Bankruptcy Bits

NYC restaurants filing bankruptcy include Tavern on the Green

In another sign of times, even the wealthy and famous are feeling the effects of the declining economy. In New York City, the owners of a well-known eating institution have sought the protection of the US Bankruptcy Court in the Southern District of New York. The 75 year old Tavern on the Green filed Chapter 11 after its lease was terminated by its present landlord, the City of New York, who has granted a new 20 year at that location to another restaurant, the owners of Central Park Boathouse, commencing January 1, 2010.

Tavern on the Green continues to operate while in Chapter 11, but has said that it may auction off the restaurant’s name, which it claims has a value of $19,000,000. Even with an auction sale, it may not realize enough to pay its creditors in full.

In the misery-loves-company category, another well-known eatery has also filed bankruptcy in NYC. Opened in 1917, the Cage de Artistes closed its doors and filed Chapter 7, not even attempting to reorganize. It was reported by NDP Group, a market research company, that over 500 restaurants had closed this year in NYC.

By: Michael B. Katz, Esq.

Victory for homeowners: the judge who rejects foreclosures when he finds fault in the loan

An article captioned A "Little Judge" Who Rejects Foreclosures, Brooklyn Style, that appeared in a recent edition of The New York Times, describes a judge in New York who, frustrated over the fact that many individuals against whom judicial foreclosure proceedings had been instituted, failed to appear to contest the proceedings, and therefore defaulted, allowing an uncontested order of foreclosure to be entered against the homeowner.

On a review of the pleadings filed in the cases, the Little Judge from Brooklyn discovered that many of the mortgages were defective and unenforceable. He then started to review the pleadings filed in each case, and when the papers clearly evidenced a defective mortgage, the violation of state and/or federal law, or that the foreclosing party lacked standing to commence the action, His Honor simply dismissed the foreclosure action.

The question to be asked is whether the action of the Judge was what some would decry as "judicial activism," or was it the pure rendition of justice? There are those who would either side of this question.

"But what is this esoteric question of judicial philosophy doing in a bankruptcy blog?" you might ask.

Well, to be just, the law must provide meaningful rights and remedies, and some firmly believe that a Court cannot be allowed to be a hand-maiden to unjust results. Being an attorney is a difficult task, all too frequently presenting philosophic, ethical and even moral dilemmas. One must ask one's self if it is ethical, moral or just for an attorney to institute an action to foreclose a real estate mortgage, for example, that he knows or has reason to believe is invalid or vocative of the law?

A good lawyer will question his own client, and in the interest of justice, pursue a course of action that is ethical, moral and just.

What do you think ?

by: Eugene B. Berman, Esq.

Photo Credit: Justice Arthur M. Schack, by: Nicole Bengiveno/The New York Times

Erin Brockovich's former firm files Chapter 11 Bankruptcy

In the “Truth is Stranger Than Fiction” category, there is no longer a happy ending for the law firm that successfully represented Erin Brockovich and made her and others multi-millionaires. The Westlake Village, CA., law firm of Masry &Vitotoe, has filed Chapter 11 bankruptcy, seeking relief from its creditors while it tries to reorganize.

After the death of founding partner Edward Masry in 2005, it was reported that many people had sued both the firm and Masry’s estate, seeking payment of large sums of money. The firm reportedly spent millions of dollars defending itself in the legal actions, eventually forcing it to seek relief under Chapter 11 of the Federal Bankruptcy laws.

In the 2000 movie, which featured Albert Finney as Masry, Brockovitch obtained a $333 Million settlement, and the film itself made over $250 Million dollars. It can be assumed that both Masry and his law firm made a substantial recovery from the plaintiffs’ counsel fees paid to them, as well as fees from the movie, but those amounts were apparently not enough to allow them to weather the storm that followed after Masry’s passing.


 by: Michael B. Katz, Esq.

Filling all that vacant space in retail malls…

Landlords are finding that they need to think differently in today’s rental market if they hope to fill some of the huge vacancies in their mall properties. Lack of traditional retailer tenants has created an opportunity for both landlords and non-traditional tenants, so more non-profit organizations and other types of tenants are finding mall space suddenly affordable and viable options for them to consider.

In Agawam, MA, city officials are hopeful of putting a youth center into space formerly occupied by the bankrupt retail store occupied by Steve & Barry’s. In Ft Lauderdale, FL, the high-end Galleria Mall is now leasing rehearsal and classroom space to the Ft Lauderdale Children’s Theatre.

Like a hurricane blowing in, the swirling winds of change created by the lingering recession, coupled with the demise of many big-box tenants such as Circuit City, Linens ‘N Things, Tweeter, Sound Advice and many others has created an oversupply of space in formerly very desirable retail mall and strip center sites. The landlords who are filling those spaces have recognized that dark space creates a sense of malaise that can spread like a disease to other tenants in the mall, as the public perceives that the space is no longer a place to head to as a destination for shopping.

Instead, those landlords willing to consider adjusting their rents to current conditions, or even below for non-profits, find that the influx of parents and their children help feed business to the other tenants remaining in the mall space, as well as the food courts that feed these shoppers and attendees. Landlords are utilizing shorter lease terms, rent concessions and temporary leasing as ways to attract schools, colleges, museums, performing arts centers, medical clinics, day care centers, business offices and other non-traditional mall users.

When it comes to the health of any retail center, traffic is the key. A mall that has cars in the parking lot, people in the aisles and diners in the food court, is better poised to survive these current economic times. When things stabilize, and the surviving big-box tenants need to expand, those malls who remain lit and open, and in familiar and popular locations, are going to reap the benefit of being the ones still standing and ready to do business.

by: Michael B. Katz, Esq.

New rules to protect credit card holders - Effective August 20, 2009

Yesterday, a new consumer protection law came into effect. The Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act) is intended to protect consumers from unexpected and massive interest rate hikes on the terms of their credit cards.

"The new rules of the road established by the Credit CARD Act will shield credit cardholders from widespread abusive practices," Senate Banking Committee Chairman Chris Dodd, D-Conn., the bill's author, said on Wednesday.

The most significant changes anticipated by the new law actually are scheduled to take effect during February 2010, but below is a brief listing of those changes taking effect immediately:

• Consumers must be given at least a 21-day from the date a bill is mailed to make their payment (currently only a 14-day notice is required).

• Consumers must be given at least a 45-day notice before making significant contract changes, particularly with regard to interest rate and fee increases (currently only a 15-day notice is required). However, be warned of the following inapplicable scenarios, where you may not receive warning:
• an introductory rate that expired;
• variable interest rate cards; or
• if you have a reduced rate under a hardship or “workout” plan and fail to make payments as agreed.

Consumers shall have right to opt out of interest rate and fee increases. If a consumer chooses this option, the credit card at issue may be cancelled and any outstanding balance may be paid under the previous terms (currently, issuers are not required to offer this option).

                                                                                            

While these changes are significant and will hopefully help consumers to keep credit card payments under control, watch out for more stringent credit approval checks, decreased credit limits, sudden closing of credit cards by your cardholder, and more. There is even more to come on February 22, 2010, so stay tuned.

Still to come...

• What difficulties might consumers encounter as credit card companies are required to adhere to stringent Credit CARD Act requirements?
• What changes will be taking effect as of February 2010?
• Might these changes spare some people from the need to file bankruptcy?

by: Greta LaMountain, Esq.

Consumer bankruptcy filings continue at a record pace

Data released by the National Bankruptcy Research Center and the American Bankruptcy Institute concludes that consumers in the U.S. continue to face hard economic times, resulting in 126,434 new consumer bankruptcy cases having been filed in July 2009, which is over a 34% increase from the same period of time in 2008.

Even comparing July’s numbers to June, shows almost a 9% jump in the number of filings. The number of cases filed in July 2009 represents the largest number of cases filed in a single month since the new bankruptcy amendments became effective in October 2005.

While some “experts” say that the our country’s financial crisis has bottomed out and is now improving, the numbers disprove that conclusion for most consumers, who continue to battle the effects of high unemployment or underemployment, while trying to maintain servicing of their existing debts. It appears that the tidal wave of consumer bankruptcy filings will continue for longer than many people expected.


by: Michael B. Katz, Esq.

If I file bankruptcy, do I need to go to court?

It is understandable that most people filing bankruptcy are nervous about the bankruptcy process, including the need to appear in Court before a Judge. Luckily, a vast majority of consumer bankruptcy filers never step foot in a Courtroom.

Procedurally, after filing a bankruptcy, debtors are required to attend a short administrative meeting with their lawyer and a trustee (who usually is also a lawyer, hired to make sure there are no excess assets that would be available to pay creditors.)  This meeting, (called a 341 Meeting of Creditors,) held about 30-days after filing bankruptcy, is not presided over by a judge, and is usually only a few minuets long.

Filing bankruptcy can be a stressful event for debtors, however appearing in Court is not something most need to be worried about.

by: Justin H. Dion, Esq

The Berman Hook Theory – planning the timing of filing bankruptcy

 There are statistics that evidence that a substantial number of Chapter 11 plans fail, and that even in cases in which a plan is confirmed, the reorganized debtor fails shortly after confirmation.

An explanation for the phenomenon is contained in a theory that has become known as "The Berman Hook." Envision a hook: a line straight down, a perpendicular line at the bottom with another line headed up. Think of a fishhook.

The Berman Hook Theory incorporates the previously expressed viewpoint that timing can be everything. Like "location, location, location," the manta is, "timing, timing, timing" for debtors.

The theory is simple: during the period of declining business, the entity survives by using its capital (cash, inventory, accounts receivable) and available credit to survive. Debt is incurred and continues to be incurred during the downturn and at the leveling off phase. The cash flow and capital crisis really occurs when the business turns around and new capital and credit are required for new inventory, (or to finance the production of new product,) and to finance the accounts receivable created by new sales. The real crisis occurs when capital is depleted, debt is the highest and demands for capital, cash and credit are newly needed. A classic scenario.

The theory suggests that the filing of a petition in bankruptcy provides little long term relief when filed in the downward spiral but is best exercised when there is a realty of a fresh start, i.e. when relief from existing debts can be most beneficial. A successfully reorganized debtor is relieved of the burden of incurring additional debt and has the opportunity to engage in business when there is an opportunity to succeed. A simple, pragmatic theory.

And the concept is equally applicable to individuals. Timing is everything. You should not seek recourse in Bankruptcy Court until you have bottomed out. By means of example, you’re best advised not to file before you have the operation and will be out of work for a prolonged time or are unemployed with no early prospect of employment. Timing can be everything.

While the theory is valid, there are, of course, unusual circumstances under which you don’t have the luxury of choosing the time.

by: Eugene B. Berman, Esq.

BAPCPA under review by Congress

The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act ("BAPCPA"), the "Revised Code", is, once again, being reviewed by Congress. While the only amendment proposed in the current session - the granting of authority to the Bankruptcy Court to cram-down residential fist mortgages - was defeated in the House, there is under consideration a package of amendments seeking to undue and revise what some believe to be draconian provisions of the misnamed BAPCPA.

Only time will tell if amendments will "have feet" and if Congress will choose to consider one or more changes that are being bantered about.

One of the changes that has been proposed by the National Association of Credit Management ("NACM") would move the burden of proof for preference claims from the creditor to the trustee, meaning that instead of forcing creditors to defend themselves from these claims and having to prove that a payment is not preference, the Bankruptcy Code would be amended to require trustees to first prove that a payment was preferential before they file an actual claim.

By: Eugene B. Berman, Esq.

Timing is everything when filing bankruptcy.

We are all aware that the timing of the filing of a petition - voluntary or involuntary - determines the time frame within which preference, fraudulent conveyance, and other claims can be asserted. A debtor may well delay a filing to protect a purported preference to a "friend" or to avoid claims ascertain insider preferences. Or visa versa: a petition may be filed to preserve the 90-day preference period so that an action can be undertaken. The consequences of when to file is one of the major considerations to be addressed by any entity contemplating the filing of bankruptcy.

One of the considerations frequently overlooked by debtors and their counsel is consideration of the most auspicious time to file for them. It is suggested that all too often a debtor files prematurely...at a time that things are bad but will probably get worse. An individual should not file when he loses his job...he should wait until he gets a new job. A business should not file at the first signs of trouble, it should wait until there is the beginning of a turn around.

The lesson is to bottom out before seeking relief in bankruptcy.

By: Eugene B. Berman, Esq.