Making Money in BK. Law Offices of Michael A. Hearn FRIDAY 9:00-11:00 AM. CCAMs must sign the session roster to receive CEUs. ABOUT THE SPEAKERS

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Louisa Goodwin
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Making Money in BK Sometimes the biggest mistakes an association can make in the face of a bankruptcy is to write it off! Bankruptcy is rarely an entirely bad debt.

1 Making Money in BK Sometimes the biggest mistakes an association can make in the face of a bankruptcy is to write it off! Bankruptcy is rarely an entirely bad debt. Learn what you need to know in order to deal with a bankruptcy profitably and to get everything your association client can get. You ll hear from attorneys who ve handled more than 10,000 homeowner bankruptcies for associations. They ll give you easy-to-understand and valuable information on how bankruptcies and the bankruptcy system work. You ll leave with insights into the following issues: How one-third of bankruptcy debt is actually good, collectable debt How to speak Bankruptcy-ese and advise your client through the process Bifurcated accounts, and what that means Common steps attorneys can take to save associations thousands of dollars Why Chapter 13 puts the association in the driver's seat Whether or not an insolvent association can (or should) file bankruptcy CONCURRENT EDUCATION SESSION FRIDAY 9:00-11:00 AM CCAMs must sign the session roster to receive CEUs. ABOUT THE SPEAKERS MARK T. GUITHUES, ESQ. was a portfolio manager for five years, managing more than a dozen residential and commercial owners associations. He understands the realities and demands of explaining bankruptcy actions to inexperienced boards. He obtained his law degree at the University of San Diego, where he was an editor of the prestigious San Diego Law Review. He is a founding partner of Community Legal Advisors Inc, which serves a portfolio of 300 residential and commercial community associations. Mark is recognized as an industry leader in common interest developments, serving as an Update Author for CEB s Forming California Common Interest Developments, published by the State Bar of California, a member of CACM s faculty and is licensed California real estate broker. Further information can be obtained at about the firm by visiting JAMES A. JUDGE, ESQ. founder and managing partner of The Judge Law Firm, ALC, is an expert in the area of common interest development and real estate law. Mr. Judge earned his juris doctorate with honors from Western State University College of Law in 1985 and has been admitted to practice law in all of the United States District Courts in the State of California, California Supreme Court, 9th Circuit Court of Appeals, 10th Circuit Court of Appeals, and the Supreme Court of the United States. He has been awarded an AV rating by Martindale-Hubbell, a designation reserved for attorneys designated as outstanding in their field. In addition to his law practice, Mr. Judge is a member of the Orange County Chapter of CAI s Programs Committee and CACM s Teaching Faculty and Professional Standards Committee. Further information can be obtained by visiting SESSION SPONSOR Law Offices of Michael A. Hearn Our legal team has been specializing in the construction industry for over 30 years, including construction defects, and soils movement for residential and commercial properties. CACM - July Statewide Expo & Conference

Making Money in Bankruptcy Presented By: Mark T. Guithues, Esq. & James A. Judge Esq. Hypothetical 1 Homeowner owes an association $5,000.00 on day one. Association has a lien against his house.

2 Making Money in Bankruptcy Presented By: Mark T. Guithues, Esq. & James A. Judge Esq. Hypothetical 1 Homeowner owes an association $5, on day one. Association has a lien against his house. Homeowner files bankruptcy on day two and moves out of the property. Twelve months later the lender completes a foreclosure. By that time the total amount owed is $10, Can the association enforce its lien? Can the association make the homeowner pay anything? CACM - July Statewide Expo & Conference

Is the association stuck with the lower number?

3 Hypothetical 2 Homeowner files a Chapter 13 bankruptcy and lists the association to be paid under the plan, but the amount is $3, less than what is owed. Is the association stuck with the lower number? Hypothetical 3 Homeowner files a Chapter 13 bankruptcy and doesn't list the association. Can the association collect anything? What can the association do? CACM - July Statewide Expo & Conference

Hypothetical 4 Homeowner files a Chapter 7

4 Hypothetical 4 Homeowner files a Chapter 7 bankruptcy, but doesn't list the association at all. What can the association collect after the homeowner gets a discharge? Can Bankruptcy be Profitable? Can you make money from a bankruptcy? CACM - July Statewide Expo & Conference

What were the total amount of bankruptcies in

A dismissal is as if the bankruptcy was never

5 What were the total amount of bankruptcies in 2012? 1,410,653 Bankruptcy Statistics Dismissal A dismissal lets the creditor continue with collection. A dismissal is as if the bankruptcy was never there except where a void action is done during the pendency of a bankruptcy. A dismissal may later be vacated reinstating the stay. CACM - July Statewide Expo & Conference

6 Violating a Stay If the creditor did something during the bankruptcy, it must be undone. What is the automatic stay? It is a court injunction that prevents any creditor from proceeding on the creditor claim without relief from the court. The stay is very broad and not only protects the debtor from actions to collect money but other administrative actions, such as suspending common area privileges and many enforcement actions. The stay protects both the debtor and the property of the estate. Discharge Discharge = Freedom from personal liability for prebankruptcy debt. The discharge injunction replaces the automatic stay. No creditor may attempt to collect on a debt that arose prior to the bankruptcy. There are certain debts that are exempt from the discharge injunction and one of these is assessments arising after the filing of a bankruptcy. 11 USC 523(a)(16). A discharge does not affect a secured creditor. CACM - July Statewide Expo & Conference

7 Collectability In almost all bankruptcy cases there is something to collect. The debtor will personally owe assessments arising after the filing of the bankruptcy. The property will owe assessments for before and after the bankruptcy if there is a lien. And in some cases, the association can challenge the debtor s ability to discharge the association s debt or even get a discharge at all. Debts Secured vs. unsecured debts. This is the most important distinction in bankruptcy. If a debt is secured by a lien or mortgage against the debtor s house, the association may proceed to foreclose on the entire debt even if the debtor has a bankruptcy discharge. The security for association debt is critical in a Chapter 13 bankruptcy. If the association has not recorded a lien, the debt is not secured. All debt that is not secured is UNSECURED. CACM - July Statewide Expo & Conference

The debtor continues to have personal liability [523(a)(16)] for assessments arising after the bankruptcy even if the property is later foreclosed.

8 Lien = Secured creditor. No lien or post foreclosure = Unsecured creditor. So: Liens If the debtor files bankruptcy and the lender does not foreclose and the association has a lien, it can enforce the lien. The debtor continues to have personal liability [523(a)(16)] for assessments arising after the bankruptcy even if the property is later foreclosed. But: If the property forecloses and then there is a bankruptcy, it is a wipe out. Bankruptcy Types Chapter 7: Liquidation: The debtor s goal is to eliminate personal liability for his debts to creditors. If a Chapter 7 reaches discharge, the debtor no longer has liability to the association for debts arising before the bankruptcy. These debts are called pre petition debts, because they arose before the filing of the bankruptcy. Chapter 11: Reorganization: This is a rather complex bankruptcy that requires professional attention. Chapter 13: Repayment: In this type of bankruptcy the debtor intends to pay money to his secured and unsecured creditors. CACM - July Statewide Expo & Conference

Bankruptcy Roadmap Chapter 7 The petition is filed.

Discharge date During bankruptcy we determine what rights the

9 Bankruptcy Roadmap Chapter 7 The petition is filed. No need to adjust ledger at this time. Is it an asset or a no asset Chapter 7? Meeting of creditors Claims bar date Adversary bar date Discharge date During bankruptcy we determine what rights the association will have after the bankruptcy. Story Time Bankruptcy and the lottery ticket! CACM - July Statewide Expo & Conference

10 Chapter 7 Bankruptcy Here are the following possible outcomes in a Chapter 7 bankruptcy: The property is foreclosed before the bankruptcy and the debtor gets a discharge: Bad debt. In all other cases you can collect money! Debtor keeps property and there is no foreclosure: The debtor has personal liability for pre petition debt and the property is liable for everything. The property is foreclosed post bankruptcy: The debtor still has liability for post petition assessments after the bankruptcy and up to the time of the trustee s deed upon sale. 11 USC 523: Chapter 7 Bankruptcy (a) A discharge under 727, 1141, 1228 (a), 1228 (b), or 1328 (b) of this title does not discharge an individual debtor from any debt (16) for a fee or assessment that becomes due and payable after the order for relief to a membership association with respect to the debtor s interest in a unit that has condominium ownership, in a share of a cooperative corporation, or a lot in a homeowners association, for as long as the debtor or the trustee has a legal, equitable, or possessory ownership interest in such unit, such corporation, or such lot, but nothing in this paragraph shall except from discharge the debt of a debtor for a membership association fee or assessment for a period arising before entry of the order for relief in a pending or subsequent bankruptcy case[.] CACM - July Statewide Expo & Conference

Chapter 7: Remedies Secured creditors can get relief from stay to foreclose on pre and post petition assessments if post petition assessments aren t paid.

11 Chapter 7: Remedies Secured creditors can get relief from stay to foreclose on pre and post petition assessments if post petition assessments aren t paid. Go after the debtor post discharge for post petition assessments. Go after the property for everything. In extraordinary cases where the debtor has committed fraud or filed false statements: Dischargeability complaint: Judgment that the debtor is still liable to the association for everything. Discharge complaint: Judgment that the debtor does not get a discharge as to any creditor. Chapter 7: Dischargeability Dischargeability action Grounds Actual fraud Deliberate damage to property Other extraordinary circumstances Discharge challenge False oaths Relief from stay Relief to proceed against the property for all assessments pre and post Relief to proceed against the debtor personally for post petition CACM - July Statewide Expo & Conference

Hint: Entry of discharge! When does the stay end as to property? Hint: Closing of case! Chapter 7: Creditors Review Meeting of creditors?

12 Filing Chapter 7 Filing and automatic stay: Review What does the stay cover? Can an association sue in small claims court if the debt is solely post petition? When does the stay end as to the person? Hint: Entry of discharge! When does the stay end as to property? Hint: Closing of case! Chapter 7: Creditors Review Meeting of creditors? Adversary complaint bar date? Claims bar date? Discharge? Dismissal? What does a discharge do? What does a dismissal do? What if a pre lien letter was sent during the bankruptcy? The lien? CACM - July Statewide Expo & Conference

What can you collect after the bankruptcy? What can you collect from the property?

13 Chapter 7 Bankruptcy When does the bankruptcy end? Discharge (personal actions) Closing of case (property of estate) Chapter 7: Post-Bankruptcy What can you collect after the bankruptcy? What can you collect from the property? What can you collect from the person? When does the filing of a Chapter 7 result in a bad debt? CACM - July Statewide Expo & Conference

Chapter 7: Post-Bankruptcy How do you make money

Pre bankruptcy foreclosure = Bad debt Bankruptcy

14 Chapter 7: Post-Bankruptcy How do you make money after a Chapter 7? Lien: foreclosure for everything with deficiency as to post petition No lien: post petition only Pre bankruptcy foreclosure = Bad debt Bankruptcy How to get and use PACER (Anja)? CACM - July Statewide Expo & Conference

Confirmation Hearing Performance of Plan: Pre petition payments to trustee.

15 Story Time What is your weirdest bankruptcy story? Chapter 13 Bankruptcy Chapter 13 roadmap Filing Petition and Plan Meeting of Creditors Confirmation Hearing Performance of Plan: Pre petition payments to trustee. Dismissal if not paid. Post petition payments to association: Relief from stay if not paid. CACM - July Statewide Expo & Conference

16 Chapter 13 : the Proof of Claim The Proof of Claim. Chapter 13 : the Proof of Claim The Proof of Claim CACM - July Statewide Expo & Conference

17 Chapter 13 : the Proof of Claim The Proof of Claim. Reviewing the plan Objecting to the plan Filing proof of claim Chapter 13: the Plan Monitor performance: Pre petition paid to trustee: Dismissal if not paid. Post petition paid to association: Relief from stay if not paid. CACM - July Statewide Expo & Conference

18 Objecting to the Plan Chapter 13: the Plan Objecting to the Plan Chapter 13: the Plan CACM - July Statewide Expo & Conference

19 Objecting to the Plan Chapter 13: the Plan Objecting to the Plan Chapter 13: the Plan CACM - July Statewide Expo & Conference

20 Objecting to the Plan Chapter 13: the Plan Objecting to the Plan Chapter 13: the Plan CACM - July Statewide Expo & Conference

Chapter 13: Remedies Creditor remedies in Chapter 13? Relief from stay for failure to make post petition payments. Dismissal by court for failure to make payments under the plan.

21 Chapter 13: Remedies Creditor remedies in Chapter 13? Relief from stay for failure to make post petition payments. Dismissal by court for failure to make payments under the plan. BEWARE: The debtor has the right to strip off liens that are not covered by equity! Chapter 13: Post-Bankruptcy At the end of a Chapter 13 bankruptcy, which can take three to five years, the debtor gets a discharge just like in a Chapter 7. The debtor continues to have personal liability for post petition assessments that weren t paid under the plan. The property continues to be liable for all assessments that weren t paid under the plan. If the plan is properly implemented and monitored, the plan payments should be sufficient to take care of everything including the cost of monitoring the bankruptcy. CACM - July Statewide Expo & Conference

22 How to get in trouble! Claims objections Chapter 13: Caution False or misleading claims Lien strip motions and defenses Preference actions for money paid within 90 days of the bankruptcy. Chapter 11 Bankruptcy Get professional help! CACM - July Statewide Expo & Conference

23 Questions & Final Comments CACM - July Statewide Expo & Conference

Information & Instructions: Demand letter opportunity to cure and intent to accelerate the note

Information & Instructions: Demand letter opportunity to cure and intent to accelerate the note 1. The demand letter in the form that follows is used to advise the debtor that he or she is delinquent in