Major League Baseball's commissioner Bud Selig has announced that MLB will take over day to day control of the Los Angeles Dodgers because the team's owners, Frank and Jamie McCourt, are locked in a nasty divorce where ownership of the team is up for grabs. Frank McCourt is threatening to sue Bud Selig and MLB for this move that is, to use an overworked word, unprecedented.
Frank McCourt bought the Dodgers in 2004 in a deal that was described as "highly leveraged" (read, McCourt bet the ranch and then some). The Washington Post referred to McCourt as "McBankrupt" after he shelled out $430 million just so he could sit in the owners' box at Dodger Stadium. But, hey, the San Gabriel Mountains, Elysian Hills, sunny weather, 80 degrees? Who could resist? And the Dodgers have a storied history, going back to the days when they were the Yankees' cross town rivals as the Brooklyn Dodgers. Beginning with Sandy Koufax and Don Drysdale, who silenced the Yanks' bats in the '63 World Series, shutting them out 1-0 in Game Four for the sweep, and continuing with Steve Garvey and Ron Cey in the 1970s and 80s, the Dodgers were one of MLB's premier franchises.
But the Dodgers haven't won a series since 1988 and are reported to be in the position of having to borrow money to make payroll. With ownership on the block, the owners squabbling themselves, and now MLB stepping in, you can bet the ones really licking their chops are the lawyers. They're going to come out as the only real winners.
Thursday, April 21, 2011
Monday, April 11, 2011
Gift Card from Blockbuster? Fuhgetabboudit
Did you get a gift card to Blockbuster that you haven't used completely? If so, throw it away.
Blockbuster filed Chapter 11 bankruptcy last year, as was widely expected. Up until last week, it looked like Blockbuster might be destined to become one of those companies that just quietly fade away until one day you suddenly notice they aren't there anymore. But last week Dish Network offered $320 million for Blockbuster, a higher number than the liquidation value of the entire chain. So it looks like Blockbuster might live on.
If so, its gift cards are no longer accepted. Gift cards are a form of "executory contract" under the Bankruptcy Code. An executory contract is one that still has to be performed by one or both parties. In this case, Blockbuster still had to perform by renting movies to holders of the cards. In Chapter 11 a debtor can "reject" executory contracts, meaning the debtor simply says, "I'm not going to perform my obligation under the contract." And that's exactly what Blockbuster has done. Go into any of their retail outlets and you'll see signs posted that say that after April 6, 2011, gift cards are no longer accepted.
The other parties to rejected executory contracts, in this case holders of gift cards, become general unsecured creditors in the Chapter 11 case. General unsecured creditors are the lowest form of creditor life in a bankruptcy, entitled to be paid after virtually everyone else gets something, and then only if there is any money left. In reorganizations, general unsecured creditors sometimes get a few cents on the dollar. But in order to get paid, they have to file a proof of claim. In the case of Blockbuster gift cards, the potential return to holders probably isn't worth the price of a stamp to mail the claim in.
Blockbuster filed Chapter 11 bankruptcy last year, as was widely expected. Up until last week, it looked like Blockbuster might be destined to become one of those companies that just quietly fade away until one day you suddenly notice they aren't there anymore. But last week Dish Network offered $320 million for Blockbuster, a higher number than the liquidation value of the entire chain. So it looks like Blockbuster might live on.
If so, its gift cards are no longer accepted. Gift cards are a form of "executory contract" under the Bankruptcy Code. An executory contract is one that still has to be performed by one or both parties. In this case, Blockbuster still had to perform by renting movies to holders of the cards. In Chapter 11 a debtor can "reject" executory contracts, meaning the debtor simply says, "I'm not going to perform my obligation under the contract." And that's exactly what Blockbuster has done. Go into any of their retail outlets and you'll see signs posted that say that after April 6, 2011, gift cards are no longer accepted.
The other parties to rejected executory contracts, in this case holders of gift cards, become general unsecured creditors in the Chapter 11 case. General unsecured creditors are the lowest form of creditor life in a bankruptcy, entitled to be paid after virtually everyone else gets something, and then only if there is any money left. In reorganizations, general unsecured creditors sometimes get a few cents on the dollar. But in order to get paid, they have to file a proof of claim. In the case of Blockbuster gift cards, the potential return to holders probably isn't worth the price of a stamp to mail the claim in.
Thursday, March 24, 2011
What Should a Bankruptcy Cost?
Whenever I speak with a potential client, one of the questions always asked, often one of the first, is "how much will it cost?" This is a legitimate question, but, upon hearing my estimate (which varies from case to case) some potential clients never become clients. I am sure that in many cases they find someone willing to do the work cheaper.
Consumer bankruptcy attorneys all seem to compete on price. It's understandable that someone facing bankruptcy needs the lowest cost possible, but what clients often don't understand is that bankruptcies aren't like potatoes. In most cases, a pound of potatoes from one grocer is as good as a pound from another, so it makes sense to find the grocer with the lowest cost. But everybody's financial situation is different. It doesn't make sense to shop for a bankruptcy attorney solely on the basis of cost.
Many large-volume bankruptcy attorneys (or bankruptcy mills) churn out dozens of cases a week. In a consumer bankruptcy, about the only thing an attorney can't delegate to a paralegal is appearing in court, so those high volume attorneys spend their time in court and leave the rest to secretaries and paralegals. That means except for the few minutes when the client is actually in court or at the meeting of creditors, he or she doesn't speak directly to the attorney. Secretaries and paralegals can't give legal advice, which means they can't answer a client's questions in many cases. Is that what clients want, to pay the lowest fee and be run through a processor?
Bankruptcy is a serious step. It's a confusing process that goes on for months and, in Chapter 13, years. Clients should be willing to pay enough to get the attention they deserve.
Consumer bankruptcy attorneys all seem to compete on price. It's understandable that someone facing bankruptcy needs the lowest cost possible, but what clients often don't understand is that bankruptcies aren't like potatoes. In most cases, a pound of potatoes from one grocer is as good as a pound from another, so it makes sense to find the grocer with the lowest cost. But everybody's financial situation is different. It doesn't make sense to shop for a bankruptcy attorney solely on the basis of cost.
Many large-volume bankruptcy attorneys (or bankruptcy mills) churn out dozens of cases a week. In a consumer bankruptcy, about the only thing an attorney can't delegate to a paralegal is appearing in court, so those high volume attorneys spend their time in court and leave the rest to secretaries and paralegals. That means except for the few minutes when the client is actually in court or at the meeting of creditors, he or she doesn't speak directly to the attorney. Secretaries and paralegals can't give legal advice, which means they can't answer a client's questions in many cases. Is that what clients want, to pay the lowest fee and be run through a processor?
Bankruptcy is a serious step. It's a confusing process that goes on for months and, in Chapter 13, years. Clients should be willing to pay enough to get the attention they deserve.
Tuesday, March 22, 2011
Barry Bonds Goes on Trial
The trial of Barry Bonds, major league baseball's home run king, for lying to a grand jury about whether he used steroids during his career, began today. But as Tom Verducci, columnist for Sports Illustrated, points out in his article on SI.com, this trial isn't about Bonds' legacy, which, according to Verducci (and whose opinion I share) is non-existent. The ones who have something at stake are the lawyers on both sides. The prosecutors have to gain a conviction to prove they haven't wasted eight years and countless thousands, if not millions, of taxpayer dollars chasing someone whose conviction or acquittal has little social importance. Society doesn't need protection from Barry Bonds and the Balco steroid shop was shut down years ago, so Bonds' conviction, if it comes, is a ho-hum deal legally. The defense attorneys need an acquittal because in the world of criminal defense, a high profile loss can end a lawyer's career almost as quickly as using steroids can end an athlete's career.
So Barry Bonds is all-time home run king and Mark McGwire, whose image is as tainted as Bonds', is the single season home run king. In a lot of people's eyes, Hank Aaron and Roger Maris are still the kings. And some die-hards even question Maris, because he hit his 61 season homers in 162 games instead of the 154 that Babe Ruth had. That debate will continue like it has for nearly 50 years, but no one ever accused any of those guys of playing juiced.
So Barry Bonds is all-time home run king and Mark McGwire, whose image is as tainted as Bonds', is the single season home run king. In a lot of people's eyes, Hank Aaron and Roger Maris are still the kings. And some die-hards even question Maris, because he hit his 61 season homers in 162 games instead of the 154 that Babe Ruth had. That debate will continue like it has for nearly 50 years, but no one ever accused any of those guys of playing juiced.
Thursday, February 24, 2011
Facebook and Bankruptcy
We've all heard of legal problems created by Facebook, such as employees who got fired for posting derogatory comments about bosses, customers and co-workers. Facebook could present legal problems in other ways as well.
In Pennsylvania last fall, a court ordered the plaintiff in a personal injury action to allow the defense attorney free access to all his Facebook pages. The purpose was to examine what the plaintiff might have said about his injuries and his life to attack his credibility that his injuries had affected his quality of life. For example, if the plaintiff had posted pictures of himself helping his girlfriend move, his claims that the accident had partially incapacitated him would be somewhat eroded.
It doesn't take a lot of imagination to make the next leap to a bankruptcy trustee wanting to examine a Facebook page. Is that a picture of the debtor on a new motorcycle? Wait, the motorcycle wasn't listed in his schedules and statement of financial affairs. Maybe there's some bankruptcy fraud going on. Or, is the debtor telling friends she's taking a cruise? Where did the money for that come from? Even if your privacy settings only allow Facebook friends to see what you post, if a trustee gets a court order, all bets are off.
The point of this is, be totally honest with your attorney about what you own. Don't try to game the system. It could come back to haunt you. At best your bankruptcy discharge might be denied. At worst, you could be facing prison for bankruptcy fraud.
In Pennsylvania last fall, a court ordered the plaintiff in a personal injury action to allow the defense attorney free access to all his Facebook pages. The purpose was to examine what the plaintiff might have said about his injuries and his life to attack his credibility that his injuries had affected his quality of life. For example, if the plaintiff had posted pictures of himself helping his girlfriend move, his claims that the accident had partially incapacitated him would be somewhat eroded.
It doesn't take a lot of imagination to make the next leap to a bankruptcy trustee wanting to examine a Facebook page. Is that a picture of the debtor on a new motorcycle? Wait, the motorcycle wasn't listed in his schedules and statement of financial affairs. Maybe there's some bankruptcy fraud going on. Or, is the debtor telling friends she's taking a cruise? Where did the money for that come from? Even if your privacy settings only allow Facebook friends to see what you post, if a trustee gets a court order, all bets are off.
The point of this is, be totally honest with your attorney about what you own. Don't try to game the system. It could come back to haunt you. At best your bankruptcy discharge might be denied. At worst, you could be facing prison for bankruptcy fraud.
Thursday, February 10, 2011
Exemptions in Bankruptcy
When you file bankruptcy, almost everything you own becomes part of your bankruptcy estate. The estate is the pile of stuff from which the trustee can sell or liquidate to raise money. With that money, he pays creditors on a pro-rata basis. Some of the property in the estate is exempt, meaning the trustee can't touch it.
Exemptions can be full or partial. Full exemptions are things like household furnishings (subject to their being included in the list of exemptions). These include things like washers, dryers, refrigerators, beds, personal clothing, most furniture and the like. Also included in a full exemption are IRAs and 401Ks and other qualified retirement accounts. In Utah contributions made to such accounts in the past year are not exempt, but under federal law, all contributions are exempt. Make sure your attorney claims the federal exemption as well as the state exemption or you could lose contributions made in the last 12 months.
Partial exemptions are exemptions based on dollar values. For example, Utah law exempts $2,500 for a vehicle, per person. It also exempts $20,000 for a homestead exemption. Both of these dollar amounts have been on the books for over 20 years and are woefully outdated. Who can get a reliable car for $2,500? Yet that's all Utah law allows a debtor to acquire a vehicle to get to and from work. And $20,000 ($40,000 if married and filing jointly) for a house? While that's a more generous amount due to the recent downturn in the housing market, truly what does $20,000 do to protect your home, which is the purpose of a homestead exemption.
Don't count on the Utah legislature to update exemptions any time soon, though. Utah is one of the most creditor-friendly states in the nation, which is one reason it has one of the highest percentages of bankruptcy filings.
Exemptions can be full or partial. Full exemptions are things like household furnishings (subject to their being included in the list of exemptions). These include things like washers, dryers, refrigerators, beds, personal clothing, most furniture and the like. Also included in a full exemption are IRAs and 401Ks and other qualified retirement accounts. In Utah contributions made to such accounts in the past year are not exempt, but under federal law, all contributions are exempt. Make sure your attorney claims the federal exemption as well as the state exemption or you could lose contributions made in the last 12 months.
Partial exemptions are exemptions based on dollar values. For example, Utah law exempts $2,500 for a vehicle, per person. It also exempts $20,000 for a homestead exemption. Both of these dollar amounts have been on the books for over 20 years and are woefully outdated. Who can get a reliable car for $2,500? Yet that's all Utah law allows a debtor to acquire a vehicle to get to and from work. And $20,000 ($40,000 if married and filing jointly) for a house? While that's a more generous amount due to the recent downturn in the housing market, truly what does $20,000 do to protect your home, which is the purpose of a homestead exemption.
Don't count on the Utah legislature to update exemptions any time soon, though. Utah is one of the most creditor-friendly states in the nation, which is one reason it has one of the highest percentages of bankruptcy filings.
Wednesday, February 2, 2011
Is the Sacred Cow of Home Mortgages About to be Slaughtered?
For years, despite all the amendments to the Bankruptcy Code, one thing has remained untouchable: A debtor cannot modify the terms of her first mortgage that secures a debt on her primary residence. Debtors have been able to modify car loans, second mortgages, mortgages on vacation properties and a host of other loans for years, but first mortgage loans remained sacrosanct. All a debtor can do is catch up any arrearage through her plan, but she has to make all future payments (beginning with the payment that is next due after filing) on time and in the amount originally agreed.
The process of modifying a secured debt in bankruptcy is often called "cram down," from the graphic notion that the debtor crams the terms of the new loan down the creditor's throat with the help of the Bankruptcy Code. What happens is the debtor proposes a plan that repays the creditor only the value of its collateral. With cars, this is almost always less than what is owed. Since the housing crisis began three years ago, more and more homes are underwater and debtors want to be able to "refinance" their loans for lower principal amounts through the bankruptcy courts.
Senator Jeff Merkeley of Oregon is renewing the idea of allowing cram down for mortgages. The last attempt in 2009 failed, but this time there may be added ammunition: The housing market is still in the toilet, the job market stinks, the much-touted HAMP and other government programs to provide mortgage relief are dismal failures, and voluntary modifications by banks just don't happen. Stories of people sending the same documents a half dozen or more times and getting the runaround for months are legion. All of these things together might mean the economic and political climate are right to permit mortgage cram downs.
The process of modifying a secured debt in bankruptcy is often called "cram down," from the graphic notion that the debtor crams the terms of the new loan down the creditor's throat with the help of the Bankruptcy Code. What happens is the debtor proposes a plan that repays the creditor only the value of its collateral. With cars, this is almost always less than what is owed. Since the housing crisis began three years ago, more and more homes are underwater and debtors want to be able to "refinance" their loans for lower principal amounts through the bankruptcy courts.
Senator Jeff Merkeley of Oregon is renewing the idea of allowing cram down for mortgages. The last attempt in 2009 failed, but this time there may be added ammunition: The housing market is still in the toilet, the job market stinks, the much-touted HAMP and other government programs to provide mortgage relief are dismal failures, and voluntary modifications by banks just don't happen. Stories of people sending the same documents a half dozen or more times and getting the runaround for months are legion. All of these things together might mean the economic and political climate are right to permit mortgage cram downs.
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