"The Bassel Wilcox Report"
  • PRO-RATA PAYMENTS
    9/12/2011 12:00:00 AM by Pam Bassel

        The term "pro-rata" is used in a Chapter 13 Plan to describe how a creditor will be paid. What it means is delay in getting paid as a secured creditor.  All priority claims, administrative claims and claims listed as being paid in a specific amount will be paid ahead of the pro-rata secured creditor. This could mean the debtor’s attorney’s fees, the I.R.S. and domestic support obligations, among others, could be paid in full before the secured creditor gets any disbursement post-confirmation. Except in the Southern District of Texas (see below), if you are listed to be paid pro-rata, it generally means that the debtor’s attorney will be paid, in full, before you get any disbursement at all as a secured creditor. In these difficult economic times, many debtor’s attorneys are getting little or no down payment on their fees and most of those fees are paid through the Plan, creating a lengthy delay before payments to creditors begin. You are entitled to equal payments beginning month one after the Plan is confirmed which you ...  see more at The Bassel Wilcox Report
  • COLLATERAL SURRENDERED, BUT NOT TURNED OVER
    12/2/2011 12:00:00 AM by Pam Bassel

    This is a frustrating problem for you. You get a Plan or a Plan modification that states that the debtor is going to surrender your collateral. After the Plan is confirmed or the modification is approved, you find out the vehicle was wrecked or impounded and is now worthless or that there are repair or storage charges against your vehicle and it is not cost effective to take possession of it because you won’t recoup your costs in a sale or that the debtor gave/sold your collateral to someone else and will not tell you where the vehicle is located. What do you do in this situation?

    We recommend filing an objection to the Plan or the Modification when you do not know who has your vehicle and it has not been turned over to you. The objection, pre-confirmation, is that the Plan should not be confirmed unless the vehicle is delivered to you, the creditor. Post-confirmation, object to the modification on the grounds that it should not be approved unless the debtor delivers the vehicle to you and, also, that the debtor pays you the remaining balance owed on your allowed sec...  see more at The Bassel Wilcox Report

  • The New Requirement for Proof of Claim
    12/9/2011 12:00:00 AM by Stephen Wilcox

    Generally, in order to be paid in a bankruptcy case, you have to file a proof of claim. Bankruptcy Rule 3001 sets out the specific requirements for a proof of claim. This Rule was amended effective December 1, 2011. Not only did the requirements for what must be included in a proof of claim change, but the rule also provides for bad things to happen if you don’t do it right. The new requirements apply in cases where the debtor is an individual, even in a Chapter 11 proceeding.

    First, a proof of claim "shall conform substantially to the appropriate Official Form." The official form is available at www.uscourts.gov and the official proof of claim form is form B-10. If the claim is based on a writing, then a copy of the writing (such as the note and deed of trust or certificate of title) must be attached to the proof of claim.

    If you are claiming amounts other than the principal amount of the debt, like interest or attorney...  see more at The Bassel Wilcox Report

    

Cram Down

In a Chapter 11, Chapter 12 or Chapter 13, the debtor may have the opportunity to pay you less than what your are actually owed by paying you the value of your collateral instead. This is called "cram down". The remainder of your debt is treated as an unsecured claim which may be paid little or not at all. The debtor's goal is to get the value of your collateral as low as possible. As a creditor, you want value to be as high as possible. Cram down is based on value. And value depends on a host of factors that include the following, plus others:

  • The use the debtor wants to make of your collateral - is the debtor going to keep and use your collateral or liquidate it? Liquidation of inventory, for example, may mean a lower value while sale of that same inventory in the ordinary course of business generally means a higher value;
  • The condition of the collateral - is it in good shape or was it damaged before the case was filed? Is it the type of collateral that depreciates through use or over the passage of time (like a vehicle depreciates over time or when new models become available) or because of economic circumstances (the bottom falls out of the real estate market, for example);
  • The method of valuation - is the debtor relying on a publication, for example, that would result in a lower value or a tax appraisal? Remember, the debtor will be shooting for the lowest value possible.
Generally, the best way to value real property is through an appraisal or a reliable broker's opinion.

For other assets, like vehicles and equipment, if the debtor is using the asset, value should reflect the replacement value of the asset - how much it would cost to go get another one like it. For vehicles and some equipment, there are publications that can help establish value, but sometimes the condition of the vehicle or equipment becomes important. For example, if your collateral was damaged by the debtor before the case was filed, the debtor will probably claim that your collateral is worth less because of that damage.

For income producing assets, value may be based on the income the asset will generate. This is not necessarily the income the debtor will be able to produce from the asset because the debtor may not be able to maximize return.

As the discussion above indicates, valuation can be a complicated process, but it is extremely important. The value of your collateral usually caps what you will be paid in the debtor's plan as a secured creditor. For example, if you are owed $110,000.00 and your collateral is worth $50,000.00, your secured claim will be $50,000.00 and the remaining $60,000.00 will be paid as an unsecured claim. Unsecured claims are generally not paid with interest and often are not paid in full. In many cases these claims are paid nothing or almost nothing. So establishing the highest value possible is critical to maximizing recovery.