Chapter 11 Questions?

[mike69]

What happens to a chapter 11 case after 180 days with no real plan? What moves the bankruptcy forward at this point?

[justbroke]

I almost filed a Chapter 11 due to income limits, but made it by less than $20K. The period to file a Plan is 120 days unless you are a small business or motioned for an extension. The Clerk probably sets a Tickle Date 120 (or 180) days in the future to see if you are in compliance with the code. If you did not file a plan of reorganization, you will probably have your case dismissed for non-compliance. The code reads that the case "may" be dismissed "or" converted to a Chapter 7 (11 USC 1112). If a Trustee is appointed, the Trustee or creditor (party in interest) could also file a plan for you if you do not.

If you are a DIP (debtor in possession) and are the Trustee in your case, you need to move it forward. I don't know what the Court would do if there's no plan. Maybe the UST would appoint a Trustee or move for dismissal... or the court would on their on.

[HHM]

Let's back up...why do you want to know?

In general, very few things in law happen spontaneously or automatically, generally, someone needs to ask for something to be done.

[mike69]

A freind borrowed some money to someone that had filed bankruptcy to redeem some land that had been forclosed before the redemption period ended.

He dosent seem to believe this was risky, i disagree.....Who is right?

[justbroke]

A freind borrowed some money to someone that had filed bankruptcy to redeem some land that had been forclosed before the redemption period ended.

He dosent seem to believe this was risky, i disagree.....Who is right?

I don't understand what this has to do with a Chapter 11 bankruptcy and filing a Plan of Reorganization within the statutory period (120 or 180 days).

Let me see if I can attempt to answer the question at hand. Redemption is allowed but only in Chapter 7s, and not in a Chapter 11. Redemption is allowed under 11 USC 521 and 722. In a Chapter 7, you must Redeem, Surrender or Reaffirm a debt. There is no redemption option in a Chapter 13, 11, 12. So as to your question, there is no redemption under Federal Bankruptcy law (via 11 USC 722).

If you're asking about a State's Statutory Redemption Period, that is an entirely different story! In order for the debtor to enter into a post-petition credit agreement, the debtor (Chapter 11, 12, 13) should be asking the court for permission to incur new debt. The fact that the friend loaned someone money is very important here. The friend should have affected a lien against the property by issuing a Promissory Note AND a Mortgage (or Deed of Trust) in order to SECURE the loan with the property in question . If the person did not do this, there is risk that the friend (lender) could lose money if the debtor fails to make payments and the property is destroyed or otherwise disposed of by the debtor!

Your "friend" should seek advise of a real estate and bankruptcy attorney immediately. There are just too many questions of law and other issues in this transaction to even really comment about the transaction itself.

[mike69]

Im not sure we are on the same page....

The debtor had lost some land in forclosure, filed chapter 11 bankruptcy on the last day of the redemption period....Which gave him another 60 day redemption period. He was granted permission by the court to borrow money from 3 lenders to redeem the property from the bank. 2 share a 1st mortgage, the other has a 2nd

The debtors plan was apparently to sell off portions of the redeemed property, but he has failed to do so.

Now, fast forward 190 days post petition....Big payments on this property are almost due, and the debtor clearly has no way to meet them, nor has he filed any sort of plan.

My questions are.... What happens with the bankruptcy now?

What will happen to the property?

[HHM]

To the question of what happens to the land, that really depends on how far the transaction went with the 3 new lenders. If that deal has been fully consummated, and if the debtor fails to make a timely payment, the new creditors foreclose. They will likely file a motion for relief to foreclose and maybe even a motion to dismiss.

As for the BK, unless the debtor does something to move the case forward, the case will be dismissed, no one here can really say when or how. Now, it is not uncommon to take longer to file a plan in chapter 11, but usually permission to extend the time is sought and routinely granted. Unless you have a really aggressive creditor, a debtor can usually string out chapter 11's for a year without there being a plan. But as for the property, the creditors need only file a Motion for Relief from Stay and they will get the right to foreclose within 30 days (generally, the hearing on a Motion for relief is scheduled within 30 days of being filed).

[mike69]

Thanks for the reply HHM.

What about conversion to 7?

[justbroke]

Im not sure we are on the same page....

There was a bunch of missing information and I attempted to fill in the gaps and respond based on the gaps.

The debtor had lost some land in forclosure, filed chapter 11 bankruptcy on the last day of the redemption period....Which gave him another 60 day redemption period. He was granted permission by the court to borrow money from 3 lenders to redeem the property from the bank. 2 share a 1st mortgage, the other has a 2nd

Okay, so that is what was missing and I filled in; the debtor needed to seek permission to incur debt. The "redemption" is not a bankruptcy redemption but a State remedy in foreclosure cases. A Chapter 11 has no redemption. However, if the debtor wanted to use the redemption option available under the State non-bankruptcy laws, they would still seek permission to incur debt if the debtor needed financing to redeem the property. It appears that this has been done.

The debtors plan was apparently to sell off portions of the redeemed property, but he has failed to do so.

When you write "the debtor's plan" do you mean the Plan of Reorganization filed with the court or do you mean this was the debtor's "thinking" that was not consummated in a Confirmed or Proposed Plan of Reorganization in the Chapter 11?

Now, fast forward 190 days post petition....Big payments on this property are almost due, and the debtor clearly has no way to meet them, nor has he filed any sort of plan.

The creditor, in this case, should have already filed a Motion for Relief from the Automatic Stay in order to preserve and pursue the underlying State non-bankruptcy laws in regards to secured property. This friend/creditor should have already been on top of this from DAY 1 when you have a DIP (debtor in possession) and they miss a single payment by 1 day. You need to pounce in these situations. Your friend should already have an attorney to seek relief and move under your State's non-bankruptcy laws to foreclose. Hopefully your friend was smart, obtained a promissory note, and secured the promissory note with some sort of security instrument (Deed of Trust/Mortgage).

My questions are.... What happens with the bankruptcy now?

Nothing unless a creditor in interest or the UST does something (unless a Trustee was appointed). As HHM wrote, the confirmation of the Plan can be strung out for some time. The SMART creditor would have sought adequate protection (payments) as some sort of administrative claim in the bankruptcy.

What will happen to the property?

This entirely depends on the creditor. The current creditor should have filed a Motion for Relief immediately after a payment (balloon or interim) was missed.

What about conversion to 7?

From what vantage point are you asking? The debtor or the creditor(s)/UST? If there's no plan, the creditors in interest or UST could motion for conversion. Why are you worried about a conversion? Are you trying to force the debtor into a Chapter 7 or into a confirmed plan? What exactly is your friend trying to do? If it's simply to be paid or to foreclose, then that should be pursued via the Motion for Relief from the Automatic Stay (RFS) and then foreclose under State non-bankruptcy law.

[HHM]

What about it?

It is possible. Usually conversion to 7 happens because the debtor requests it.

[mike69]

Sorry I was at first unclear Justbroke, thanks for the reply.

This case has a UST.

The holder of the 2nd mortgage is due to be paid in full the first of the year. The other 2 are due payments at that time.

The debtor has a LOT of personal debt also, a good share unsecured.

My thinking is that the only reason the court allowed this property to be brought into the bankruptcy was to glean any excess equity that was there through a sale.

Im just trying to figure things out, now that I have time invested in this I find it interesting.

[justbroke]

This case still has too many questions for me. First, if there was equity in the property, then the foreclosure should have returned some of the equity to the debtor. Why redeem it to sell it yourself (as debtor)? It is likely that any equity would be property of hte Estate anyhow and go to unsecured creditors. Just seems odd to redeem it with borrowed funds just to pay back the creditors anyhow. To me, and I'm still missing information, this seems more like a tax deed foreclosure than a foreclosure by a lender. With a tax deed foreclosure, you could actually lose the equity.

Still very interesting.

[HHM]

Short of a last minute deal, sounds like the property is toast.

[mike69]

Justbroke, This was a bank forclosed property, the bank had a signed purchase agreement with another party which prompted the 65 day redemption period. The debtor obviously felt the property was worth more than the purchase agreement......why bother buying it back? I dont see a reason either....

thanks guys....