DEBTORS BEWARE

RothLawAppeals, Business Services

Representing businesses and business owners often means dealing with debt, whether owed by or to the client.  And this in turn requires being at least aware of changes in bankruptcy law, even for those of us who do not write bankruptcy plans.

And the trend in bankruptcy has been pro-creditors of late.  Some examples will illustrate the point.

One involves bankruptcy debtors with two mortgages.  Ordinarily, a discharge voids the loan agreement or promissory note, but the mortgage – that is to say, the lien on the property – remains.  A debtor asked the courts to nonetheless void the lien resulting from their junior mortgage because the senior one was worth more than the house.  They reasoned that the second one had nothing left to secure.  The Supreme Court disagreed and left both liens in play.  Arguably, this may make sense; for example, the house could start appreciating enough to at least partially satisfy the junior lien later on.

In a second case, the Supreme Court held that a decision to reject a proposed payment plan is not appealable.  As a practical matter, this gives the creditors the upper hand.  Payment plans are proposed by the debtors.  If the court approves it, a creditor that feels cheated can appeal.  But if the court rejects it, the debtor must keep trying and trying.

Then there are decisions affecting certain unique businesses.  Some states may have legalized medical marijuana.  But the federal government has not, and bankruptcy is a federal law.  So owners of marijuana dispensaries will not be afforded the benefit of bankruptcy protection.  As one Colorado Court stated and another cited, the Bankruptcy Code cannot operate “in aid of a debtor whose activities constitute a continuing federal crime.”

Those things matter even outside the bankruptcy proceedings themselves.  A corporate attorney is a well-rounded attorney.  Is yours?