 30 seeking liquidation for Lion Rock Ltd., its manufacturing subsidiary in Hong Kong; Mego failed to meet a Sunday deadline set by the Irving Trust Company for payment of interest on debentures due last Feb. 1, and the General Electric Credit Corporation, which provided its short-term financing, refused to continue to do so.

A General Electric Credit spokesman had no comment. Neither did the Irving Trust Company, which Mego said was owed $14 million. Two Bad Years

The debt mounted because of two years of weak sales, in 1980 and 1981, which led to combined losses of more than $44 million, company officials and analysts said. Toy manufacturers borrow money early in the year to produce the goods that are sold in retail stores for Christmas, Mr. Leibowitz, the analyst, explained. If the toys are not sold, the company must close out the goods at a low price and may be unable to repay its debt, he said.

In 1980, Mego lost money on Fabulous Fred, a hand-held baseball game, and other electronic toys, because ”the bottom dropped out” of the electronic toys business, Mr. Bauer, Mego’s executive vice president, said. ”Mego was left with considerable inventory,” he said.

One analyst said that Mego had made the right move by moving away from dolls linked to personalities who could be popular one day and forgotten the next. ”But they came a little late in electronics with some of the wrong items,” he said.

The company, Mr. Bauer said, also suffered a ”major hit” on spinoffs from the ”Star Trek” movie and space age dolls called ”Micronauts” that were outclassed by competing ”Star Wars” toys.

(end NYT article)

mego-MAD-monsters-group-shot-good

On September 2, 1982, Mego’s President Martin Abrams and other company executives were convicted on their federal wire fraud charges: selling returned merchandise to vendors and not reporting the profit over a period of nine years.

Mego Wizard of Oz 8 inch dolls

After filing for Chapter 11, Mego operated as a debtor-in-possession. As part of its reorganization effort, Mego decided to stop manufacturing toys and concentrate solely on selling and distributing them. This strategy was hampered by potential customers’ resistance to doing business with Mego in light of the company’s chapter 11 status and its pre-filing contractual breaches.

To hopefully overcome this problem, Mego contracted PAC Packaging Corporation (“PAC”) on January 7, 1983. This Mego/PAC Agreement provided that Mego would organize a new subsidiary, and this new subsidiary would enter into a second agreement with PAC.

The second agreement provided for appointment of the then-nonexistent subsidiary as PAC’s “exclusive marketing representative” within the United States for all of PAC’s “…toys, games, puzzles and dolls of all kinds and descriptions.”

Mego sought Bankruptcy Court approval under § 363(b) of the Bankruptcy Code for this agreement. On January 25, 1983 the Bankruptcy Court, after a hearing at which PAC was present, approved both the creation of the new subsidiary, Ojem, and the terms of the sales-representatives agreement that were set out in the Mego/PAC Agreement.

On January 26, 1983, Ojem entered a sales-representative agreement (the Ojem/PAC Agreement) with an affiliate of PAC, Packaging & Assembly Manufacturing Corporation; and P & A subsequently caused the Ojem/PAC Agreement to be assigned to another PAC affiliate, appellant Phoenix Toys, Inc.

In a related agreement also entered on January 26, 1983, Mego granted PAC various trademark and copyright licenses and sold to PAC certain molds used for production of toys involving the licensed trademarks and copyrights, and was approved by the Bankruptcy Court on February 4, 1983.

Mego and Ojem claim that, although they had fully performed all of their obligations under the Ojem/PAC Agreement, Mego received a letter

PAC agreed to contract with a nonbankrupt subsidiary and to pay the subsidiary reasonable and fair compensation for services as a sales representative. PAC also agreed to pay fair consideration ($37,500 plus royalties) for licenses and molds for certain Mego toys. In fact, PAC was the only company Mego could find that was willing to buy Mego’s licenses and molds.

However, on April 7, 1983 PAC sent a letter to Mego/Ojem terminating the agreement. The Bankruptcy Court refused to enjoin PAC from termination on appeal.

Taken from In re MEGO INTERNATIONAL, INC. and Mego Corp., Debtors; MEGO INTERNATIONAL, INC., Mego Corp. and Ojem, Inc. v. PACKAGING & ASSEMBLY MANUFACTURING CORPORATION, Pac Packing Corporation and Phoenix Toys, Inc., 30 B.R. 479, S.D. New York. (1983).

Mego 1980 Dukes of Hazzard action figures Luke Duke Bo Duke Daisy Duke and Boss Hogg

Mego officially went under in 1983.

eda213915c4379c308cdfd978fb827d7

From Wikipedia: In 1986, Martin Abrams co-founded Abrams Gentile Entertainment (AGE), in order to retain and manage Mego’s licensing contracts, rights and deals. In October 1995 AGE attempted to reclaim the Mego trademark. In March 2002, they abandoned the effort. In early 2009, Martin Abrams announced that AGE had reclaimed the rights to the name Mego; no specific future plans for Mego products have been disclosed to date.

6128102923_1acd691a76_b

Long live the king…

2c0d96d68abdd265f9d274c338e8e759--s-toys-classic-toys

Note: the Mego toy company was not the only “Mego” to file for bankruptcy: On March 9, 2010, Mego Financial Corporation went out of business as per its Chapter 7 liquidation filing under bankruptcy. Mego Financial Corporation engaged in vacation ownership sales, resort operations, land sales for vacation and second homes and travel services.

Fonzi

About the blogger:

Michael Curry of Curry Law Office in Mount Vernon, Illinois (http://michaelcurrylawoffice.com/) has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, Centralia, McLeansboro or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

You can also access my website at http://www.mtvernonbankruptcylawyer.com

 

Derivative Standing: going where Trustees fear to tread!

As a bankruptcy attorney in Mount Vernon, IL for over 25 years, I read through and analyze court rulings throughout the country, as they may be a harbinger of things to come in districts in which I practice and can be used to help Debtors get the financial relief they need.

***

A Court could Grant Chapter 13 Debtor Derivative Standing to Pursue Preferential Avoidance Action that would Benefit Estate where Trustee is Unwilling to Pursue Claim

The Debtor does not have $12,000 and his only recourse is to ask the court for permission to bring the 547 action to avoid preferential transfer himself.

The Bankruptcy Code is clear that chapter 13 trustees are granted avoidance powers in the first instance. Only when the trustee is unwilling to bring the action is it appropriate to consider granting derivative standing.

If the trustee is unwilling to pursue the claim, the Debtor will be granted derivative standing to bring the claim. If the trustee intends to bring the claim, derivative standing will be denied.

IN RE ROTHENBUSH (Bankr MD Fla.)

***

Here a bankruptcy attorney should tread carefully – asking for derivative standing is basically telling the Court the Trustee is not doing his or her job! Hopefully both the Trustee and the Court will understand!

About the blogger:

Michael Curry of Curry Law Office in Mount Vernon, Illinois (http://michaelcurrylawoffice.com/) has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, Centralia, McLeansboro or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

You can also access my website at http://www.mtvernonbankruptcylawyer.com