My bank took all the money in my account! Can they do that? Chapter 11 can help.

Posted by David Leibowitz on April 29th, 2009 in Bankruptcy, Business Bankruptcy, Chapter 11, Bankruptcy, Chapter 11, setoff, uniform commercial code

My client called and was frantic.  ”The bank took all the money from my account – I can’t make payroll and my checks are bouncing.  Can they do that?

This is called “set-off”.  And yes, the bank can do that.  

Here’s the idea.  If you have money in the bank, it is money that the bank owes you.  But suppose you also owe money to the same bank.  This typically happens to businesses which have loans with a bank and naturally maintain their checking account with the bank.  So the debt you owe the bank – say a business loan – may be offset by a debt that the bank owes you – your money in the bank.

If you are in default with your bank under your loan agreement, even if you simply haven’t abided by various covenants or agreements in your loan agreement with the bank, the bank has the right to enforce its agreement with you.

For example, the bank has the right to set off the money in your checking account against the debt you owe the bank.  This can be mighty inconvenient.  Your employees won’t get paid and your checks will bounce.  The bank also would have the right to enforce its security agreements with you – for example collect accounts receivable directly from your customers or even sell your assets at auction.

Chapter 11 of the bankruptcy code is your strongest response to these actions.

You’ll need a plan.  You’ll need financing to operate while you are in reorganization.  And you’ll need good legal counsel – like Lakelaw – to represent you in your chapter 11 case.

If your business can recover, you owe it to yourself to try.  Otherwise, your business and life work will face liquidation and a rapid demise.

Chapter 11 for individuals

Posted by David Leibowitz on February 10th, 2009 in Bankruptcy, Chapter 11, Chapter 11

Chapter 11 is for people, not just corporations.  If a person does not pass the “means test”, chapter 7 is out of the question.  And if the person’s debts, either secured or unsecured are above the limit for chapter 13, as is often the case, chapter 13 is not allowed either.  These limits vary with inflation but now are something in excess of $300,000 of unsecured debt and something in excess of $1.1 million in secured debt.  Business debtors might file a chapter 7 case.  However, what if an individual in business wants to get bankruptcy relief and has property he or she would like to keep, like, for example, a sole propriertorship or an owner-operated bed and breakfast involving some valuable real estate?

Chapter 11 is the answer for this type of debtor.  

Some aspects of chapter 11 for people are similar to chapter 13.

• All income after expenses must be paid to creditors for the duration of the case.
• You must file a plan approved by the Court.
• You cannot discharge “domestic support obligations”, recent income tax claims and certain other types of claims

There are differences as well:

•  In chapter 11, there is typically no trustee.   You, the debtor, remain in possession of your assets subject to court supervision
• You must file monthly operating reports with the United States Trustee
• You must pay quarterly fees to the United States Trustee
• You must file a plan and disclosure statement
• The plan must be approved by the required number and amount of claims to be confirmed.
• The plan might be modified after confirmation on the motion of a creditor.
• Chapter 11 costs significantly more than a chapter 13 case.

In these times, it is important to seek counsel from those with experience.  We at Lakelaw have handled chapter 11 cases for corporations and individuals under the Bankruptcy Code for over 35 years.  We can put our experience to work for you.