Lien Striping Order of Priority

[despritfreya]

I believe what you say even though it sounds odd. Does the vote than get determined by majority, and is there a precedent on the vote by value of the debt?

No. Only 1 impaired creditor (amount not the issue) need vote in favor of the Plan. I know this is odd and complicated but try to read through 11 USC 1129, specifically 1129(a)(7), (a)(8) and most importantly (a)(10).

Coming from a different angle though I wonder about the possibility of a chapter 7 and not having the residual SBA lien on the primary residence?

Not sure what you mean. Since the lien will pass through the 7 unaffected, you will still have to deal with the SBA if you want to keep the home. You can try to negotiate a principal reduction but there is no way to tell if the SBA will agree.

And, yes, there is no easy path but there are options.

Des.

[Mik3]

Des.

All very useful and extremely helpful information! I am so grateful and wish I could find an attorney both as knowledgeable about my circumstance and willing to help as you have been.

Thank You

[Mik3]

Des, I have a question for clarification on this subject.

Early on we were talking about a ch 13, with a cram down on the SBA 7a debt. I have since learned (or at least I suspect) that the reasoning that the attorney said I couldn't use that approach was because in order to file that debt under a 13 the debt needs to be from an individual. Because my loans were to my LLC, and I signed as managing member.

If thats true, than the loan would be considered ineligible for a ch 13 cram down, right?

M

[despritfreya]

Mik,

It is my understanding that you personally guaranteed the loan (this makes it a debt you owe) AND you gave additional collateral, a Deed of Trust or other mortgage interest in your principal residence. It is also my understanding that the loan is secured by LLC assets. As a result:

1. It is a debt you owe.
2. It is a debt that is subject to cram down in either a Chapter 13 or a Chapter 11.

Even if you did not personally guarantee the loan (you are not liable for the debt) the fact that the lender is secured by your residence means its lien rights will fall under your personal bk. You do not have to be “in privy of contract” with the lender.

I believe that the issues being raised by the attny are two fold:

1. The LLC has an independent obligation to pay the loan. If you reduce the claim in your bk (11 or 13) there is nothing stopping the lender from seeking payment from the LLC. Now, such may not matter if the LLC has no assets and therefore is judgment proof but this is a consideration.

2. The main reasons a 13 does not work are: A) The debtor may be over the debt limit as the unsecured portion of the claim is added to all other unsecured debt. If that totals more than approximately $360k the debtor is over the debt limits. B) Even if below the debt limit the problem is that the crammed down secured portion must be paid "in equal monthly installments over the life of the Plan". This, in most instances, makes it impossible for a debtor to accomplish a cram down in the context of a 13 as the secured portion is simply too high to pay over 5 years. Now, if the lender agrees to an extended period of time - ok - but if you go by the rules in a 13, the secured claim must be paid within the life of the Plan. This is not an issue in the 11.

Des.

[Mik3]

Mik,

It is my understanding that you personally guaranteed the loan (this makes it a debt you owe) AND you gave additional collateral, a Deed of Trust or other mortgage interest in your principal residence. It is also my understanding that the loan is secured by LLC assets. As a result:

1. It is a debt you owe.
2. It is a debt that is subject to cram down in either a Chapter 13 or a Chapter 11.

Even if you did not personally guarantee the loan (you are not liable for the debt) the fact that the lender is secured by your residence means its lien rights will fall under your personal bk. You do not have to be “in privy of contract” with the lender.


Des.

This is coppied from the uscourts.gov site;

Any individual, even if self-employed or operating an unincorporated business, is eligible for chapter 13 relief as long as the individual's unsecured debts are less than $360,475 and secured debts are less than $1,081,400. 11 U.S.C. § 109(e).


My issue is that I am incorporated. So the approach your suggesting is that the business (entity)dose not file to cram down the business debt as it's excluded but that I as an individual file and cram down the debt from the business and that this opens the door because I personally secured that business debt with my home.

If thats true its kind of like turning the dial on their rules, I like it. Is there any legal reference you can provide for this action?

M

[despritfreya]

My issue is that I am incorporated.

No you are not. Your business is (albeit a LLC). Corporations cannot file 13s - only individuals with regular income.

So the approach your suggesting is that the business (entity)dose not file to cram down

The business could file a Chapter 11 and, if, in the end, the creditor goes after the business it may very well have to. BUT, it is not doing the cram down since the real estate does not belong to it and would not become an asset of its bk. The only cram down it could do deals with the value of the business assets that are also secured by the SBA loan.

I as an individual file and cram down the debt from the business and that this opens the door because I personally secured that business debt with my home.

Yes.

Is there any legal reference you can provide for this action?

Not sure what you mean. All you have to do is look at what is property of the bk estate (Section 541) and the plan and confirmation provisions of either 1123 and 1129 or 1322 and 1325.

Des.