Commercial and consumer bankruptcies are on the rise in the mid-Hudson Valley region and some trustees are putting in double duty to meet workload needs.
Michael Tulis, a partner in the White Plains firm of Oxman, Tulis, Kirkpatrick, Whyatt & Geiger, has served as a bankruptcy trustee for 20 years and is involved in all aspects of the bankruptcy system, including chairing the bankruptcy committee for the business law section of the New York state Bar Association.
Changes made to the consumer bankruptcy laws in 2005 were not as problematic as some people thought, Tulis said. “Now, we are seeing the highest level since 2005. There are three trustees in my district, which covers Rockland and Westchester. We have been meeting twice a month rather than once a month as a result of the number of personal filings going up.”
Tulis said the majority of bankruptcies, and perhaps the most devastating, are seen in retail and real estate.
“In retail, they tend to owe so much money, the banks just take the stores and close them. When it comes to real estate, we are beginning to see a large uptick in real estate bankruptcy filings. Some owners are just giving up and giving their deeds back to the banks.
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“Who would ever think we”™d see vacancies in The Westchester mall or in Mamaroneck? But we”™re seeing them. Real estate workouts are a lagging indicator.”
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Tulis and others in his field say caseloads are growing; in some areas, they are up nearly 30 percent. “I expect that individual bankruptcies will begin to level off,” he said. “People who are ”˜upside down”™ in their homes are trying to work it out with banks. Big real estate hits are over….but I do see the business cases, particularly in commercial real estate and retail, growing into 2010. We”™ll get through this; it may take three years. I don”™t see real estate coming back for three years.”
For bankruptcy attorney Richard A. Mitchell of Iseman, Cunningham Riester & Hyde L.L.P. in Poughkeepsie, the most dramatic changes in the bankruptcy laws occurred in 1980, when more power was given to bankruptcy courts than they had, making it possible for a business to take care of its bankruptcy proceedings in one court, rather than two. “Since then, we have seen another change in the requirements for consumer bankruptcies as of 2005; the ”˜means test”™ is one example…but overall, the system has remained the same in those types of bankruptcies.”
Mitchell primarily represents creditors in Chapter 11 bankruptcies. “A trustee is appointed, gathers up the assets, sells them and distributes whatever proceeds are left over to the creditors on pro-rata basis.”
Very few Chapter 7Â bankruptcies pay dividends, particularly in consumer cases.
“Chapter 11 is a reorganization and open to business and/or individuals,” said Mitchell. “Since it is a rather expensive process and takes a long period of time, it is the bankruptcy of choice for business. Businesses will try to negotiate with their creditors so they can pay them and the debtor can hold on to their assets. You can have a plan that can be paid immediately or paid out over time. It is more desirable for the creditors to be paid immediately because of the risk of the business ultimately failing.
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“In Chapter 11 bankruptcies, the business negotiates the plan with a bankruptcy committee and the U.S. Bankruptcy Court confirms it. There is frequently a payment due upon confirmation. The payments can be quarterly, monthly or once a year, depending on how the plan is put together. There are priorities of creditors. Taxing authorities get paid ahead of unsecured creditors.”
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Chapter 11 filings have increased with the recession, Mitchell said. “It is very fact-specific and case-specific; the larger cases take longer and I would say that if you really went through it, the quickest it could be is six months, but could drag on for 2½ years ”“ that”™s both ends of spectrum.”
Nicholas Pascal, a bankruptcy attorney with Tarshis, Catania, Liberth, Mahon & Milligram P.L.L.C. in New Windsor, handles both creditors and debtor. “When the Bankruptcy Consumer Prevention Act went into effect on Oct. 17, 2005, the perception was that it would affect people filing Chapter 7 and force them into Chapter 13. That hasn”™t happened.
“When faced with having to declare bankruptcy, it depends on facts of each case,” Pascal said. “For someone in a small business who has not intertwined their business with their personal assets, they would be better served by strictly filing a business bankruptcy. If they have comingled business and personal incomes, it may become a companion case, where the client might find themselves in two bankruptcies ”“ a Chapter 7 for the business and a Chapter 13 for the individual. It depends on the filer”™s ability to show a stream of income sufficient to make the home payments.
“There was a lot of talk early on in the Obama administration to allow for modifications of mortgages, but judges do not have power to modify first home mortgage; they can modify a second home mortgage.”
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The U.S. Bankruptcy Court, Southern District of New York, which serves Putnam, Dutchess, Greene, Ulster, Sullivan and Orange counties, has put in a court-supervised loss mitigation program, Pascal said.
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“There had been a lot of feeling among homeowners, and to a certain extent among lenders, that they were getting bounced from voice mail to voice mail. Now, they must have a live person to speak to them about their loans or to make an analysis of their loan situation. This has not affected our regional banks, but when you are dealing with a national bank or servicer, trying to find a living person to help you can be more than just a challenge, and that”™s why this protection has been put into place. It allows the court to get involved to a certain extent, the goal being a means to make sure the lender is going to put someone on the phone with the debtor to discuss their loan. While there is no guarantee about a workout or modification of their loan, that”™s something that”™s been well-received.”
Lawyers have seen a rise in pro se bankruptcies, where debtors act as their own attorneys. “The laws are so complex in bankruptcies, it can be more of a struggle to get through the process and also makes it more difficult for the courts to move forward,” Pascal said. “Once a law is tested by actual cases, tests come up. There have been certain test cases and things are getting clarified. Primarily the reforms affecting the consumer cases. The Chapter 11 cases were not affected in the same way. The lawyers and courts continue to struggle. In federal courts, there are very complicated, you need a qualified attorney and definitely want to search for one that has bankruptcy expertise.”
According to the U.S. Bankruptcy Court in Poughkeepsie, the number of bankruptcies in its jurisdiction is 2,678 as of Sept. 29. For the U.S. Bankruptcy Court covering Westchester and Rockland counties, 1,817 bankruptcies have been filed as of the same date. Those numbers represent total bankruptcies filed, not broken down by category.
