It is an irony that the people most in need of bankruptcy protection are those least able to afford it. However, if your wages are being garnished, I may be able to stop the garnishments AND file your bankruptcy with zero up front fees. Any wages garnished in the 90 days preceding a bankruptcy are susceptible to recovery. They must exceed $600 for a single creditor during that window and you must have enough “wild card” exemption to cover the amount garnished. Call me at 859-253-0991 for a free analysis.
July 3, 2015
January 3, 2012
Whether you are a small business owner or an individual who is insolvent (cannot pay their debts as they come due), then you may look at doing a workout outside of bankruptcy. The starting point for this, oddly enough, is to get an analysis by a lawyer who practices bankruptcy to see what a Chapter 7, Chapter 13, or a Chapter 11 would look like. This requires looking at debt, assets and income. The attorney would see if you qualify for a Chapter 7 or if you can bypass the means test. It would also involve looking at what a plan would look like in a Chapter 13 and whether a Chapter 11 would actually be cost-effective. For example, if you have a certain level of debt, you are precluded from a Chapter 13, but if most your debt is personal rather than business, you could be precluded from filing a Chapter 7.
Once you know what is at stake and what is exempt in a bankruptcy, you have a cut-off point where it no longer makes financial sense to pursue a work-out with creditors. This helps one avoid the tendency to start down one path and just keep going no matter what to the bitter end. Instead, you draw the stopping point before hand. You will also know what you have to offer to bring creditors to the table; you’ll know what the creditors will lose and what you can afford to put forward as incentive. If you have nothing new to offer to creditors or if they would not lose significantly more in a bankruptcy, then the work-out will likely fail.
If a workout is going to be preferable, the next thing to do is avoid doing it one creditor at a time. Over and over again I have seen people tackle one creditor at a time to great success in negotiating a settlement only to arrive at the end to have one creditor refuse to play ball. In this scenario, the person has usually paid out thousands in lump sum payments settling with creditors but STILL be forced to file bankruptcy because of one recalcitrant creditor. Often, the thousands paid out would have been exempt assets they could have kept through the bankruptcy. So, to do a workout you must be negotiating simultaneously with all one’s major creditors and condition any deal with a single creditor on the remainder of the creditors coming to the table. Sound impossible? Unfortunately, it often is impossible, but with skillful negotiating and armed with knowledge, it can happen.
January 23, 2010
So called debt solution centers have begun advertising on television during these tough economic times. Before going to one, be sure to read this <a href="Check out this post at Kentucky Bankruptcy Law to avoid being ripped off.”>post at Kentucky Bankruptcy Law.
January 17, 2009
The switchover marketing plan has become the norm in big business and unfortunately, it appears to work. Here is a post about Insight Communications, Inc. and how they do business. Switchover marketing is here to stay because companies believe, and probably have the data to show, that if they can just entice a customer away from another provider in a saturated market, that customer will likely stay with them. Once that customer becomes accustomed to that particular company and service, they will be loathe to leave just because of the hassle in changing again.
The “loathe to leave” principle allows credit card companies to raise interest rates after a year or two, insurance companies to jack up their rates year after year, and cable and phone companies to raise rates even in a bad economy. The cloud in the silver lining is that this practice mainly works for big business and so small businesses can take advantage of the raw feelings the individual customer gets. Small businesses, including law firms, can focus on rewarding customer loyalty and any incentives (discounts, special pricing, etc.) can be directed to those who keep coming back.
January 11, 2009
The economic situation we face have hit small business owners broadside and many are scrambling to figure out how to get relief. Developers who specialize in building upscale homes are particularly troubled by this recession. Although home sales in the Lexington and Bluegrass area remain more stable than much of the country, folks appear to be shying away from building those half-million to million dollar abodes. These builders are proving especially vulnerable to what I describe below because they rely so heavily on secured loans. However, other small businesses are finding themselves in the same circumstances. The vulnerability of which I write is having one’s personal residence secured against primarily business loans.
Here is the general scenario which appears over and over again: Small Business Owner (SBO) goes to the bank to get a loan to either purchase a business or purchase a new asset, such as land to develop. The bank is glad to lend money to SBO after looking over the business proposal and sets up a time to close the deal. SBO drops by the bank and is told, by the way, granting this loan is contingent upon SBO giving their personal guaranty on the loan AND granting a security interest against their personal residence for the full value of the loan. Now, not all banks wait until closing to announce this, but a few persons I have talked with stated they had no idea they would have to put their own house up until they showed up at the bank. At that point, the whole business deal was dependent on getting that loan soon. Due to time constraints, SBO acquiesces to the security interest. “After all,” they think “the debt is primarily secured by the land owned by the business which will increase in value.” And there is the kicker.
Land values have not been increasing and so many of the loans are “under water”; that is, the land providing the primary security interest end up bringing less than the amount of the loan. The SBO faces having any excess debt of that business loan remain against their personal property. As the banks know, now the SBO cannot simply let their business fail while remaining safe in their home; they must navigate the personal debt gauntlet as well. Has their income been low enough to file a Chapter 7? Do they have sufficient income to even qualify for a Chapter 13, and if so, could they fund a plan? Could they afford a Chapter 11 and would it bring the relief they need peronally? Throughout all those considerations the main question is: can I keep the home that I have worked so hard for so that my family has a home?
Unfortunately, there is often no clear course where I can confidently tell them that, “yes, you will keep your home.” If they have a primary debt that secures the home close to the allowed homestead exemption (currently $20,200.00 per person; $40,400.00 for a married couple), and their income is low enough, then they may be able to reaffirm on that home purchase loan and strip off the business debt. It is a different analysis if the business debt is secured first against the developed lot and secondarily by the builder’s personal residence which would otherwise have over $100k in equity. That means they have far too much equity for a Trustee to ignore when the debt securing so much of it is contingent. In other words, depending on the value of that developed lot, they may have $100k in equity or they may have zero equity and anything in between. Those details often do not become defined until after the bankruptcy has been initiated. They could attempt a Chapter 13, but their plan must still show that the unsecured creditors would do just as well or better than in a Chapter 7.
There are a few points I wish to highlight with the scenario I have briefly outlined: 1) Do your best, if you are a SBO, to avoid letting your personal residence secure a business loan; 2) If you do not have the clout or leverage to avoid using your residence as collateral entirely, negotiate limiting the amount of the personal guaranty to a manageable level if your business did fold; 3) Consult with an attorney, preferrably one familar with bankruptcy law, before signing on the dotted line any deal that directly involves the assets of your family; 4) Remember that bankruptcy can be far more complicated for a Small Business Owner, so if you find yourself facing a debt crisis, seek out an attorney that will meet with you personally and discuss all aspects of your financial and family situation. Pre-deal planning with an attorney is so much more cost efficient than bringing one in after the crisis.
September 3, 2008
Even if you have your business in an LLC, PSC, S-Corp or other vehicle, that business can still be subject to the courts if you, as an owner, go through a divorce. This post at Lexington Family Law blog regarding a recent family law decision outlines one scenario that could entangle your business in a dissolution of marriage action.
The very best thing to do for your business, whether your are a sole owner or have multiple owners, is to go beyond simply filing Articles of Incorporation. Be sure that you have bylaws and that you operate by those bylaws. Furthermore, examine your bylaws and see if there are any provisions regarding the eventuality of an owner going through a divorce and whether there are any protections for the business. In addition, review your status and practices to best protect from a court piercing the corporate veil and viewing your business as a mere alter ego of you. This includes the bylaws, but expands to how money is handled, record keeping, sufficient capital in the business, etc.
August 30, 2008
March 23, 2008
The Court of Appeals just released a decision that shows that getting greedy will get ya’ in the end. Despite precedents that show that contracts substantially favoring the party with the greater power often are deemed unconscionable (so unfair as to not be enforceable), lawyers stiff draft them and companies still like them. That is what occurred in Speedway SuperAmerica, LLC v. Erwin, 2007-CA-000451-MR (March 21, 2008)(to be published).
The contract involved in the Erwin case was drafted by Speedway and designed to have Sebert Erwin be an independent contractor for Speedway. It also provided that Sebert (love that name!) would indemnify (pay for) and hold harmless (not sue) Speedway for any damages arising out of any breach of the contract. Further, Speedway expected Sebert to get $300,000 in insurance that also insured Speedway plus his own workers’ compensation insurance. The contract was for five (5) years, but Speedway could cancel it any time they wanted for any reason whatsoever, but Sebert could not do the same. He could not even assign the contract to someone else. Basically, the contract only benefited Speedway and provided no protection for Sebert. First year law students learn that such contracts are problematic at best and yet Speedway paid some lawyer big money to come up with the rag.
Sebert had considerably less sophistication regarding contracts; the Court pointed out that he had an eighth (8th) grade education (though my law professors swore they only taught on an 8th grade level when we did not understand them). He likely had no idea exactly what rights he was signing away and had no power to bargain for better terms. He needed a job and Speedway probably said he could take it or leave it. One day, Sebert was directed to help move a different station to move a walk-in freezer. While assisting in that task, Sebert fell and was injured so he sued Speedway. Speedway countersued to enforce the indemnification clause of the contract (basically, if Sebert won his suit, he would have to pay himself the damages).
The trial court dismissed Speedway’s counterclaim because it found that the indemnification clause was not clear and understandable enough for an ordinary person to understand what he or she was contracting away. Speedway appealed and argued that rule only applied to pre-injury releases and, instead, this was an indemnity provisions. They cited case law that found such a provision valid. If you have a greater interest in the process and reasoning of the court, please read the decision. For our purposes here, we are going to cut to the heart of the matter.
The Court decided that it did not matter which case law was applied to this particular contract because the guiding principal fit both pre-injury releases and indemnification clauses. The holding of the Court is that when a contract that is used to defend against the indemnifee’s own negligence is “agreed to by a party in a clearly inferior bargaining position” (Id. at 9) then it is against public policy and not enforceable. In other words, by taking advantage the less sophisticated Sebert and trying to have all the protection and none of the risk, Speedway made their fancy contract worth no more than the paper it was written on. I sure would like to know how much they paid for that contract to be drafted.
This is a narrow holding by the Court in that such indemnification provisions are generally enforceable. If Sebert had been a business savvy contractor, the outcome probably would have been different. Even if the specific holding narrowly rests on the differential bargaining power, the court highlighted other factors that seemed to influence them. Businesses should be aware that they are on shaky grounds when their contracts:
1) Are “take it or leave it” deals with person with clearly less bargaining power.
2) Allow for one-sided termination of the contract.
3) Allow for termination of for ANY reason.
4) Deny assignability for ANY reason.
5) Try to make someone an Independent Contractor but still try to control how that person performs their tasks.
6) Requires the other party to waive a lien or other mechanism for insuring they get paid.
7) Essentially, are too greedy and attempt to get without giving.
Lesson learned: Make deals that are balanced; contracts that distribute risks and responsibilities fairly. Such deals will be honored by courts and your businesses wealth and reputation will benefit over the long term.
February 24, 2008
In a case of first impression (first time an issue has been ruled upon) in Kentucky, the state’s Supreme Court addresses franchisor vicarious liability in Papa John’s Int’l, Inc. v McCoy, 2005-SC-000614-DG (Jan. 24, 2008)(to be published). Frainchisor vicarious liability is like having a first cousin once removed.
The first cousin of liability is employer vicarious liability which is a well settled area of Kentucky law. In employer vicarious liability (also known as respondeat superior), if an employee commits a tort (a bad act, neglect, etc.) while they are acting within the scope of their employment, then the employer is also liable for the tort even though there is a degree of separation in their relationship. When the employer is a franchisee, then there is an addition degree of separation between the employee and the franchisor.
In this Papa John’s case, Gary McCoy owned a scrap metal business and was working late so he kindly called the pizza place to have pizza’s delivered both to his home and to his office. After prying into the particularities of pepperoni placement upon the pizza, he proffered payment at his place of productivity after they popped the primary pizza off at his private pad (his wife had no doe at home). Once the delivery dude arrived at Gary’s office, things got a little weird.
Either Burke, the delivery guy, hung out voluntarily at Gary’s trying to get a job at Gary’s scrap-yard while watching a video of a deer hunt, or Gary held Burk at the office at gun point and forced him to watch the deer hunt video. Either way, beer and deer were involved. We’ll leave the rest to the imagination, but Burke either escaped or Gary finally got rid of him only after RWT, Inc. began wondering why their driver was gone so long.
Back at Papa John’s, Burke related his hostage related version and another employee called the police. Gary was subsequently arrested for unlawful imprisonment which must have been a bit embarrassing when a story about it ran in the paper a few days later. So, he sued.
None of the foregoing facts were actually pertinent to the court establishing their rule about franchisor liability, but they sure make for an interesting story. The pertinent facts are that Burke worked for RWT, Inc., a franchisee of Papa John’s Int’l, Inc., and Gary McCory claimed he committed a tort against him while acting within his scope of employment. Gary sued Burke, Papa John’s Int’l, Inc. and RWT, Inc. The trial court dismissed the suits against the two business entities for different reasons, but the Court of Appeals reinstated one claim against RWT, Inc., the employer, and two claims against Papa John’s Int’l, Inc.
The Kentucky Supreme Court ruled that the claim against RWT, Inc. could not stand because Burke was acting soley for personal reasons if he made false allegations about false imprisonment; he was acting outside the scope of employment. The Court noted that “there seems no more certain way to send customers to another pizza place than to accuse them falsely of imprisoning delivery drivers when they are delivering pizza. . . .” to highlight the point. If Burke did not lie, then there was no tort. If he did lie, it was for personal reasons. RWT, Inc. is off the hook.
In determining the final issue of Gary’s claims against the franchisor, the Court adopted a rule that enjoys an emerging judicial consensus. They note that a franchise is an agreement between two businesses that licenses the use of intellectual property, brand identiity, marketing, and operational methods for a fee. The rule arrived at was taken from a Wisconsin case, Kerl v. Dennis Rasmussen, Inc., 682 N.W.2d 328. The rule for franchisor vicarious liability now adopted by Kentucky is:
“that a franchisor may be held vicariously liable for the tortious conduct of its franchisee only if the franchisor has control or a right of control over the daily operation of the specific aspect of the franchisee’s business that is alleged to have caused the harm.”
This is actually a slight narrowing of the “control or right of control” rule that it was adapted from because it focuses on the specific aspect of the business causing the tort. In this particular case, Papa John’s Int’l, Inc. had no control or right of control over an intentional and independent course of action taken by Burke and so they are off the hook too.
What this means to franchisors is that if they exercise or contract for the right to exercise control over specific aspects of the franchisee’s business, they may be found liable for torts by employees of the franchisee.
January 28, 2008
This post captures the final lessons learne from the recently released Kentucky Court of Appeals case of Mickler v. Mickler, 2006-CA-001313-MR (Jan. 25, 2008)(to be published). Many other lessons related to family law exist in the underlying facts and procedure and can be found at this post at Lexington Family Law blog. Suffice it to say that a doctor, Andrew, with his own practice went through a bitterly fought divorce over some pretty respectable assets. Terry, his wife, came out with an overall award of well over a million dollars. Andrew was not happy about this so he appealed and tried various tactics, including bankruptcy, to avoid paying. Terry, unwilling to walk away from a million plus, filed garnishments on various insurance carriers thought to owe money to Andrew’s practice.
Andrew argued that Terry could not garnish the entirety of those payments because they qualified as earnings under KRS 427.010 and so only 25% of the paymenbts could be taken. The Court kindly pointed out that his argument more precisely came under KRS 427.005 defining earnings a compensation paid for personal services. Andrew stated that all payments from the insurers were for his personal services as a physician.
The Court of Appeals agreed here with the trial court finding that “that these funds are due to Dr. Mickler’s medical practice and contain not only fees for the professional service delivered by Dr. Mickler but also fees for other services delivered by the staff and employees in Dr. Mickler’s medical practice.” Id. at 5. The Court of Appeals adopted the analysis of a Bankruptcy Court in Idaho because there was no case law on point in Kentucky. The Idaho Bankruptcy court looked at that state’s identical statute and determined that whether such payments are earnings is a fact specific analysis of what parts of such payments are for the personal services of the individual physician. Here, Andrew failed to put forth evidence to the trial court as to what parts of those payments were to compensate him solely for his services and what was attributable to services of other staff or service in his medical practice. For the lack of this evidence, Andrew’s appeal failed.
There is a two-fold less here for small business owners. First, it is wise to recognize that the personal tragedy of divorce can very much impact your business regardless of whether you have an LLC, LLP, S-Corp or other organizational structure. The second lesson is that good record keeping can save you in the event of such litigation. Of course, you have to use the records you have. Here, Andrew’s attorney took and all or nothing approach rather than putting forth evidence of where exactly those insurance payments would be going. Perhaps the records were not available. Either way, the point is the same, keep good records and use them in litigation.