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Help me understand...Please.


fatherof3
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I don't get it.

After many years of avoiding BK we finally had to file. We hired a lawyer and he went with Chapter 11. We only owe two creditors, a supply company and the bank. The bank is the reason we had to file, we need a loan mod.

We went to court, no one else showed up. I thought we were through with everything and we got our loan mod.

Last week we receive a email from our lawyer of an email he received from the banks lawyer offering a loan mod not worth our time responding to, not enough relief for us nor even close to what we filed in court documents.

Here is what I don't understand, I thought that because they did not show up at the hearing we automaticlly got what we pettioned the court for. Why are we negeociating with the banks lawyer?

What happens if we cannot come to an agreeable plan?

I have a meeting scheduled with our lawyer this next week. Looking for some answers before I meet with him so I can be a little bit prepared.

Thanks for any help,

Fatherof3

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To expound on what WhoCares said, the bk code requires your plan of reorg to provide to each lender AT LEAST AS MUCH % PAYBACK AS THEY'D GET in a Chapter 7 Liquidation.

Why Chapter 11 and not Chapter 13? Is this a business? And if a business, what do you mean by you need a loan mod?

Also, understand that there is a "loan mod" outside of bk (just renegotiation of terms) and then there is a "plan of reorganization" that is approved by the bk court and imposed upon all parties. Two different things likely. Seems as if you may be using them interchangeably but your lawyer is talking about two things.

Edited by jq26
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Thanks Who Cares and JQ26,

To expound on what WhoCares said, the bk code requires your plan of reorg to provide to each lender AT LEAST AS MUCH % PAYBACK AS THEY'D GET in a Chapter 7 Liquidation.

Why Chapter 11 and not Chapter 13? Is this a business? And if a business, what do you mean by you need a loan mod?

Also, understand that there is a "loan mod" outside of bk (just renegotiation of terms) and then there is a "plan of reorganization" that is approved by the bk court and imposed upon all parties. Two different things likely. Seems as if you may be using them interchangeably but your lawyer is talking about two things.

Yes, It is a business. Our payments are just too much after the 08 crash. Business has been terible.

JQ26, you mentioned the "plan". our attorney filked a plan with the court. We went to a hearing but no one else showed up but our attorneys and us. I thought the plan was approved but we got that email from our attorney about the bs offer from the bank.

We had a conferance call with our attorneys today, they are talking about dropping the bk and just negotiiating with the bank on new terms or just giving them the property.

During our phone conversation our attorney said they could not force the lower payment on the bank. From what I read in you post you say that we can. Is that correct? If so, maybe I need to ask my attorney about this issue. When I heard that I thought it spounded a little off, why file bk if you can't get payments changed?

At any rate, Thanks for all the info,

Father

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Let's back up a bit, then we can move forward. Chapter 7 is a liquidation. The business liquidates whatever assets it has and remaining debts are discharged, subject to personal guarantees that may bleed through to your personal life. If that occurs and you qualify, then you file a personal Chapter 7 as well. Debt is eliminated.

Chapter 11 is a plan of reorganization. You've probably heard about Chapter 13 (personal). It is the business equivalent. Except, it is a much more complicated because you have classes of creditors. The two big rules are: 1) you cannot put forth a plan that gives them less of a payout than they'd get if you liquidated AND 2) creditors in each class receive payout before creditors in subordinated classes. So in other words, a secured lender has big time priority over unsecured lenders.

What are we dealing with here? You say the bank- is this a secured lender, unsecured lender? Is your business trying to survive? I've looked at a boat load of these types of cases and worked through them as part of a corporate reorg class in law school, but I have not handled a Chapter 11 at this point. So I'll research what I can for you, as background info for both of us. But if you trust your attorneys as you should, then I'm sure they're doing what they can in your specific situation.

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JQ26,

We fied Chpt. 11 for a business. What I do not understand is the fact that we/the plan was approved by the court.

Now the bank has sent a counter offer which will not work for us.

They did not show up in court so I thought we won (so to speak) and automaticlly got what we were asking for.

Our attorney says that we cannot force the bank to accept the payment, they need to agree to take it.

Any help is appreciated,

Father

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Is "the bank" secured? This is key. Also, was the the plan confirmed? You need a few things to happen:

1) at least one "impaired" class of creditors needs to approve the plan. Impaired means getting paid less than full.

2) If #1 didn't happen, then you need to "cram down" the plan and have the bk court confirm the plan. If you go the route of #2, then all secured lenders need to be paid in full.

3) Under either #1 or #2, the court will also have to approve the plan and will review feasibility of the plan to reorg and pay back creditors the amount in the plan.

4) Under all circumstances, no creditor in the plan can be paid less in a Chapter 11 than they would receive if a Chapter 7 occurred.

5) If the above occurred, then you receive a confirmed plan. With no confirmed plan, then negotiation and strategy are still ongoing. Sounds to me like no confirmation occurred quite yet.

This is why legal bills can mount in a Chapter 11. There is a lot of specialized work involved. And specialized usually = $$$$. The proposed plan you put forward with the bank- did it pay the bank in ful with market interest? If so, not sure why your attorney wouldn't cram it down on them. I'm sure there is a reason- every case is different!

If you are unsure of your plan status, get a PACER account and keep tabs. It may cost a few dollars but probably worth it so you can see what's happening if your attorneys are not keeping you posted.

Edited to add: if you have a confirmed plan, then you need to speak to your attorney and see why the negotiations are continuing. The time for objection and negotiation of payment terms should be behind you. It means the creditors either agreed or the plan was crammed down on the bank. Either way, both parties are subject to the plan terms now.

Edited by jq26
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JQ26,

Not sure what you mean by the bank being secured?

Cram down the plan? Please explain.

Apparentlly the plan is not secured because our attorney is trying to negociate with the bank. I was hoping that he could force the bank to take what we put forth to the bk court.

Yes, the plan paid the bank in full over a longer term with a market rate interest.

We sent the bank a final offer so we will see what happens from there.

I like to know our options because I feel the more I know the more I can make better decisions.

I will ask our attorney about having a confirmed plan or not.

Thanks for the infomation,

Father

I just had a thought, we had 2 creditors that we listed, maybe we can get the other one to agree to the terms and force the bank to take the plan as written?

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Cram down = forcing terms on the lender without their approval.

Secured = they have a lien on the underlying asset. So a mortgage is typically 100% secured at first. And in a rising or flat home market, it stays fully secured (the loan is paid off faster than the home would ever lose value). In a rapidly declining market like we saw in some areas of the US in the past 6 years, secured loans quickly became partially secured.

A credit card is unsecured, for example. No lien on any assets. Just more of a signature loan.

So the question is this:

1) why won't the bank agree to the reorg plan?

2) does the bank have a lien on any assets?

3) can you cramdown on them anyway?

Ask your attorney if you don't know.

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I would say that we are "underwater" as for the loan. It was secured before the market crash. We also had to put our house up to help get the loan. The building, property, equipment and our house.

They have a lein on everything except that it is not worth what we owe. Even if they part everything out and sell our house they will lose because in our area the value is about 1/2 of what it was.

Our attorney says that he cannot force the bank to take what we have figured we can pay. We only owe 2 creditors. A supply company and the bank.

No one showed up at our hearing so I thought we got what we needed.

I thought that BK made the bank take a lower payment?

If I understand you correctly, if we get the other company to agree to terms then the bank will have to agree to it also???

Thanks for the explaining,

Father

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  • 2 weeks later...

Update on progress.

The bank has a secured loan and will not take our offer.

Recevied a letter on a updated forecloser sale date.

Looks bleak as I write this. Not sure what to do next.

We sent a email to our attorney asking if we can make another offer and see if that will help.

I wanted to let our Creditinfo members know that if you have a bank that has secured loan on your property they do not have to take any plan, they can take what you have put up for collateral

Lots of prayers from all will be greatly appreciated. I hope our attorney makes another offer. A few things have changed so maybe they will take it.

Thanks everyone,

Father

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