Arizona Bankruptcy Attorney Blog

To clarify: Although our firm's founder has passed away, he had forged a team of people strong enough to continue his work in his stead. We still continue to provide both people and businesses with expert Bankruptcy representation. In the very same compassionate way he taught us to serve our clients with professional distinction.

To meet with our firm for a free consultation, we only ask that you review the HOMEWORK first, then either call the office or email myself (sean@bankruptcyattorneyaz.com) or Steve (steve@bankruptcyattorneyaz.com) and we will set you up with an appointment.

I have another bankruptcy blog (actually, I have several. Fickle, I guess).

But I like my Bankruptcy Crossroads blog particularly because I built it myself, with my own little hands. So I have some foolish pride about it.

Now, a bankruptcy blog is just a platform to write articles about bankruptcy and insolvency, so I shouldn't be all that proud. But still.

And here are the top ten most-liked bankruptcy posts from that bankruptcy blog this month.

I hope you like them!

And I can count. Really! I just threw in an extra post, as a bonus!

Without Steve Jobs, is Apple doomed to insolvency and bankruptcy?

Nope!

Gigantic Corporations that make vast profits and have products that fly off the shelves often do pretty well after a change in leadership.

Will it do exactly as well as if Steve Jobs was still running the company?

Nope. No more than Disney did precisely as well, or precisely the same thing, when it lost Walt.

On the other hand, there will now be both a Steve Jobs deathwatch in the media, and an Apple deathwatch.

My hope is that both are disappointing to reporters for a very, very long time.

And remember; during a depression, Apple made money.

When you're a newspaper publisher and revenues drop like a rock during a depression, you'd naturally expect your bank to work with you, especially if you'd had a long and productive working relationship with that bank.

Wrong, Insolvency Breath!

Robert Chandler, Publisher of the Bend Bulletin, had some cranky things to say when Bank of America talked about how much it had tried to help the newspaper.

One phrase in the article that I particularly liked was ""They tried to work with us all right--by doubling our interest rate."

See, banks don't like defaults. And big banks really don't like defaults, because once they charge off a loan (an internal bank accounting activity), they have to reserve against that bad loan, and they can't loan as much money.

And if a bank loans less money, it makes less interest on that un-loaned money.

And it makes less profit.

And since banks are for-profit institutions, they tend to be real hard drivers in a negotiation, and sometimes seem irrationally aggressive.

Here's why.

Banks don't care.

They don't have emotions.

They don't care if people will lose jobs when a business closes; that's not their problem, mon.

So if you're on the wrong side of a default with a bank, the bank is not going to be warm and fuzzy.

Practice Pointer: a bank starts warm and fuzzy during a negotiation, in order to get more collateral and additional personal guarantees, and a payment plan that starts small and ramps up to an unpayable amount (they've got your records, right? they know what you can pay!) And that means that when the unavoidable default arrives, the bank is holding all the aces.

Just a thought.

p.s. if you hear the words, "We're from the bank and we're here to help you," you will probably not have a very good day.

Here's a short clip discussing ShegdaTech prior to the delisting.

The numbers involved are significant.

ShengdaTech has filed a Chapter 11 Bankruptcy, and it's not your Grandfather's Chapter 11.

A remarkably aggressive initial order right out of the chute is designed to protect the Chief Restructuring Officer and the Special Committee, and "ShengdaTech filed for and was granted a temporary restraining order from the US Bankruptcy Court blocking its shareholders and or member of its board of directors from taking any action that interferes with Kang's activities or those of the company's so-called Special Committee. The restraining order also prevents the appointment of any new person, and one Mr. Gongbo Wang in particular, to ShengdaTech's board of directors."

I don't know much about ShengdaTech. In fact, I only learned about the filing of the Chapter 11 and the unusual preliminary injunction this morning.

But if the SEC is investigating, and KPMG has resigned as the auditor, saying some disturbing things about the financials, one has to wonder if this if a perfect company.

This Chinese company was traded on our stock exchange because of a reverse merger into a publicly traded company.

Here's what I wonder: is this the tip of the iceberg? Are there other Chinese Companies that trade on a different board that also have creative books?

I'll watch that space and let you know if I find out.

Although I suppose that finding out might involve learning Mandarin.

Never mind.

I'll let somebody else find out, and tell you what they have to say!

Some people consider (or commit) suicide when they lose everything.

That's probably a bad idea. Everyone has a purpose, and sometimes it's easier to find that purpose after a failure or two.

Steve Jobs, for instance, was fired from his own company at one point, and that made him sad; actually, he called the experience "devastating".

On the other hand, Steve Jobs was a millionaire as a young man, and today is a billionaire with a "b".

That's a far better "b" than "bankruptcy".

And Apple is an odd duck during this recession. It's a company that actually has a lot of "p", profit!

But on the other hand, Steve Jobs also has a "c"; cancer. And not just any cancer, but the really don't-buy-long-playing-records-kind, pancreatic cancer.

Now, everybody dies sometime. And nobody gets to take it with 'em.

Whether you have a stack of bills, or a stack of billions, when you leave, you leave it behind.

When Steve Jobs finally goes to that computer company in the sky, the world will be a poorer place for the loss of him.

But he created a lot of happiness for a lot of computer geeks, including me, an Apple Fanatic, and he will be remembered with love by the people who saw him as the Gadget Santa Claus, and the people he directed (sometimes harshly) at Apple.

Everybody has failures in life. And everybody passes out of this life.

And some people cry because they're insolvent and have to file a Consumer Bankruptcy, and some are cheerful because they get to save their company with a Chapter 11 Bankruptcy.

But whether you're solvent or insolvent, remember to say "I love you" to the people around you.

Because you can't take the billions, but maybe you can take the love.

Solon, a manufacturer of solar panels, is closing its Tucson facility.

Sixty more jobs will be lost in Arizona as a result of that closure.

Solon heard that Evergreen Solar, a Mass.-based company, had filed a Chapter 11 Bankruptcy and was planning to sell its assets, after posting a loss of almost five hundred million. And after hearing that, Solon decided that it was time to get out of Dodge.

Or, less metaphorically, Tucson.

Evergreen Solar had received tens of millions of dollars in subsidies and tax breaks, which is itself irritating. And it had earlier this year announced a move to manufacturing in China, which cost 800 U.S. jobs. It plans to continue operations in China, depending on Chinese Investors.

After the Evergreen move to China was announced, I stopped being a member of the cheerleading section, so the Chapter 11 did not cause my tears to flow.

And the fact that Evergreen had possession of technology developed at MIT, and hundreds of millions from U.S. investors and lenders and subsidies and tax breaks, and now China will reap the benefits; yeah, I could get cranky about that if I thought about it.

So I won't think about it!

There are Chapter 11 Cases all over the country right now, and my guess is that there will soon be many more Chapter 9 Cases like the Municipal Bankruptcy in Central Falls.

But I like cases that save jobs, and I really like cases that save jobs in Arizona.

Remember that businesses generate jobs; all Government can do is take money from somebody and give it to somebody else, and that doesn't generate wealth. Worse, eventually any government runs out of other people's money, and then it collapses (see, for instance, the Soviet Union!) or has to conquer another country and squeeze it dry (see, for instance, Rome! The conquest of Gaul by Julius was motivated by gold mines, after all).

But Danny's was a business empire with many businesses that employed many people in Arizona.

And now Danny Hendon has thrown himself on the bankruptcy grenade, he says, to preserve those jobs for those people.

And who could criticize that?

The State of Arizona, suing Danny for $150,000,000 or so, might take a different view, but I sure hope Danny gets to keep 1,000 people employed; because when a business dies, consumer bankruptcy cases follow.

Let's talk briefly about "charge-offs".

A lot of smart people look at their credit reports and say, "Hooray! It says the bank has charged-off my loan! I won't have to file my Chapter 7 Bankruptcy after all!"

WRONG, insolvency breath!

A charge off, or a charge-off, is an internal bank accounting device, which the bank is required to take when a loan is troubled enough.

Banks hate charge-offs.

Here's why.

A bank is the next best thing to a printing press, because I've been told that a bank can loan about 13.7 times as much dough as it has in deposits.

Sound like smoke and mirrors to you?

Me, too.

But leverage works in two directions, so if a bank has a troubled loan and is required to charge it off, that reduces the amounts it can loan by 13.7 times the size of the loan, right?

So a smart bank will bend over backwards to make a loan a "performing loan", so the bank doesn't need to charge it off and reduce its ability to loan.

Except that a lot of bank regulations, which are written in Icelandic Runes or Sanscrit, make that difficult.

So what's a poor bank to do?

Well, I liked this article, which discusses a bank that reserved against part of a loan that was going bad (a loan that is going bad is sort of like a slow-motion train wreck; you know what it'll look like when the process is done, and it ain't pretty).

But for us today, the important part of the article is this: while the bank may be charging off the loan in question, it is also going "to aggressively pursue the recovery of the amount owed in the bankruptcy court proceedings, as well as through other avenues that may be available."

So if you partied when you saw that your bank loan was "charged off", good. Parties are good, right?

But you're still going to need to see a bankruptcy lawyer after the partying is done.

In the good old days, formerly known as "these trying times", there was a brief vogue for a class of seers called "futurists".

Alvin Toffler was a good-quality futurist, and I need to re-read his book "Future Shock" to see where he was spot on, and where he was spot off.

And my buddy Rick Cook, in his book "Shift Happens", discussed the transitional phases in the publishing business that have made e-books one of the few areas in this economy where people can make money.

And I hope all my clients run out and buy his book and become e-book millionaires. AFTER their bankruptcy filing. It will complicate things slightly if they write and publish an e-book prior to filing, because the income stream will make it harder to pass the means test, and they'll need to buy back their non-exempt e-book from the bankruptcy trustee in their case.

Now, I'm a bankruptcy lawyer in Phoenix, AZ.

But something few people know is that I'm a part-time futurist.

Because being a futurist isn't hard.

You look at today and put it on steroids. You just have to guess which muscles will get bigger and where the fat will go away. Not that there's a lot of fat in this economy.

And here's my next prediction as a futurist.

We're going to see a lot of newspaper bankruptcy cases.

Anybody who wants news can get it today, and get it for free on the Internet. Some premium news sites require registration, and some require a small token of financial appreciation. But seldom as much as a newspaper. And there's that whole "the advertisers are all going bankrupt" issue. Note that gross revenues are down for radio and television advertising, as well.

Newspapers, especially, have an uphill battle. People can either pay for a huge stack of cheap newsprint, covered in smeary carbon print, or they can go to the comfort of their computer screen and check the news before they go to the site of their current addictions, Facebook.

And here's my second prediction as a futurist: Facebook will continue to do very well, but will wilt over the years from competition. Google has a better lock on its economic space, because the magical Google Search Algorithm is so far in advance of its competitors that catching up will be very hard for anybody to do.

And Google+?

That will take a while to grow; as of today, I can't see a compelling reason to move traffic there. But the buzz is strong.

This I can predict this without any risk of failure: if Google+, Google will simply launch another Facebook killer that will, eventually, work.

So if I were you, I wouldn't spend a lot of money investing in newspapers, unless you're guessing that you can buy them for dirt-cheap, and wait forever until they bounce back; and I'd be tentative about Facebook, only because if Google wants that ecological niche, Google has a strong track record.

And, yeah, we'll see a lot more newspaper bankruptcy cases before this depression is over; and the same goes for magazines.

Once you have an e-reader, you tend to cancel your subscriptions to print media, and get subscriptions to rss feeds.

Whatever those are.

Have you ever wondered which, among the millions of bankruptcy cases filed in the United States, were the Top Ten Bankruptcy Cases?

Me, neither!

But The Hollywood Reporter has kindly listed the biggest and the baddest of the Chapter 11 Cases, and I was a little surprised by their Top Ten Bankruptcy List.

Note: when big bankruptcy cases get filed, people lose their jobs. There will be a huge increase in self-employed people in the United States until this depression goes away, and until the real levels of unemployment drop below 16%.

Now, I've been a self-employed ditchdigger, and I liked that far less than being a bankruptcy lawyer.

But second to being a bankruptcy lawyer is being a self-employed author. My guess is that many people in the United States will become e-authors and make millions of dollars in the eeezie-peezee world of e-books, now that my buddy Rick Cook has let that cat out of the bag.

And no, I don't get a piece of the action when he sells his new e-book entitled "Shift Happens".

But I may make him buy lunch!

The Law Of Unintended Consequences is one of my favorites; although I'm also fond of 11 USC 362.

So one unintended side-effect of the announcement of the proposed liquidation of the remaining 399 Borders in the United States was that the gift cards sold by Borders are being used like crazy, because folks believe that they won't have value in the future.

Note to Amazon: if I were you, I'd make a deal to honor Borders Gift Cards. It would make you look like a hero, and once the hubbub died down, the redemption percentage would die down, as it always does with gift cards.

Just a thought!

p.s. a lot of people (including one Arizona Bankruptcy Attorney with a beard) purchased Borders Memberships just prior to the Chapter 11 Filing; some smart bookstore should honor those, too, because they might just pick up some sad bibliophiles on the rebound, looking for a home!

For all bibliophiles, the passing of an empire of books is a sad thing.

Borders was a great place to hang our and browse books and music, and the local Borders at 24th Street and Camelback in Phoenix, and it had a very nice staff.

And that staff, along with the other 10,700 remaining employees of Borders at the remaining 399 stores across the country will not get a storybook ending, and live happily every after. Because Borders will be liquidating; the Stalking Horse didn't stalk very well, apparently.

Those employees now get to look for a job in an economy where unemployment, by some measures, is 16%.

And those are lousy odds.

And you might think that a Phoenix Bankruptcy Lawyer would love to see unemployment rising and bankruptcy cases to the right and left.

You'd be wrong.

And even creditors are unhappy with the Borders Liquidation; they don't like the hurried and confusing quality of it.

I agree; I prefer orderly and leisurely liquidations myself!

Bankruptcy, remember, is almost a cluster of different areas of law, with some trickle down and some trickle up in terms of case law and specialized vocabulary. A consumer Chapter 7 Bankruptcy is not the same sort of animal as a Chapter 11 Bankruptcy. Not at all.

Some bankruptcy phrases, like "drop dead date" (which does not involve taking a zombie to a dinner and movie), are used in discussions of all sorts of bankruptcy cases, from Chapter 7 to Chapter 11 to Chapter 13; heck, even Chapter 12!

"Stalking horse" is a phrase used in connection with sales in bankruptcy cases; the purpose of a "stalking horse" buyer is to test the sales waters in a bankruptcy case, and hopefully to bring a higher and better bid to the table. A stalking horse buyer may also have incentives to go through the process, such as a "breakup fee".

Blockbuster is in a shaky Chapter 11 right now; and a "white knight" potential buyer was brought to the table, but creditors are arm-wrestling with the issue of who should be the stalking horse.

Ultimately, this looks like a bad year to be selling physical books; e-books are now bigger moneymakers, and are selling more dollar volume than physical books.

I got to watch the same technology fandango from the perspective of a client who owned a phonograph-record-pressing plant.

That industry went under with virtually no advance warning.

Books may well have a slightly longer glide path.

There are a lot of Dodgers fans in the United States, and every single one of them has an opinion.

Most of the people who are writing about the Dodgers story side with Major League Baseball and Bud Selig.

And that's probably pretty smart for people who care about continued access to baseball information generally!

But I always have a soft spot in my heart for the underdog; and in this case, that underdog is Frank McCourt.

Frank spent lavishly, and engineered a deal with Fox Sports that would fund the Dodgers for years, and would also pay off his former wife in his divorce case.

And he's being criticized heavily for plugging in payments to his former wife; but does anybody think that during a heavily contested divorce, the value of the team would not be an issue? Or that it's wrong to make alimony and support payments when a marriage is over?

At least as I see it, Frank McCourt is a resourceful guy who found a way to solve for multiple equations simultaneously; he found a way to fund the team for almost twenty years with a multi-billion dollar contract, and to get a relatively quick settlement in what could have been the celebrity divorce of the century.

Alternatively, he could have found a neat way to snooker his wife out of any payments whatsoever; I personally think he was on the right track, and that he did a good job of finding a way to make everybody except Bud Selig happy, and to keep paychecks moving in the direction of the players.

Now, the usual outcome when somebody ticks off Bud Selig is that they get squashed like a bug, because Major League Baseball has Major League Power built into its contracts.

On the other hand, a U.S. Bankruptcy Judge has remarkable powers built into the gavel, because that Judge is tasked with a daunting job; finding a way to help make a broken business work right, under the direction of the Debtor and Debtor-in-Possession.

And once again, it looks to me as though Frank McCourt made a smart play in a difficult situation; a Bankruptcy Judge, as a general rule, keeps the Responsible Party in place during the reorganization process.

Not always; but normally, a little thing like an "ipso facto clause", which is a paragraph saying that in the event of a bankruptcy filing, this, that, and the other will take place, is simply disregarded by Bankruptcy Judges.

After all, if ipso facto clauses worked perfectly, they would be in every contract, and all Chapter 11 Cases would be doomed from the start.

But now depositions are being scheduled in the Dodgers Chapter 11 Case (and I think they're probably 2004 examinations instead of actual depositions, but I've been wrong before; a Rule 2004 Exam is far broader in area of search than a deposition, and is the correct tool of choice for a fishing expedition by bankruptcy lawyers).

Now, I have buddies who are hard-core litigators, and if they were handling the case, I would expect the depositions or Rule 2004 Exams to be filmed, so that they can be used to affect public sentiment.

And the counter-move would be an attempt to have the video depositions sealed.

The nice thing about life is that the longer you live, the more you see.