Monthly Archives: July 2012

Where Should or Can My Bankruptcy Case Be Filed?

By Ryan C. Wood

Pursuant to 28 U.S.C. §1408(1) your bankruptcy case should be filed in the district court for the district in which you live, own a home, have a business, or where your principal assets are in the United States for the 180 days prior to the filing of your bankruptcy case.  The other option is to file in the district where you live, own a home, have a business, or where your principal assets are located in the United States for the longer period of time of the 180 days than any other district.  Under 28 U.S.C. §1408(2) you can also file in the district court for the district that there is already a bankruptcy case pending concerning your affiliate, general partner, or partnership.

The purpose of this rule is to make it more convenient for you and your bankruptcy lawyer to file bankruptcy in a district court that is close to where you live, own a house, conduct business, or assets.  It would not make sense for you to file a bankruptcy case in a district court where you would have to drive several hours out of your way to attend a mandatory meeting of creditors or for a hearing in front of the judge.  The other purpose of this rule is to discourage you from “forum shopping.”  Forum shopping is where you choose the district court to file your bankruptcy case because you believe that district is better than another.  It may be due to your belief that the judges or trustees are more lenient in that district.  You may even want to file in a different state because that state’s exemptions may be able to protect more of your assets.  28 U.S.C. §1408 is supposed prevent forum shopping.  There are also other rules in play that would prevent you from filing in different states to use that state’s exemptions.

In California, there are 4 Federal Districts: Northern, Central, Eastern, and Southern.  The Northern District includes the Bay Area and all the way up the western coast of California. The Eastern District includes a huge area from Chico to the north and Bakersfield to the south, and the northeastern and Sierra Nevada Mountains. The Central District includes the Los Angeles surrounding area.  The Southern District covers San Diego surrounding areas.

Our law practice is in the Bankruptcy Court for the Northern District of California.  Within the Northern District there are 4 different divisions: Oakland Division (Alameda and Contra Costa counties), San Francisco Division (San Mateo and San Francisco counties), San Jose Division (Santa Clara, Santa Cruz, San Benito, and Monterey counties), and Santa Rosa (Marin, Napa, Sonoma, Lake, Mendocino, Humboldt, and Del Norte counties).

To determine where you should file for bankruptcy the most common place to start is the county in which you live.  Most consumer bankruptcy filers do not own a business that is located in a different county from they live.  Also, most consumer bankruptcy filers do not have most of their assets located in a different county from where they live.  You should consult a bankruptcy attorney in your county regarding your filing options if you do own a business or have significant assets in places other than where you live.

What Happens to Wages I Owe My Employees When I File Bankruptcy?

By Ryan C. Wood

In this economy many big corporations are struggling so it is not difficult to imagine that a lot of the small business owners are struggling as well.  Numerous business owners rely heavily on credit to ensure their daily business activities run smoothly.  What happens when the credit dries up and business is slow?  Some of these business owners make the financial decision to file for bankruptcy protection.  So what happens if you are a business owner that has decided to file for personal bankruptcy protection under Chapter 7 or Chapter 13 of the Bankruptcy Code but you still owe wages to your employees?

Wages owed to employees are considered a priority debt when you file for bankruptcy.  What does this mean? It means that not all creditors are equal.  Certain creditors have priority and would get paid first before other creditors.  It all depends on how much money is available to creditors.  The creditors would need to file a proof of claim first with the bankruptcy court in order to be paid.  It does not matter if the creditor is the first one in line and would be entitled to receive all the available funds if the creditor does not file a proof of claim.  The will not be paid if no proof of claim is filed.

If you file a Chapter 7 bankruptcy case, any assets that are not protected or exempted will be liquidated to pay your creditors.  If you file a Chapter 13 bankruptcy case, creditors get paid through the availability of funds in the Chapter 13 plan.  The Chapter 13 Trustee would pay the creditors based on the priority of the debt.

Wages, salaries, or commissions, including vacation, severance and sick leave owed to employees are considered very important and therefore have a higher priority than most creditors.  The caveat is that there is a limit on the priority amount.  Pursuant to 11 U.S.C. §507(a)(4), the priority amount is limited to $10,000 for each individual or corporation that is earned within 180 days before you file your bankruptcy petition or before your business ended, whichever occurred first.  Any additional amounts owed after the $10,000 are treated the same as a general unsecured creditor.   For example: you owe $15,000 in wages to a former employee.  $10,000 would be considered priority debt.  The former employee would get this $10,000 before any other creditors.  The former employee would be paid the remaining $5,000 at the same percentage as all other general unsecured creditors.  The percentage could range from 0% to 100%.  It depends on the availability of funds in the bankruptcy case.   If the debt is earned more than 180 days prior to the filing of the bankruptcy case, then the entire $15,000 is considered a general unsecured creditor and the debt would not be considered a priority debt.

Stockton and Mammoth Lakes Chapter 9 Municipal Bankruptcy Filings

By Ryan C. Wood

Lately there has been a wave of new bankruptcy filings from municipalities in California.  Stockton filed for bankruptcy protection under Chapter 9 of the Bankruptcy Code, Bankruptcy Case number 12-32118, on June 28, 2012. Mammoth Lakes also filed for bankruptcy protection under Chapter 9 of the Bankruptcy Code, Bankruptcy Case number 12-32463, a few days later on July 3, 2012.  These bankruptcy filings leave many people wondering what happened with these towns.

Stockton

The city of Stockton has been in a decline for the past several years.  In its court documents, the City of Stockton has indicated they depleted their reserves and tried everything in their power to avoid filing for bankruptcy.  Stockton faces a growing deficit for the 2012 – 2013 fiscal year.  After reviewing the list of the city’s 20 largest unsecured creditors, it becomes very obvious that the biggest contributor to the city’s decline is the massive pension costs.  Their largest creditor is the California Public Employees Retirement System (CalPERS). CalPERS provides retirement benefits to public employees. CalPERS is owed $147.5 million.  Wells Fargo comes in a close second with a claim of $124.3 million. The debt owed to Wells Fargo is for pension obligation bonds which were used to fund the public pension plans.

Another factor in their financial crisis is the poor housing market and economy.  With housing values still heavily depressed in Stockton the city’s property tax revenues have decreased significantly.  Stockton also has a very high foreclosure rate, so property tax revenues have not yet recovered.

The city is in a very tough position and is essentially stuck between a rock and a hard place.  If they cut down the pension costs they lose the trust of their current and retired employees.  Most retired employees rely on their pension benefits to live and may not have any other sources of income.  If even a small portion of their benefits are cut it may be detrimental for the retired employees.

In many ways the city of Stockton reflects many consumers’ lives.  They are caught up with debts they cannot repay and houses that are significantly underwater.  Like the city of Stockton sometimes the only way out of the debt is to file for bankruptcy protection.

Mammoth Lakes

Mammoth Lakes chose to file for Chapter 9 bankruptcy protection to restructure the town’s obligations. According to the bankruptcy filings Mammoth Lakes tried the mediation process prior to bankruptcy.  However, the town’s largest creditor, Mammoth Lakes Land Acquisition, did not participate in the mediation process.  Mammoth Lakes Land Acquisition was granted a judgment for $42.7 million against Mammoth Lakes for a breach of contract lawsuit.  The next largest creditor is CalPERS with a claim for $4.2 million. The drastic difference between the largest creditor and second largest creditor provides some insight into why filing for bankruptcy protection was necessary after Mammoth Lakes Land Acquisition refused to participate in the mediation process.

The bankruptcy filings of both Stockton and Mammoth Lakes just go to show that municipalities, like normal everyday consumers, are not immune to bankruptcy.  Life can be going great and then a major life changing event can happen in a moment’s notice.  Events such as a loss of a job, mortgage payments increasing, or having lawsuits filed against you can make your finances come crashing down.