Call for a professional consult today 734.281.2050

Bankruptcy Cases in the News

Bankruptcy Cases in the News:

 

     On February 5, 2013 the 6th Circuit Court issued an interesting opinion concerning creditors’ rights after mortgage foreclosures in In re: Richard K. Miller, No.: 11-2357 (unpublished). The question before the court was whether the Bank’s credit bid at a Michigan Sheriff’s sale (after foreclosure by advertisement) extinguished the debtor’s debt to the bank. The bankruptcy court determined that it did and the 6th Circuit Court of Appeals affirmed/agreed with that decision.

 

     After the bank foreclosed against the the debtor’s home it bid the full amount of it’s mortgage at the sheriff’s sale and acquired the title, subject to debtor’s rights of redemption. When debtor did not redeem the  bank subsequently sold the home for less than the amount debtor owed and then claimed the difference against the debtor. The court would not allow this action based upon Michigan cases. Specifically holding:

 

     In Bank of Three Oaks v. Lakefront Properties, 444 N.W. 2d 217, 553 (Mich. Ct. App. 1989)(per curiam), the mortgagee bank bid $147,129.42, constituting the full amount of the debt plus the cost of foreclosure and statutory attorney’s fees, at the foreclosure sale following a Michigan foreclosure by advertisement. When the sheriff’s deed became operative at the conclusion of the redemption period, the bank became the titled owner of the property. Thereafter, the bank sold the property for $150,000.00. The bank filed suit against the mortgagors to collect an alleged deficiency for the interest, taxes, and insurance premiums accrued between the date of the foreclosure sale and the date the redemption period expired. Id. at 554-55. The Michigan Court of Appeals held that “[w]hen property is purchased at a foreclosure sale for an amount equal to the amount due on the mortgage, the debt is satisfied.” Id. at 555 (citing Guardian Depositors Corp. v. Hebb, 287 N.W. 796 (Mich. 1939), and Powers. v. Golden Lumber Co., 5 N.W. 656, 657 (Mich. 1880)). Because the debt was extinguished at the foreclosure sale, the court held that the bank could not pursue any deficiency where the mortgagor did not redeem the property. Id. at 556-557.

 

     The same legal principals have been applied in other Michigan cases. See Smith v. Gen. Mortg. Corp., 261 N.W. 2d 710, 712-13 (Mich. 1978)(per curiam); Kennedy v. Brown, 15 N.W. 498, 499-500 (Mich. 1883); New Freedom Mortg. Corp. v. Globe Mortg. Corp., 761 N.W. 2d 832, 836 (Mich. Ct. App. 2008); Emmons v. Lake States Ins. Co., 484 N.W. 2d 712, 714 (Mich. Ct. App. July 1, 2008) (unpublished per curiam). Similarly, the Second Circuit applied Michigan law in Chrysler Capital Reality, Inc. v. Grella, 942 F.2d 160 (2d Cir. 1991), to hold that a mortgagee who successfully bid the entire amount of the debt at a foreclosure sale could not thereafter maintain an action for damages against the mortgagor, despite the mortgagee’s allegations that the actual value of the property at the time of the foreclosure sale was far less than the debt and that the mortgagee had been fraudulently induced into making the transaction.

 

     If you or a loved one have questions concerning your rights or obligations with creditors you should immediately seek a qualified bankruptcy attorney.

 

[Guy Vining, a bankruptcy attorney, in metro-Detroit, maintains his office in Taylor, Michigan where he serves the downriver communities of Monroe, South Rockwood, Gibraltar, Brownstown Township, Grosse Ile, Woodhaven, Trenton, Southgate, Riverview, Allen Park, Lincoln Park, Dearborn, Dearborn Heights, Westland, Wayne, and Ecorse. If you or a family member of friend would like a no-obligation no cost consultation/financial analysis, just call or E-mail Guy Vining of Vining Law Group, P.L.C to schedule a meeting.]

Business Cases in the News: Minority Shareholder Oppression

Business Cases in the News:

 

Minority Shareholder Oppression

 

     In our blogs we have on occasion discussed cases of minority shareholder oppression. Recently, in writing a brief to be filed in the Wayne County Circuit Court, on the issue of the proper valuation standard, Guy Vining ran across the following quote from the William Mitchell Law Review in 1996:

 

     “Close corporations typically are formed by friends, relatives, or other business associates who choose to combine their capital, skills, labor and experience in a new business. Shareholders in a close corporation generally plan to be employed by the corporation and to have an active role in management. As a result, shareholders usually expect to receive a salary, bonus and additional benefits consistent with their roles as employees, officers, and directors.

 

      While those corporations begin as friendly ventures, the balance of power in the close corporation often lends itself to oppression of those shareholders who do not control the corporation and usually own only a small percentage of shares — the minority shareholders. Minority shareholders may be subjected to a “freeze out,” (sometimes known as a “squeeze out”) by the majority shareholders. Typical “freeze out” techniques include terminating the minority shareholder’s employment with the corporation or terminating dividends and the minority shareholder’s returns on his or her investment.

 

      Although minority shareholders in any corporation are in a difficult position due to their lack of control, minority shareholders in closely held corporations have uniquely difficult positions because their shares are not readily marketable. In other words, when minority shareholders in a large, publicly-traded corporation become dissatisfied with corporate operations, they can “vote with their feet” — sell their shares and discontinue their involvement with the corporation. Minority shareholders in the closely held corporation, on the other hand, often cannot easily sell their shares.

 

      The lack of a market for close corporation shares owned by a minority shareholder means that a non-controlling investor may be locked into a business that is providing little return on investment, or at least is failing to fulfill the owner’s non-monetary expectation. Left without a meaningful return on his or her investment, the minority shareholder may have little choice but to sell for less than a fair price, usually to the majority shareholders.”

 

The above is a succinct summary of the problems encountered by minority shareholders in such small corporations. As the author notes many times, what starts as a friendly venture turns very ugly when the money starts rolling in.

 

Guy Vining of the Vining Law Group, PLC, would be happy to perform a no charge analysis of your case if you find yourself in such a situation. You may be entitled to significant relief from shareholder oppression under MCL 450.1489. Under this statute a judge is empowered to examine the circumstances and afford relief, such as advising the Defendants to buy your interest out at “fair value,” consistent with equity.

 

Guy Vining has practiced business law throughout the state of Michigan. His office is located in the downriver city of Taylor where he primarily serves the Metro-Detroit area. He serves the Metro-Detroit and Downriver communities, including Rockwood,  Gibraltar, Brownstown, Woodhaven, Grosse Ile, Trenton, Riverview, Romulus, Wyandotte, Ecorse, Lincoln Park, Alan Park, Dearborn, and Dearborn Heights.

Bankruptcy Cases in the News

Bankruptcy Cases in the News

Early in August 2012, local Bankruptcy Court Judge Walter Shapero decided an interesting case that sheds light for lay-persons interested in debt relief and for local practitioners, too. This case is In re Kenneth C. Farkas and may be found at Case No.: 11-59772.

In this case a young-ish debtor with a sizeable 401(k) had taken loans against his 401(k) which required payments of around $850.00 to repay the 401(k) loans. On his Schedule I, debtor scheduled monthly loan repayment and that the net income after this and other expenses was less than $20.00. According to debtor therefore he was qualified for Chapter 7 relief – but, the Trustee objected and argued that under 11 USC 707(b)(3) and the totality of the circumstances that this deduction was unfair and should be considered disposable income to be shared with all creditors. Judge Shapero on the facts of this case agreed with the United States Trustee, noting:

    “Disposable income” is defined under the Bankruptcy Code as income received by the debtor which is not reasonably necessary for the maintenance or support of the debtor or a dependent of the debtor. 11 U.S.C. §1325(b)(2)(A)(i). This Court has explicitly rejected adopting a per se rule requiring the inclusion of 401(k) contributions in disposable income. In re Beckerman, 381 B.R. 841, 848 (Bankr. E.D. Mich. 2008). Instead, as is required by the plain language of §707 (b)(3) and this Court’s interpretation of the Sixth Circuit precedent, the reasonableness of the debtor’s expenses, including payments made into a 401(k), must be determined on a case-by-case basis looking at the totality of the debtor’s individual circumstances. Id at 848. In this case, the amount of Debtor’s existing retirement savings, as well as his age and time left until retirement, persuades the Court that his 401(k) loan repayments are not reasonably necessary for his maintenance or support, and are therefore includable in his disposable income.

Since the debtor had a sizeable retirement account and many years before his retirement the inclusion of the loan as a form of monthly disposable income was determined to be unfair to other creditors. Judge Shapero calculated that in a Chapter 13 plan the creditors would be more fairly treated and would receive about an 18% dividend. He noted that the Sixth Circuit Court of Appeals in re Behlke, 358 F.3d 429, 434 (6th Cir. 2004) had earlier determined that even a 14% dividend was a meaningful dividend.

Therefore, it was determined that the case must be dismissed – for ability to pay – or converted to a Chapter 13. It, again, bears nothing that the Bankruptcy Rules are designed to provide equitable treatment to all the actors. Therefore, where disposable income is being spent is fanciful ways or ways which discriminate against other creditors a discharge may be challenged as abusive. In such ceases, the debtor’s fresh start and discharge may be conditioned upon providing some disposable income via a Chapter 13 plan to all unsecured creditors over a period of 60 months.

[Guy Vining, a bankruptcy attorney, in metro-Detroit, maintains his office in Taylor, Michigan, where he serves the downriver communities of Monroe, South Rockwood, Gibraltar, Brownstown Township, Grosse Ile, Woodhaven, Trenton, Southgate, Riverview, Allen Park, Lincoln Park, Dearborn, Dearborn Heights, Westland, Wayne, and Ecorse. If you or a family member of friend would like a no-obligation no cost consultation/financial analysis, just call or E-mail Guy Vining of Vining Law Group, P.L.C to schedule a meeting.]

Bankruptcy Cases in the News

Bankruptcy Cases in the News

In a case just decided by the 6th Circuit Court of Appeals the conviction of a physician for violation of 18 USC 152 (1) and (2) was upheld. The physician, or debtor, filed a bankruptcy, and failed to schedule as an asset an extensive and valuable collection of collector wines. When the wines were discovered by the trustee a referral was made to the United States Department of Justice for prosecution. Please see USA v. Joseph Carver, Case No.: 12-3026.

On appeal the Court found that:

        To be convicted of concealing assets in bankruptcy, in violation of 18 U.S.C. §152(1), the evidence must show that a bankruptcy proceeding existed under the Bankruptcy Code, the defendant concealed interests in property from the bankruptcy trustee or creditors, such interest in property belonged to the bankruptcy estate of the defendant, and the defendant acted knowingly and fraudulently. Wagner, 382 F.3d at 607. A conviction for making a false oath in bankruptcy, in violation of 18 U.S.C. §152(2) requires proof that there was a bankruptcy proceeding, the defendant made or caused to be made a false declaration or statement under penalty of perjury in the proceeding, the declaration related to some material matter, the declaration was false, and the defendant made the declaration knowingly and fraudulently. Sixth Circuit Pattern Criminal Jury Instructions § 10.01 (2011) (mail fraud) (adapted); cf. United States v. Spurlin, 664 F.3d 954, 962 (5th Cir. 2011). Carver’s convictions for these crimes are amply supported by the evidence.

Accordingly, Dr. Carver will have to spend the next 24 months or so in a federal prison for making a false oath in his bankruptcy case. As discussed in other blogs, the trade-off for a fresh start is disclosure of all assets and turn over of non-exempt assets for creditors. Failure to do so can lead to the dismissal of your bankruptcy and even time in prison.

[Guy Vining, a bankruptcy attorney, in metro-Detroit, maintains his office in Taylor, Michigan, where he serves the downriver communities of Monroe, South Rockwood, Gibraltar, Brownstown Township, Grosse Ile, Woodhaven, Trenton, Southgate, Riverview, Allen Park, Lincoln Park, Dearborn, Dearborn Heights, Westland, Wayne, and Ecorse. If you or a family member of friend would like a no-obligation no cost consultation/financial analysis, just call or E-mail Guy Vining of Vining Law Group, P.L.C to schedule a meeting.]

Bankruptcy Cases in the News

Bankruptcy Cases in the News

In a recent case, local Bankruptcy Court Judge Walter Shapero granted the Trustee’s Motion to dismiss a debtors’ case under 11 USC 707 (b)(3). The reason was that the debtors with “some belt tightening” should not have been in a Chapter 7 but had sufficient income to pay a dividend to unsecured creditors and so would have to elect to dismiss or proceed in a Chapter 13.

The case is Meletios Golematis, Case No.: 11-52238 out of the U.S. Bankruptcy Court, Eastern District of Michigan. The case turned upon whether the debtors were sufficiently needy – although technically qualified – for Chapter 7 relief. In other words, it was not alleged that the Debtors were dishonest or did anything wrong but argued whether they had an ability to repay some unsecured non-priority creditors going forward. The Court framed the inquiry as follows.

Authority to dismiss a case under Chapter 7 for abuse is derived from §707 (b)(1), which provides in part:

“After notice and hearing, the court, on its own motion or on a motion by the United States trustee, trustee (or bankruptcy administrator, if any), or any party in interest, may dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts, or, with the debtor’s consent, convert such a case to a case under Chapter 11 or 13 of this title, if it finds that the granting of relief would be an abuse of the provisions of this chapter.”

Under §707 (b)(3)(B), when bad faith is not a factor, courts examine the totality of the circumstances in determining whether the debtor’s financial situation constitutes abuse warranting dismissal. The UST carries the burden of establishing by a preponderance of the evidence the applicability of this ground for dismissal. In the Sixth Circuit a totality of the circumstances inquiry under §707 (b)(3)(B) involves an analysis of whether the debtor displays a lack of honesty or want of need, either of which alone may provide sufficient justification for dismissal. In re Krohn, 886 F.2d 123, 126 (6th Cir. 1989) In this case, the UST does not allege that Debtors display a lack of honesty. Instead, the UST questions whether Debtors are in need of relief under Chapter 7.

In determining whether a debtor is sufficiently needy to justify granting relief under Chapter 7, this Court analyzes whether the debtor has an ability to repay its unsecured non-priority creditors. Krohn, 886 F.2d at 126.

The case offers an excellent guide to lawyers and lay-people contemplating bankruptcies as to what are reasonable and necessary expenses for: private school tuition, children’s activities and sports, 401(K) contributions, home maintenance and overall abilities to fund a Chapter 13 plan. If you have these types of expenses you might wish to give this case a read to see how they are viewed locally – a genuine family expense or temporary luxury to be forgone for a while.

Again, the goal is equitable treatment to debtors and creditors. This is the way to a debtor’s fresh start and bankruptcy discharge. This case points out that it is not equitable to schedule unreasonably high costs of living to the creditors who would otherwise enjoy a little dividend on the debt owed to them.

[Guy Vining, a bankruptcy attorney, in metro-Detroit, maintains his office in Taylor, Michigan, where he serves the downriver communities of Monroe, South Rockwood, Gibraltar, Brownstown Township, Grosse Ile, Woodhaven, Trenton, Southgate, Riverview, Allen Park, Lincoln Park, Dearborn, Dearborn Heights, Westland, Wayne, and Ecorse. If you or a family member of friend would like a no-obligation no cost consultation/financial analysis, just call or E-mail Guy Vining of Vining Law Group, P.L.C to schedule a meeting.]