ABI Bankruptcy Blog Exchange » Georgia Bankruptcy Blog

Wall Street Journal - Court Orders Credit Bureaus To Remove Discharged Debt

Posted: September 30th, 2008, 6:51am PDT

Today's online edition of the Wall Street Journal has an article entitled "Dealing With Debt That Refuses To Die" (free now, but might require sub later).

The problem: Old debts, which are typically forgiven by the courts in a bankruptcy filing, are still being reported as active on many consumers' credit reports... The judge for the case, David O. Carter of the U.S. District Court for the Central District of California, has given the bureaus until Oct. 1 to revamp their systems. Experian and TransUnion say they have already updated their credit files to be compliant with the court order, while Equifax declined to comment. TransUnion also sent notices to some customers saying they "may experience a slight change" to their credit scores if any of their accounts are updated because of a bankruptcy.... "There's no question that having a Chapter 7 bankruptcy has a negative impact on your creditworthiness," says Michael Sobol, one of the plaintiffs' attorneys on the class-action case. "But when you have a bankruptcy, and you also have debts showing up as overdue and not paid -- that is a double hit."

The court order stems from a class-action lawsuit alleging that each of the credit bureaus violated the Fair Credit Reporting Act by failing to maintain reasonable procedures to assure the accurate reporting of debts that have been discharged in bankruptcy. The lawsuit could now move to a trial to determine liability and damages if Judge Carter decides later next month to give the damages portion of the case a class-action status.

Everyone should check their credit report at least annually, and follow the instructions for disputing incorrect entries. One resource is annualcreditreport.com.

Atlanta Business Chronicle Highlights Atlanta Bar Association's Reaffirmation Project

Posted: September 30th, 2008, 6:10am PDT

This week's (Sep. 26th) edition of the Atlanta Business Chronicle has a very good article about the Reaffirmation Project started by the Atlanta Bar Association. Unfortunately, the articles does not appear to be online so I cannot provide a link, but it appears on page 11D of the Law and Accounting section of the print edition. The article discusses how the project was started after Kilpatrick Stockton lawyer John Mills sat in court and watched a pro se debtor struggle through a hearing on a reaffirmation.

11th Cir. - Secured Creditor May Still Pursue Deficiency After Surrender of "910 Vehicle"

Posted: September 29th, 2008, 4:37pm PDT

In re Barrett, Nos. 07-14796, 07-14797 (11th Cir. Sep. 29, 2008) (download opinion here).

The issue raised on appeal concerned a pure question of law:

"whether a Chapter 13 debtor’s surrender of a “910 vehicle” (i.e., a vehicle purchased for personal use within 910 days before filing for bankruptcy) fully satisfies a creditor’s claim secured by the vehicle and prevents the creditor from filing an unsecured claim for any remaining deficiency. To date, this question has been considered by five of our sister circuits (with each answering in the negative), but it is a matter of first impression in this Court." ...

As courts have widely recognized, the hanging paragraph prevents a bankruptcy court from approving a plan incorporating a “cramdown” when the debtor elects to retain the 910 vehicle. See In re Rodriguez, 375 B.R. 535, 548 (9 Cir. BAP 2007) th (“It is apparent that [with the hanging paragraph] Congress intended to take away the right of debtors to reduce their secured obligations on retained 910 vehicles to the value of the vehicles.”). In other words,because the valuation provision of Section 506(a) no longer applies to bifurcate a 910 vehicle claim, a debtor retaining the vehicle must now pay the entire claimand it is to be treated as fully secured. The question in this case, however, is: whathappens when the debtor surrenders a 910 vehicle post-BAPCPA? ...

In light of the foregoing, it seems safe to say that the previous minority view is now the majority view. Given the comprehensive analysis by our sister circuits, we have little to add. A plain reading of the hanging paragraph makes clear that Congress intended to (and did) make Section 506(a) inapplicable to a 910 vehicle. In such a situation, we agree with the Seventh Circuit that “by knocking out § 506, the hanging paragraph leaves the parties to their contractual entitlements.” See Wright, supra, 492 F.3d at 832. Leaving the parties to their contract, and looking to applicable state law, is required by well-established Supreme Court precedent. ...

We thus join the Seventh, Eighth, Tenth, and Fourth Circuits and hold that a creditor may pursue an unsecured deficiency claim when the debtor surrenders a 910 vehicle. The deficiency claim is to be governed by the parties’ contract and applicable state law, and will depend on whether the contract and state law provide for recourse. Nothing in the Bankruptcy Code says otherwise, and we see no persuasive reason to conclude otherwise.

Creative Loafing Parent Files For Chapter 11

Posted: September 29th, 2008, 11:28am PDT

The parent of Creative Loafing, the alternative newspaper/magazine, filed a Chapter 11 petition today.

From the company -

September 29, 2008 at 1:11 pm by John F. Sugg in Inside CL, News

Creative Loafing Inc. — which owns alternative weekly newspapers in Chicago, Washington, Tampa, Charlotte and Sarasota, as well as Atlanta — today filed for bankruptcy protection. Prompting the move was a debt load of more than $40 million.
“The company owned more money than it can pay back right now,” CEO Ben Eason said in a conference call with company managers. The bankruptcy petition was filed in Tampa, where the company’s based, and was timed to preclude a interest payment that was owed lenders on Wednesday.
The company will ask federal bankruptcy Judge Caryl Delano to stay any attempt by creditors to liquidate the assets or take control of the company.
“We’re doing the right things,” Eason said. “This will give us a fresh start. It is a reorganization, not a liquidation. Everybody gets paid.”
The debt load was substantially increased last year when Creative Loafing purchased the Chicago Reader and the Washington City Paper. Since then, advertising revenues for the print editions of the papers has deteriorated, as they have for newspapers nationwide. Over the same period last year, revenues were down between 10 and 15 percent.
Among the largest unsecured creditors is Fayetteville Publishing Co., which prints the Atlanta paper and some of the other papers in the group. The Georgia Department of Labor, the Georgia Department of Revenue and the IRS are also among the creditors.
Creative Loafing was founded in 1972 by Debby Eason in Atlanta and later opened several other papers in the Southeast. Her son, Ben, who owned the Tampa paper, acquired the rest of the family newspapers in 2000.

Citi Group To Buy Wachovia With Federal Aid

Posted: September 29th, 2008, 6:24am PDT

The FDIC reported this news just a few minutes ago, for $1.00 a share. That is One Dollar. It traded at $10-12 per share last week. (Google Finance WB).

The banking landscape continues to change quickly, and it is moving further south. Will the Wachovia sign at Atlantic Station be coming off (after that sign replaced the Southtrust sign)?

Bill Heard Chevrolet Files Chapter 11 Bankruptcy In Northern District Of Alabama

Posted: September 29th, 2008, 5:27am PDT

On September 28, 2008, late on Sunday evening, Bill Heard Chevrolet filed Chapter 11 Bankruptcy in the United States Bankruptcy Court for the Northern District of Alabama. As discussed in this prior post, the dealership closed its locations last week.

The debtor companies filed a Motion for Joint Administration under the name of "In re Bill Hard Enterprises, et al,: Chapter 11 Case No. 08-83029-11. The debtors have also filed a motion to authorize post-petition financing by GMAC. Ironically, it was having their credit cut by GMAC that, in part, led to Bill Heard's demise.

Bill Heard is represented in the cases by Derek Meek and Mark Solomon of the Birmingham office of Burr Forman.

The several related entities that filed are listed below.

Case No. Related Case Info	Ch	Party Info	Dates	Other Info
08-83028-11	11	Bill Heard Chevrolet, Inc. - Huntsville, an Alabam	Filed: 09/28/2008 Entered: 09/28/2008	Office: Decatur Assets: Yes Fee: Paid County: Madison
08-83029-11	11	Bill Heard Enterprises, Inc. a Georgia Corporation	Filed: 09/28/2008 Entered: 09/28/2008	Office: Decatur Assets: Yes Fee: Paid County: County outside NDAL
08-83030-11	11	Bill Heard Chevrolet Company, a Georgia Corporatio	Filed: 09/28/2008 Entered: 09/28/2008	Office: Decatur Assets: Yes Fee: Paid County: County outside NDAL
08-83031-11	11	Tom Jumper Chevrolet, Inc., a Georgia Corporation	Filed: 09/28/2008 Entered: 09/28/2008	Office: Decatur Assets: Yes Fee: Paid County: County outside NDAL
08-83032-11	11	Bill Heard Chevrolet, Inc. - Buford, a Georgia Cor	Filed: 09/28/2008 Entered: 09/28/2008	Office: Decatur Assets: Yes Fee: Paid County: County outside NDAL
08-83033-11	11	Landmark Chevrolet, LTD., a Texas Limited Partners	Filed: 09/28/2008 Entered: 09/28/2008	Office: Decatur Assets: Yes Fee: Paid County: County outside NDAL
08-83034-11	11	Bill Heard Chevrolet Corporation - Las Vegas, a Ne	Filed: 09/28/2008 Entered: 09/28/2008	Office: Decatur Assets: Yes Fee: Paid County: County outside NDAL
08-83035-11	11	Bill Heard Chevrolet, LTD., a Texas Limited Partne	Filed: 09/28/2008 Entered: 09/28/2008	Office: Decatur Assets: Yes Fee: Paid County: County outside NDAL
08-83036-11	11	Bill Heard Chevrolet Corporation - N.W. Las Vegas,	Filed: 09/28/2008 Entered: 09/28/2008	Office: Decatur Assets: Yes Fee: Paid County: County outside NDAL
08-83037-11	11	Bill Heard Chevrolet Corporation - Nashville, a Te	Filed: 09/28/2008 Entered: 09/28/2008	Office: Decatur Assets: Yes Fee: Paid County: County outside NDAL
08-83038-11	11	Twentieth Century Land Corp., Georgia Corporation	Filed: 09/28/2008 Entered: 09/28/2008	Office: Decatur Assets: Yes Fee: Paid County: County outside NDAL
08-83039-11	11	Bill Heard Chevrolet Corporation - Orlando, a Flor	Filed: 09/28/2008 Entered: 09/28/2008	Office: Decatur Assets: Yes Fee: Paid County: County outside NDAL
08-83040-11	11	Enterprise Aviation, Inc., a Georgia Corporation	Filed: 09/28/2008 Entered: 09/28/2008	Office: Decatur Assets: Yes Fee: Paid County: County outside NDAL
08-83041-11	11	Bill Heard Chevrolet Inc. - Union City, a Georgia	Filed: 09/28/2008 Entered: 09/28/2008	Office: Decatur Assets: Yes Fee: Paid County: County outside NDAL
08-83042-11	11	Century Land Corporation, an Alabama Corporation	Filed: 09/28/2008 Entered: 09/28/2008	Office: Decatur Assets: Yes Fee: Paid County: County outside NDAL
08-83043-11	11	Century Land Company - Tennessee, a Tennessee Corp	Filed: 09/28/2008 Entered: 09/28/2008	Office: Decatur Assets: Yes Fee: Paid County: County outside NDAL
08-83044-11	11	Bill Heard Chevrolet at Town Center, LLC, a Georgi	Filed: 09/28/2008 Entered: 09/28/2008	Office: Decatur Assets: Yes Fee: Paid County: County
08-83045-11	11	Bill Heard Management, LLC, a Texas Limited Liabil	Filed: 09/28/2008 Entered: 09/28/2008	Office: Decatur Assets: Yes Fee: Paid County: County outside NDAL
08-83046-11	11	Bill Heard Chevrolet, Inc. - Collierville, a Tenne	Filed: 09/28/2008 Entered: 09/28/2008	Office: Decatur Assets: Yes Fee: Paid County: County outside NDAL
08-83047-11	11	Landmark Vehicle Management, LLC, a Texas Limited	Filed: 09/28/2008 Entered: 09/28/2008	Office: Decatur Assets: Yes Fee: Paid County: County outside NDAL
08-83048-11	11	Bill Heard Chevrolet, Inc. - Scottsdale, an Arizon	Filed: 09/28/2008 Entered: 09/28/2008	Office: Decatur Assets: Yes Fee: Paid County: County outside NDAL
08-83049-11	11	Bill Heard Chevrolet, Inc. - Plant City, a Florida	Filed: 09/28/2008 Entered: 09/28/2008	Office: Decatur Assets: Yes Fee: Paid County: County outside NDAL
08-83050-11	11	Georgia Services Group, LLC, a Georgia Limited Lia	Filed: 09/28/2008 Entered: 09/28/2008	Office: Decatur Assets: Yes Fee: Paid County: County outside NDAL
08-83051-11	11	Columbus Transportation, LLC, a Georgia Limited Li	Filed: 09/28/2008 Entered: 09/28/2008	Office: Decatur Assets: No Fee: Paid County: County outside NDAL

More Eateries File Chapter 11: Fox & Hound, Hand In Hand

Posted: September 28th, 2008, 8:18am PDT

Two related neighborhood pubs filed Chapter 11 petitions. Fox & Hounds, which is located on Collier Road in Atlanta, filed on September 27, 2008. In re Fox & Hounds, Inc., 08-79021-pwb (filed September 27, 2008). A related company, Derek Lawford Ventures, which operates Hand in Hand pub on N. Highland Avenue, Atlanta, also filed on the same day. In re Derek Lawford Ventures, Inc., 08-79020 (filed September 27, 2008).

FDIC Issues Cease And Desist Order To Chestatee State Bank

Posted: September 27th, 2008, 9:41am PDT

From the Atlanta Business Chronicle, the FDIC has issued a cease and desist order against Chestatee State Bank. The Bank is NOT closed, but does have to address the issues raised in the Order.

The Federal Deposit Insurance Corp. disclosed Friday it issued on Aug. 19 a cease and desist order to Chestatee State Bank of Dawsonville, Ga., for alleged “unsafe and unsound banking practices” and “violations of the law.” ...

Among the allegations, FDIC claims the privately held bank’s management had policies and practices that jeopardized the safety of its deposits and that its board failed to give adequate supervision and direction to the bank. FDIC claims the bank operated with inadequate equity capital and reserves, had a large volume of poor quality loans, had inadequate allowance for loan and lean losses and had hazardous loan underwriting and administration practices.

Some 16.36 percent of the bank's total loan portfolio was in some form of delinquency or default, as of June 30, according to FDIC data. The bank made $238 million in domestic loans, as of that date. The bulk of those -- $120 million -- were in construction and land development.

The amount of construction and non-owner occupied loans are 500 percent larger than its total tier 1 capital of $26 million, a key regulatory metric measuring a bank's health....It also has 90 days to come up with a written three-year business/strategic plans that addressed the overall operation of the bank.

Wachovia Is Next In Line To Be Purchased?

Posted: September 27th, 2008, 5:15am PDT

Wachovia Bank looks to be the next takeover target in the financial industry. The latest reports have Wachovia and Citi discussing a deal, but Wells Fargo is apparently still in the mix, as is Spain bank Banco Santander according to the NY Times post.

Whats Left Of Washington Mutual Files Chapter 11 Bankruptcy

Posted: September 27th, 2008, 5:07am PDT

After its bank assets were seized by the FDIC and sold to J.P. Morgan Chase two days ago, Washington Mutual, Inc., the holding company, filed a Chapter 11 petition in Bankruptcy Court in Delaware.

Sept. 27 (Bloomberg) -- Washington Mutual Inc., a holding company for the savings and loan that became the biggest U.S. bank to fail, filed for bankruptcy protection along with its unit WMI Investment Corp.

WaMu, the 119-year-old Seattle-based thrift, filed for Chapter 11 bankruptcy in U.S. Bankruptcy Court in Delaware, according to a release from Business Wire. The Delaware bankruptcy Web site was closed for site maintenance. Ian Campbell, a spokesman for the bankrupt holding company with Abernathy MacGregor Group, said he couldn't provide further details.

Law School Teaches Bankruptcy, Then Files Bankruptcy

Posted: September 26th, 2008, 5:19pm PDT

From the Wall Street Journal Legal Blog:

Many believe that, some time ago, legal education in the United States arrived at a sorry junction, where it’s been stuck ever since. Schools proliferating without regard to the job market, churning out debt-strapped students with limited ability to repay loans... We were reminded of all of these takes today when reading, once again, about the American Justice School of Law (recently renamed the Barkley School of Law, and formed as a new entity). On Tuesday, reports the NLJ, the for-profit Paducah, Kentucky-based law school filed for bankruptcy in the U.S. Bankruptcy Court for the Western District of Kentucky, listing its assets at $1.6 million and its debts at $5.2 million...

Dean Larry Putt tells the NLJ that, while the bankruptcy filing puts a dark cloud over the Barkley School of Law, it will not have a direct impact on the school, since, technically speaking, it is a separate entity from the The American Justice School of Law. “Even as I speak, we are building the school up and moving forward,” Putt said. Though the NLJ notes Barkley could potentially face problems with its facilities and buildings, which are still owned by the American Justice School of Law and could be sold off to pay creditors.

Biggest Bank Failure In U.S. History: Washington Mutual Siezed Last Night And Sold To J.P. Morgan Chase

Posted: September 26th, 2008, 4:51am PDT

In the biggest bank failure in U.S. History, Washington Mutual (note the website has already been changed) was seized by federal regulators last night and immediately sold to J.B. Morgan Chase for $1.9 Billion. See an article here.

Seattle-based WaMu, which was founded in 1889, is the largest bank to fail by far in the country's history. Its $307 billion in assets eclipse the $40 billion of Continental Illinois National Bank, which failed in 1984, and the $32 billion of IndyMac, which the government seized in July. ... The downfall of WaMu has been widely anticipated for some time because of the company's heavy mortgage-related losses. As investors grew nervous about the bank's health, its stock price plummeted 95 percent from a 52-week high of $36.47 to its close of $1.69 Thursday. On Wednesday, it suffered a ratings downgrade by Standard & Poor's that put it in danger of collapse.

If you are a WAMU customer, see the Chase website for a little information. Your deposits are still insured up to $100,000 and based on news reports this morning, WaMu branches will be open today.

I am Twittering !

Posted: September 25th, 2008, 1:55pm PDT

I don't know why, or what it really means, but I am jumping on the bandwagon and joining Twitter, and you can follow me right here (or @sbriddle in Twitter lingo).

Other lawyers seem to think it is a benefit. See here and here. But NOT here.

Owner Of Atlanta Area Sonny's Real Pit Bar-B-Q Restaurants Files Chapter 11

Posted: September 25th, 2008, 9:38am PDT

Greater Atlanta Bar-B-Q, LLC in Norcross, Georgia, filed a Chapter 11 petition in the Northern District of Georgia. In re Greater Atlanta Bar-B-Q, LLC, Ch. 11 Case No. 08-78865. The company, which owns and operates several Sonny's Real Pit Bar-B-Q restaurants in the Atlanta area, is represented by Wendy L. Hagenau at Powell Goldstein LLP. The largest creditors include Sysco Food Service, R&G, LLC (the manager, insider company) and Sonny's Franchise Company.

According to pleadings filed today, locations in Smyrna, Indian Trail, Austell and on Cheshire Bridge Road, Atlanta, were closed today.

Bill Heard Chevrolet Closes All Dealerships; Bankruptcy Coming?

Posted: September 25th, 2008, 7:55am PDT

With new car sales slumping with the economy, Bill Heard Chevrolet closed down suddenly. (Atlanta Business Chronicle article).

The company began in Columbus in 1919, founded by W.T. Heard Sr. It developed into the country’s biggest Chevrolet dealer for years and runs dealerships in Georgia, Alabama, Florida, Tennessee, Texas and Nevada. But the souring economy brought less demand for new cars and GMAC recently eliminated Bill Heard’s credit for inventory, the paper noted. As Atlanta Business Chronicle reported in July 2007, Bill Heard faced a $50 million deceptive advertising lawsuit and was bombarded with a litany of complaints from consumers in the states where it operated.

One of my clients is an Atlanta area dealer of domestic new cars, and they have cut their staff dramatically because of poor sales. However, in the case of Bill Heard, the volume of complaints and investigations is probably a factor. (See article here and some video here).

The Atlanta Journal also has an article in today's edition:

Though it blamed the current economic turmoil, the company’s financial and legal problems have been mounting for several years. The most recent example was GMAC Financial Services’ decision last month to discontinue credit for new inventory for some of Bill Heard’s dealerships. It cited concerns about financial losses at the company.

The company also has had several battles with the Governor’s Office of Consumer Affairs, which has been investigating the company since 2003.

Last year, the Consumer Affairs office filed a lawsuit that accuse the company of engaging in a 16-year pattern of deceptive sales pitches. The allegations came a year after the company sent 10,000 Georgia car owners a flyer with the words “Urgent Potential Recall Notice” that appeared to come from General Motors.

The suit, the first the agency has filed against a car dealer in three decades, said the recall notice “was intended and designed to mislead recipients into believing that their automobiles were subject to an urgent recall, so that the recipients would call Bill Heard’s sales staff and be solicited for an automobile purchase or service contract.”

Krispy Kreme Ice Kreme?

Posted: September 23rd, 2008, 3:39pm PDT

Off topic (though it does involve a company trying to overcome years of financial problems), but Krispy Kreme is going to sell ice cream ... or is it "ice kreme?" If someone had the bright idea to throw the oreo factory rejects and unbaked cookie dough into ice cream mix, why not mix in the superior flavor, and maybe a few chunks, of The Kreme? I note that the other great flavor of the Carolinas, Cheerwine, is already available in ice cream, but not around here.

Krispy Kreme to sell ice cream

As part of a turnaround plan to boost sales, Krispy Kreme Doughnuts Inc. will open smaller stores, increase the number of stores abroad -- and offer soft-serve ice cream.

The Associated Press reported that the company's new Kool Kreme soft serve, which will come with a toppings bar, is being tested in several stores around the country.

Two weeks ago, Krispy Kreme reported that it narrowed net losses to $1.9 million in the second quarter compared with the year-ago period, largely because of an extra charge last year that brought the company’s net loss down to $27 million.

Total revenues for the second quarter were down 9.5 percent to $94.2 million, compared to $104.1 million in the second quarter last year.

Atlanta Business Chronicle: Builder Says Bankruptcy Process Was Great Learning Experience

Posted: September 22nd, 2008, 6:25am PDT

In a previous post, I mentioned the bankruptcy case of Atlanta builder/developer Stephen Macauley. See also this post about his business partner Brian Jordan.

Macauley filed a Chapter 7 petition reflecting that he had $131 million in personal debt, ,uch of which was business related debt. In a follow-up article in the Atlanta Business Chronicle entitled "Builder’s Bankruptcy Was ‘Greatest Learning Experience,’" by Maria Saporta, Macauley discusses the bankruptcy experience. Here are some highlights -

“This was the greatest learning experience of my career,” Macauley said. “I’m really glad I’ve gone through this. I have a lot more empathy for people of lesser means than I did before.” ... “What was amazing was how fast all of it started to crash,” Macauley said. “I still believed I could get through anything. But there was a point at the end of the first quarter when I realized that there was just no way.”...

Macauley talked about all the emotions he’s gone through as he’s watched his business shrivel away. He has sought comfort among other home builders who are facing similar challenges with their companies. “If this had happened to just me, I would have felt like a failure,” Macauley said. “None of the home builders saw this coming. Nobody expected this devastation. It was very hard. But I came to realize as more time went on that this wasn’t my doing. This is a total, comprehensive collapse of an industry.”

The experience also showed him what was really important — family, friends and faith, a realization that he said sounds so trite but is really true. He has become more engaged with his wife, Lucy, and his three children who are between the ages of 3 and 7.

(emphasis added).

Atlanta Business Chronicle: Home Builders and Developers Opt For Chapter 7 Instead Of Reorganization

Posted: September 20th, 2008, 7:09am PDT

Lisa Schoolcraft of the Atlanta Business Chronicle has an article in the September 19th edition entitled Home Builders at the End of the Line (subscription required for full article). In the article, Lisa discusses the reality that a reorganization is simply not an option for most builders and developers in today's market. Many opt for Chapter 7 right off the bat, while others try Chapter 11 but quickly realize that they do not have the ability to pull it off.

Three big metro Atlanta home builders have filed for Chapter 7 bankruptcy, listing debts of $27 million among them. Homes By Ken Butera Inc. of Winder filed for bankruptcy Sept. 3, Quantum Homes Inc. of Atlanta filed Sept. 4, and Creative Customs LLC of Stone Mountain filed Sept. 12. Two affiliates of Quantum Homes also filed Sept. 4: JA Development Inc. in Atlanta and Buy Rite Group Inc. in Atlanta. Smaller home builder Copacali Homes Inc. of Canton and its affiliates Copacali Homes & Properties LLC and Copacali Communities Inc. filed Chapter 7 bankruptcy Sept. 16.

I frequently get calls from developers and builders who are experiencing financial difficulties or facing foreclosure. The funds have dried up, and no one is buying new homes. I discussed this issue with Lisa -

Many builders who have filed for Chapter 11 bankruptcy protection may not be able to survive, said Scott Riddle, a bankruptcy attorney who is representing Vision Real Estate Management Inc., which filed for Chapter 11 reorganization protection Sept. 1. Vision Real Estate Management is building the mixed-use development Edgewater Trail in the city of Buford.

“The most common issue now is that there is little hope for a successful reorganization for many home builders and developers,” Riddle said. To have a successful reorganization, builders and developers must have refinancing, additional loans or properties that are selling, Riddle said.

“All of those options have dried up to some extent,” Riddle said. “Many of the builders are simply at the end of the line as far as sales or funding and in that case, Chapter 7 is probably the only option short of just allowing a foreclosure.”

Other bankruptcy lawyers are also getting frequent calls -

“I talk to a broke builder almost every day,” said John Pennington, the bankruptcy attorney handling the case for Willmartin Properties LLC, which filed for Chapter 11 reorganization Sept. 1. “The sad thing is you can’t help them.”...

Chapter 11 reorganization is “a fairly expensive process if you can’t preserve equity or if the banks won’t give you time,” said G. Frank Nason, a bankruptcy attorney with Lamberth, Cifelli, Stokes, Ellis & Nason P.A. in Atlanta. If the bank is eventually going to foreclose on property while a builder is trying to reorganize, the builder ends up being liquidated anyway, he said.

Other cases involving home builders are not evident from Bankruptcy Court records. Many individuals decided to get in the building business a few years ago when the market was much better. They decided to build a spec house or two, personally guarantee the debt and put up their personal residence as collateral, and now they cannot sell the new homes. In many situations, it is a wasted step to file a bankruptcy petition on behalf of the company. Rather, the individuals simply shut down the company (which often has no real assets other than the real property), allow the lender to foreclose, and then file personal bankruptcy because of their personal liabilities.

Involuntary Chapter 7 Bankruptcy Petition Filed Against AtheroGenics, Inc.

Posted: September 18th, 2008, 5:58am PDT

Creditors filed an Involuntary Chapter 7 Bankruptcy Petition against Alpharetta based AtheroGenics, Inc. (AGIX: Google Finance). In re AtheroGenics, Inc., Involuntary Ch. 7 Case No. 08-78200-jem (filed September 15, 2008). According to its website, AtheroGenics is "a pharmaceutical company focused on the discovery, development and commercialization of novel drugs for the treatment of chronic inflammatory diseases, including diabetes and coronary artery disease (atherosclerosis)."

The involuntary petition was filed by Petitioning Creditors AQR Absolute Return Master Account, L.P., CNH CA Master Account, L.P., Tamalpais Global Partner Master Fund, LTD, Tang Capital Partners, LP, Zazove High Yield Convertible Securities Fund, L.P. The Petitioning Creditors are represented by E. Penn Nicholson at Powell Goldstein.

From Deal Watch Blog:

Five hedge funds on Monday filed an involuntary petition for Chapter 7 bankruptcy against AtheroGenics Inc. of Alpharetta. The filing came about two weeks after AtheroGenics announced that it would not repay its 4.5% Convertible Notes that were due on Sept. 2. AtheroGenics said it wasn’t repaying the notes because it “has been attempting to restructure its 2008 Notes prior to their maturity, but was unable to agree on a restructuring on terms acceptable to the Company and the holders of the 2008 Notes.” AtheroGenics has also hired Morgan Stanley to explore alternatives.

Big Week On Wall Street: Two Giants To Disappear?

Posted: September 15th, 2008, 7:42am PDT

The news hit over the weekend that Lehman Brothers intended on filing a Chapter 11 petition in the Southern District of New York. See their announcement here. ( WSJ Legal Blog).

Additionally, Bank of America is buying Merrill Lynch (WSJ article).

Big insurer American International Group (AIG) is also facing serious pressures.

SEC Investigates Incorrect Rumors Of New United Airlines Bankruptcy Filing

Posted: September 12th, 2008, 8:05am PDT

In the past few days, incorrect rumors of a new bankruptcy filing by United Airlines have circulated over the internet. It turns out that it was a story from 2002 that was recirculated. According to this story in the Wall Street Journal, the Securities and Exchange Commission has now opened an investigation to see if the release of the old story was an attempt to manipulate the market. Shares of United (UAL Google Finance) dropped dramatically and trading was halted after the story came out.

NEW YORK (Thomson Financial) - Trading in shares of UAL Corp. was halted Monday morning on reports that the company was filing for bankruptcy. While calls to the company weren't returned, CNBC cited the company as saying the reports were untrue.

The shares were halted at 1 cent, down 99.92% off their Friday closing price of $13.20. Volume was 29.1 million shares

Bankr. M.D. Ga. - Debtor's Equity Of Redemption Extinguished When High Bid Made At Foreclosure Sale, Even If Deed Under Power Not Recorded Until After Bankruptcy Petition Filed

Posted: September 12th, 2008, 7:11am PDT

In re Williams --- B.R. ----, 2008 WL 4168151 ( Bkrtcy.M.D.Ga., September 04, 2008) (J. Hershner).

In a motion to set aside a foreclosure sale, the Court held that a debtor's equity of redemption was extinguished when the highest bid was made at a foreclosure sale, even if the deed under power was not recorded until after the debtor's bankruptcy petition was filed.

“A sale under the powers contained in a deed to secure debt divests the grantor of all title, and right of equity of redemption, to the lands described in the deed.” Cummings v. Johnson, 218 Ga. 559, 129 S.E.2d 762, 763 (1963). “As a sale to the highest bidder constituted a complete sale, the plaintiff [the debtor] had no right to redeem it thereafter by contending it was merely a contingent sale and not a cash sale in which event plaintiff might pay off the indebtedness prior to execution of the deed.” Heard v. Decatur Federal Savings and Loan Assoc., 157 Ga.App. 130, 276 S.E.2d 253, 257 (1980).

“The purchaser at a foreclosure sale under a power of sale in a security deed is the sole owner of the property until and unless the sale is set aside.” ... “[The debtor] became a tenant at sufferance of [the purchaser] by the terms of the security deed and operation of law when [the purchaser] bid in the property at the foreclosure sale. [The debtor] became a tenant at sufferance even though there was no [foreclosure] deed conveying the property to [the purchaser] as [the purchaser] had sufficient title by being the grantee in the security deed and the purchaser at the foreclosure sale, which gave [the purchaser] the right to bring dispossessory proceedings under Code Ann. § 61-301 et seq [now § 44-7-50].” McKinney v. South Boston Savings Bank, 156 Ga.App. 114, 274 S.E.2d 34, 35-36 (1980).

“A sale under power in a security deed divests the title of the grantor, and he has no legal right several days thereafter, on tender of the amount of the debt secured by the deed to the grantee; who is the purchaser at the sale, to demand a conveyance of the land or a cancellation of the security deed. Where a sale of land is made under a power contained in a security deed, and by permission of the grantor contained in the deed the grantee purchases the land at such sale, the grantor cannot defeat the purchaser's right to have the sale fully consummated, by tender of the amount of his indebtedness to the grantee before the actual execution of the deed pursuant to the terms of the sale.” Carrington v. Citizens' Bank of Waynesboro, 144 Ga. 52, 85 S.E. 1027, 1028 (1915).

The Bankruptcy Courts for the Northern District of Georgia and the Southern District of Georgia have held that a debtor's equity of redemption terminates upon sale to the highest bidder on the date the foreclosure is held even though the foreclosure deed is not recorded until after the debtor filed for bankruptcy relief. First Nationwide Mortgage Corp. v. Davis (In re Davis), 1998 WL 34066146 (Bankr.S.D.Ga., Jan. 21, 1998) (Dalis, J.); Sanders v. Amsouth Mortgage Co. (In re Sanders), 108 B.R. 847, 849 (Bankr.S.D .Ga., 1989) (Davis, J.); Pearson v. Fleet Finance Center, Inc. (In re Pearson), 75 B.R. 254, 255 (Bankr.N.D.Ga., 1985) (Drake, J.). The Court is persuaded that the bankruptcy courts decisions in Davis, Sanders, and Pearson are correct applications of Georgia foreclosure law. In the Court's view, the debtor's equity of redemption is terminated when the high bid is made at a foreclosure sale. The high bid is an appropriate and an objective standard under state law for determining when the foreclosure is final.

Crocs, Lawsuits, Warning Labels and Neal Boortz

Posted: September 11th, 2008, 9:45am PDT

This is off-topic, except to the extent that it does relate to the financial condition of companies and sometimes these issues lead to Bankruptcy.

Crocs are cheap plastic shoes, but very trendy nonetheless for some reason. Like flip flops and similar shoes, one can generally look at them and know that are not sturdy shoes. They are what they are. Nonetheless, when these shoes are worn and the wearer finds out they are not hard -soled hiking boots, lawsuits are filed. The latest one was filed by Belinda Skelton, the long-time producer of the Neal Boortz Show. The story from the Atlanta Journal -

The suit filed by Skelton’s husband, Clark Meyer, is asking for $2 million after the couple’s 4-year-old son (shown below) was injured last month at Hartsfield-Jackson International Airport when the popular plastic footwear he was wearing got caught in a moving escalator. Multiple toes were broken on their son’s right foot and his big toe came “within millimeters” of being lost.

Skelton conceded that she was avoiding the message boards Wednesday. “It’s days like this when you find out who your friends are,” she told Buzz with a sigh. Skelton said money was not a factor in filing the suit.

“We struggled, and we prayed over this,” she said. “But we felt that someone had to force Crocs to do the right thing. We want a warning tag on those shoes.”

I have a closet full of shoes, and probably a couple pair of cheap flip-flops. I did not need to read a "warning" that would have to be several pages of small type to warn me about every possible harm that could come by wearing them. I can figure out that they could get stuck in an escalaor, MARTA train or any number of other objects. I suspect women who wear high heels generally do not look for lawsuits when the heel gets stuck in a grate on the street. Similarly, if I had pair of Crocs, I would know right off the bat they were not a substitute for sturdy shows. One need only look at the product. Again, the shoes are exactly what they appear to be. Nonetheless, when an accident happens because the shoes are exactly what they appear to be, it is time for multi-million dollar lawsuits. All of us can probably think of thousands of ways one can be injured when wearing Crocs or any other shoe. Do we need to have every possible scenario on a warning label? How about a warning label on kids?

Of course, money is never the reason these lawsuits are filed. That is, until the time comes to cash the check. That might also be news for the lawyers who take these cases on a contingency fee.

“If some of these [commenters] had to lie next to my son at night and listen as he has nightmares, maybe they would feel differently.

What?? I suspect many would understand that just because there are accidents and injuries, does not mean there has to be fingers pointed at someone else. I suspect many would also regret not paying more attention to themselves or their children, or buying cheap flimsy shoes then expecting them to wear like real shoes. If this was anyone else, Boortz would have a field day but I understand that family has to take priority.

Bankruptcy Court Order Dismissing Adversary Was Final Appealable Order Notwithstanding Absence Of Entry Of Judgment By Clerk Of Court

Posted: September 9th, 2008, 6:24am PDT

Klauman v. GMAC Mortg., LLC, Slip Copy, 2008 WL 4098947 (M.D.Ga. August 28, 2008) (J. Land).

Debtors filed a class action against Defendant alleging that Defendants added undisclosed fees during their Bankruptcy case. The Bankruptcy Court entered an Order dismissing the adversary for lack of subject matter jurisdiction on April 10, 2008:

Since [Debtors] fail to allege an injury in fact, the court must dismiss this case pursuant to FRCP 12(b)(1) for lack of subject matter jurisdiction. The court will not opine on any of the other issues raised or responded to as, without subject matter jurisdiction, any such discussion would be dicta. [Appellees'] motion to dismiss is GRANTED.

The Order accompanying the Memorandum Opinion states: “For the reasons set forth in the memorandum opinion issued this date, [Appellees'] motion to dismiss the adversary proceeding is GRANTED.” Debtors filed a Notice of Appeal on April 23, 2008, or 13 days after the entry of the Bankruptcy Court Order, and Defendants filed a motion to dismiss the appeal as untimely. Debtors argued that the appeal time had not yet begun to run because the clerk never entered a final judgment in the case.

The Motion to Dismiss the appeal was granted. The April 10 order was a final, appealable order -

The April 10 Order, which dismisses the adversary proceeding for lack of subject matter jurisdiction, was final and immediately appealable. While the April 10 Order did not end the entire bankruptcy case, it clearly ended this particular adversary proceeding. The bankruptcy court unequivocally found that it did not have subject matter jurisdiction over the adversary proceeding, and therefore, it dismissed the entire adversary proceeding. No one could have reasonably expected that there was any unfinished business left before the bankruptcy court regarding these adversary proceedings.

Additionally, the appeal time started on April 10 notwithstanding the absence of a final judgment entered by the clerk.

Rule 58 [incorporated via FRBP 9021] provides that “[e]very judgment and amended judgment must be set out in a separate document[.]” Fed.R.Civ.P. 58(a). In addition, “the clerk must, without awaiting the court's direction, promptly prepare, sign, and enter the judgment when ... the court denies all relief.” Fed.R.Civ.P. 58(b)(1)(C)....

Appellants next argue that the clerk failed to comply with Rule 58 because the April 10 Order was prepared, signed, and entered by the bankruptcy judge, not the clerk. See Fed.R.Civ.P. 58(b) (1)(C) (directing clerk to “promptly prepare, sign, and enter the judgment when ... the court denies all relief.”) Appellants suggest that the bankruptcy clerk has the exclusive authority to prepare, sign, and enter such judgments even to the exclusion of the judge who decided the case. Nothing in Rule 58 prohibits the judge from actually preparing, signing, or entering the final judgment, which is what happened here.

Even pretermitting whether a judge has the implicit authority to enter final judgments in the cases he decides, the Court finds that Rule 58(b)(1) gives the judge express authority to do so. It requires that the clerk “promptly prepare, sign, and enter the judgment” “unless the court orders otherwise[.]” Fed.R.Civ.P. 58(b)(1). When a judge prepares, signs and enters the judgment, the judge has “order[ed] otherwise.” The Court rejects Appellants' argument that the judge who actually decides the case is prohibited from preparing, signing, and entering the judgment.

Duke Has The Worst College Football Team In America, As A Matter Of Law?

Posted: September 8th, 2008, 3:05pm PDT

The university's lawyers seem to think so, and have said so in court! For background, go to the comprehensive post on the N.C. Business Litigation Blog, and the follow-up post here, but I'll summarize.

The University of Louisville filed suit against Duke University in Kentucky state court because Duke backed out of a contract to play a four game series against Louisville (read the complaint). Duke defended based on a provision in the contract which stated that it had to pay a fee of $150,000 per game only if Louisville was unable to find a replacement opponent of "similar stature" to Duke. In discovery, Louisville asked Duke what the term meant and Duke responded that every other team in Division 1 was of "similar stature" (or better) than Duke, except junior varsity teams:

Duke states that any and all college varsity teams in the Football Bowl Subdivision (formerly Division I-A) are teams of a 'similar stature' to Duke. . . . Additionally, Duke states that any and all college varsity football teams in the Football Championship Subdivision (formerly Division I-AA) that would be considered as good or better than Duke in football. . . are teams of a 'similar stature' to Duke. . . . [J]unior varsity programs of any of the aforementioned teams would not be teams of a 'similar stature' to Duke's varsity college football team.

The evidence was good for the Judge, as Duke won in summary judgment (see order here).

The term 'team of similar stature' simply means any team that competes at the same level of athletic performance as the Duke football team. At oral argument, Duke . . . persuasively asserted that this is a threshold that could not be any lower. Duke's argument on this point cannot be reasonably disputed by Louisville. Duke won only one football game, and lost eleven, during the 2007 football season.

In its latest post, the N.C. Business Litigation Blog includes a link to the video and transcript of the oral arguments. It includes these gems from Duke's counsel:

Duke's Lawyer: "I think the Court can absolutely positively take judicial notice that Duke is probably the worst football team in Division I football. Everybody knows that. That’s no secret. The longest losing streak, the inability to ever win games. Everybody knows about it. That’s well documented. We certainly don’t have to go out and take six months of discovery to establish that for you."

Duke's Lawyer: "So the bottom line is how much discovery, if any, should anyone have to take, want to take or need to take to make the simple analysis of whether or not that was a team of similar stature? It’s judicial notice that they got beat by Utah. Maybe that’s part of the dispute – that they wish they’d played somebody weaker, like Duke which would have been an automatic W."

Duke's Lawyer: "I think again you can take judicial notice of the fact that the Louisville-Utah game ended up on TV. I don’t know, I don’t have the discovery on it, but I’ll guarantee they made more money playing a team that there was some interest in in Utah than they ever would of in playing Duke who no one would televise in their right mind." (As pointed out later in the hearing by Louisville's lawyer, that's not exactly right. Duke was on national television last year playing Notre Dame, and is frequently televised in ACC games).

Doctrine Of Equitable Mootness Does Not Protect Debtor's Counsel From Disgorgement Of Fees

Posted: September 8th, 2008, 7:16am PDT

From law.com, Winstead Ordered to Disgorge up to $500,000 in Bankruptcy Case:

A 5th U.S. Circuit Court of Appeals opinion that one former bankruptcy judge calls "scary" for lawyers requires Dallas-based Winstead to disgorge up to $500,000 in attorney fees the firm received for its work on the restructuring of a restaurant chain that filed for bankruptcy.

In an Aug. 28 decision in Wooley v. Faulkner, a three-judge panel of the 5th Circuit concluded that the doctrine of equitable mootness did not apply to attorneys representing clients in a Chapter 11 bankruptcy… Under the equitable mootness doctrine, appeals courts typically recognize that there is a point at which they cannot order fundamental changes in a debtor's reorganization plan approved by a bankruptcy court once that plan has been consummated…

The Wooley case stems from the August 2004 filing for Chapter 11 bankruptcy protection by Schlotzsky's Inc., a chain of sandwich restaurants... Citing the 9th U.S. Circuit Court of Appeals' 2004 decision in Focus Media Inc. v. National Broadcasting Co., the 5th Circuit reasoned in Wooley II that an order compelling disgorgement of attorney fees and expenses would not unravel a complicated bankruptcy plan but instead "would require only that one party disgorge the money it has received, money that would then be distributed pursuant to the bankruptcy court's final decree." …

[R. Glen] Ayers, the former bankruptcy judge, says the 5th Circuit's opinion in Wooley leaves open the possibility that a lawyer's fees in a Chapter 11 bankruptcy case are subject to recapture for an indefinite period. Notes Ayers, "This is scary, because it leaves you in the dark as to when a Chapter 11 case is finally over."

Georgia School Superindendent Kathy Cox Wins $1 Million On "Are You Smarter Than A 5th Grader?"

Posted: September 6th, 2008, 11:14am PDT

... and the remaining Clayton County School Board members need some of those fifth graders to help them figure out how to hold a meeting.

Eighth Circuit Says Bankruptcy Lawyers Can Advise Clients To Run Up Pre-Bankruptcy Debt

Posted: September 5th, 2008, 8:14am PDT

In Milavetz, Gallop & Milavetz, P.A. v. U.S., --- F.3d ----, 2008 WL 4068448 (8th Cir. September 4, 2008) (click here for .pdf), the Eighth Circuit struck down the part of the Bankruptcy Code that prohibits lawyers from telling their clients they cannot incur more debt before filing a petition.

The code section at issue is 11 U.S.C. § 526(a)(4), which provides as follows:

(a) A debt relief agency shall not–
. . .
(4) advise an assisted person or prospective assisted person to
incur more debt in contemplation of such person filing a case
under this title or to pay an attorney or bankruptcy petition
preparer fee or charge for services performed as part of preparing
for or representing a debtor in a case under this title.

The Court held this as prohibiting free speech under the U.S. Constitution -

Nonetheless, § 526(a)(4), as written, does not allow attorneys falling within the definition of debt relief agencies to advise assisted persons (or prospective assisted persons)—i.e. clients (or prospective clients) meeting the definition of assisted person—to incur such debt. Thus, § 526(a)(4) is not narrowly tailored nor narrowly and necessarily limited to prevent only that speech which the government has an interest in restricting. Therefore, we hold that §526(a)(4) is substantially overbroad, and unconstitutional as applied to attorneys who provide bankruptcy assistance to assisted persons, as those terms are defined in the Code.

The Court, however, did hold that bankruptcy attorneys are "debt relief agencies" under the Code and had to disclose it.

Because attorneys were not specifically excluded from the definition of debt relief agencies, we hold that attorneys that provide "bankruptcy assistance" to "assisted persons" are "debt relief agencies" as that term is defined by the Code. Interpreting the definition of "debt relief agency" to exclude bankruptcy attorneys would be contrary to Congress's intent. ...

Section 528 requires debt relief agencies to disclose: "'We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.' or a substantially similar statement," in all of their bankruptcy-related advertising materials directed to the general public. 11 U.S.C. §§ 528(a)(4), (b)(2). The requirement does not prevent those attorneys meeting the definition of debt relief agencies "from conveying information to the public; it . . . only require[s] them to provide somewhat more information than they might otherwise be inclined to present." Zauderer, 471 U.S. at 650. Moreover, if any of these attorneys are concerned that the required disclosures will confuse the public, we note that nothing in the Code prevents them from identifying themselves in their advertisements as both attorneys and debt relief agencies. Olsen, 350 B.R. at 920. Simply put, attorneys that provide bankruptcy assistance to assisted persons are debt relief agencies under the Code, and the disclosure requirements of § 528 only require those attorneys to disclose factually correct statements on their advertising.12 This does not violate the First Amendment. ...

The challenged sections of § 528 only require debt relief agencies to include a disclosure on certain advertisements. Although less intrusive means may be conceivable to prevent deceptive advertising, § 528's disclosure requirements are reasonably related to the government's interest in protecting consumer debtors from deceptive advertising, and thus the section passes constitutional muster.

See the Wall Street Journal Law Blog and Wall Street Journal article for further discussion.

Atlanta Bankruptcy Lawyer Hayden Kepner Debates Neal Boortz On Fair Tax

Posted: September 5th, 2008, 7:54am PDT

Hayden Kepner, a bankruptcy partner at Scroggins & Williamson, recently participated in a roundtable debate over the Fair Tax. The debate was moderated by CNN's Rick Sanchez, and included Neal Boortz, John Linder, and others.

You can access the video of the debate, which aired on CNN, by clicking here.

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