Recently in Chapter 7 Category

Particularly in this economy, it can be a quick drop from boom to bust in Hollywood. Film producer Warren Zide has just learned that lesson, joining the many highly successful people who have found it necessary to file for bankruptcy over the years.

Zide, the producer of such hits as the "American Pie" and "Final Destination" series of movies, filed for Chapter 7 bankruptcy earlier this month in Los Angeles. He recently completed the credit counseling required of all individual Chapter 7 filers and has been given notice that he needs to complete a course in financial management.

Zide's bankruptcy filing didn't list his debts individually, but he indicated that his total debt is in the range between $1 million and $10 million. His assets likely include the rights to his popular movie series and other intellectual property. His copyrights, merchandise licensing deals and other sources of income related to the movies he has produced will likely be sold to satisfy his creditors.

On July 28, bankruptcy trustee Irving H. Picard filed three new lawsuits in U.S. Bankruptcy Court seeking to recover nearly $250 million that was fraudulently transferred to Bernard Madoff's wife and family members. Picard, who is officially trustee for the liquidation of Bernard L. Madoff Investment Securities LLC in Chapter 7 bankruptcy, has already recovered $1.5 billion for Madoff's victims and creditors.

These lawsuits may signal an historic clawback of funds from companies Madoff family members allegedly bought with money stolen from investors in Bernard L. Madoff Investment Securities LLC. The complaints seek the return of $34.5 million paid into the businesses, along with majority ownership in one of the companies, Primex Holdings LLC.

While it is common in Chapter 7 bankruptcy proceedings for trustees to recover fraudulent pre-bankruptcy transfers, it is unusual for a trustee to go so far back in time. The case is also unusual in that Picard isn't seeking the clawback only from the direct recipient of the fraudulent transfer, but against third-party companies allegedly purchased using the fraudulently transferred funds.

Chapter 7 Trustee Lawsuits Seek Clawback of Money Used to "Fund Lavish Lifestyles"

There's good news and bad news in the May 2010 report by the American Bankruptcy Institute. On the positive side, May consumer bankruptcy filings were down six percent from April. Unfortunately, filings were up nine percent over May 2009, with a total number of Chapter 7 and Chapter 13 bankruptcy filings of 124, 838 this year.

According to Wall Street Journal writer Paul Ausick, bankruptcy filings in the second quarter of 2010 are likely to reach approximately 390,000, an all-time high.

The percentage of consumer bankruptcies filed under Chapter 7, 74 percent, was also down slightly  from April numbers but higher than last year's percentage. Despite the 2005 bankruptcy law intended to force most filers into Chapter 13, the number of consumers qualifying for Chapter 7 averaged 71 percent in 2009 but rose to 73 percent in the first quarter and 74 percent in the first two months of the second quarter of this year.

According to a report by the Administrative Office of the U.S. Courts, the number of people and businesses who filed for Chapter 7 bankruptcy protection rose 34 percent over the past year. Chapter 13 filings were up 12 percent, and Chapter 11 business bankruptcy filings grew by 30 percent.

By far, consumers accounted for the majority of debtors filing for bankruptcy. The total number of personal bankruptcy filings was up 28 percent for the year, although Chapter 7 and Chapter 11 business bankruptcies, as a group, rose by 28 percent over 2009.

The data further document a trend - bankruptcy filings overall have risen nearly to their levels in 2005 before the new federal bankruptcy law was passed. Although the 2005 law was intended to force more debtors to choose Chapter 13 bankruptcy instead of Chapter 7, about 73 percent of bankruptcy filings in the last fiscal quarter came under Chapter 7.

In order to limit "abusive" bankruptcy filings, the 2005 Bankruptcy Abuse and Consumer Protection Act (BAPCPA) placed income restrictions on Chapter 7 filings, made credit counseling mandatory, and placed certain restrictions on bankruptcy lawyers. Ultimately, Chapter 7 personal bankruptcy filings were expected to drop dramatically.

According to commentator David Weidner of MarketWatch, the law did not have that result. Instead, Chapter 7 filings are back up to pre-BAPCPA levels -- and the BAPCPA actually appears to have played a key role in the foreclosure crisis.

In part because of the economy, the disquieting reality has been a sharp increase in Chapter 7 filings. Worse, a November 2008 study by the Federal Reserve Bank of New York showed that the BAPCPA encouraged reckless lending by banks.

In 2009, even as the economy began its slow recovery, businesses continued to struggle. That was the news released this morning by Equifax Inc. According to the credit reporting agency, commercial bankruptcy filings increased by more than 50 percent last year.

Such filings did slow towards the end of 2009, but the brisk pace set in January kept the total number of bankruptcy submissions at 40,000 higher than in 2008. However, many hope that the pace will continue to slow in 2010, offering some margin of relief to the hard hit business sector.

Out of all geographic areas stricken with commercial bankruptcy, the top four were from California and included both San Diego and Los Angeles. Businesses can opt for either Chapter 7 or Chapter 11 bankruptcy, with Chapter 7 functioning in much the same way as it does for individual bankruptcies.

In an earlier post, we looked at the recent bankruptcy announcement by liberal talk-radio station, Air America.  The station, Air America, is essentially the liberal rival to the more conservative talk radio stations.  It announced, last month, that it plans to file for Chapter 7 bankruptcy.  Now, we are beginning to see the aftermath of their declaration to file bankruptcy, as we learn that some of Air America's creditors are the very names that have become synonymous with the soon defunct talk-radio station.

Apparently, this wasn't the first time that radio station Air America declared bankruptcy.  In 2006, the company declared a Chapter 11 bankruptcy under the name "Piquant LLC".  The Chapter 11 bankruptcy was a reorganization attempt by the company management in 2006.  Subsequently, due to dwindling advertising revenues, the station closed its doors last month. 

Among Air America's creditors include the very people that gave Air America prominence-- Rachel Maddow and Ronald Reagan Jr.  According to the Chapter 7 bankruptcy petition, the station currently owes Maddow $3,952 for her services and owes Reagan $6,351.  The chapter 7 bankruptcy petition lists assets of $1.5 million and debt of $17.2 million.  

San Diego bankruptcy attorneys are seeing a huge rise in the number of bankruptcies, according to the Associated Press. According to the article, bankruptcy attorneys in several hard-hit regions have been shifting their caseloads to accommodate for the increase in bankruptcies. 

Of the hard hit regions, Arizona saw the fastest increase in bankruptcies in 2009. Arizona's bankruptcy rate jumped 77 percent from the previous year. Wyoming followed at 60 percent, then Nevada at 59 percent.  

California wasn't lagging too far behind last year, either, with an increase of 58 percent from the previous year. nationwide, bankruptcies increased 32 percent from 2008. 

Bankruptcy attorneys in Arizona, as well as San Diego bankruptcy attorneys are feeling the crunch.  

"Bankruptcy is swallowing up the whole practice," says one bankruptcy attorney, "There's little time to do other stuff."

A discharge in bankruptcy is supposed to free up the debtor from any debt. But contrary to what most believe, you can't wipe out all your debts in bankruptcy.  

Also, if the IRS had already recorded a tax lien on your property before you filed for bankruptcy, you might still have to pay off that lien one day. 

Trust fund taxes, also known as the withholding taxes, are not dischageable in bankruptcy.

Here's the good news, though. Income taxes can be discharged in Chapter 7 bankruptcy, some of the time.  The following conditions need to be met, however: 

• There was no fraud involved in the tax liability;
• It has been at least three years since the due date (or filing date, whichever was later) of the income tax return which gave rise to the liabilities;
• The liability arose from a filed tax return, which was filed least two years prior to filing for bankruptcy.
• The income tax liability must have been assessed at least 240 days before the bankruptcy petition is filed in court.

The San Diego Tribune reported last week that the economy is growing at a rate of 5.7 percent, faster than expected.  This number is based on year-end data and is said to have been the fastest rate of growth since 2003. 

Despite the rise in the economic growth rate, San Diego-area unemployment is still in the double-digits, sitting at 10.3 percent.

President Barack Obama proposed new tax credits aimed at the small business.  These tax credits are offered with the aim of encouraging hiring by small businesses. 

The link between unemployment and bankruptcy is as undeniable as the link between the weak housing market and bankruptcy. It's a direct link. People who lose their source of income are less likely to be able to meet their debt obligations. Similarly, people with high debt obligations and dwindling home equity have a tougher time making ends meet.