An Introduction to Newly Enacted Bankruptcy Laws

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Crossroads between bankruptcy and counseling
Crossroads between bankruptcy and counseling. Image from ccPixs.com www.ccPixs.com.

This summer saw the passage of new federal statutes that amend the Bankruptcy Code. Specifically, On August 23, 2019, President Donald Trump signed into law the Family Farmer Relief Act of 2019 (the “FFRA”), and the Small Business Reorganization Act of 2019 (the “SBRA”).  

Family Farmer Relief Act of 2019

The FFRA is perhaps the most significant change to the Bankruptcy Code in that it increased the debt eligibility limit applicable to agribusinesses. Previously, the debt limit for a family farmer to be eligible for Chapter 12 relief was approximately $4.4 million.  Due to the FFRA, the debt limit increased to $10 million. Chapter 12 of the Bankruptcy Code is designed to provide debt relief to family farmers with regular income. The goal of the increased debt limit is to make Chapter 12 relief available to more family farmers who would have otherwise had to seek bankruptcy relief under the more onerous and expensive Chapter 11.

Small Business Reorganization Act of 2019

Unlike the FFRA, the SBRA did not go into effect immediately.  Rather, the SBRA will take effect in February, 2020. The SBRA will create a new subchapter within Chapter 11 of the Bankruptcy Code for small business debtors. While provisions for small business debtors within the other subchapters of Chapter 11 remain, a small business debtor may elect to proceed under the new subchapter instead. Furthermore, the debt limit for a small business debtor under either option remains the same (approximately $2.5 million). However, the SBRA amends the definition of a small business debtor. The new definition requires that not less than 50% of the debtor’s debts arose from the debtor’s commercial or business activities. 

The New Chapter 11

This new subchapter includes significant changes to a small business debtor’s Chapter 11 case and streamlines the requirements for the plan proposal and confirmation processes. Specifically:

Trustee Duties

  • The most substantial structural changes under the SBRA to a small business debtor’s Chapter 11 case are that no committees are to be appointed absent cause and a trustee will be appointed in each small business debtor’s case as a matter of course to perform certain administrative and supervisory duties. For example, the trustee duties will include:
    • appearing and being heard regarding the value of property subject to a lien, confirmation or modification of the plan, or sale of property of the estate;
    • facilitating the development of a consensual plan;
    • ensuring the debtor commences making timely payments required by a plan;
    • examining and potentially objecting to proofs of claim; and
    • opposing the debtor’s discharge, if advisable.

Plan Filing Deadline

  • Under current Chapter 11, a small business debtor has the exclusive right to file a plan during the first 180 days of the case and must file a plan within the first 300 days of the case to avoid dismissal. After filing the plan, the debtor has 45 days to obtain confirmation of the plan, unless extended by court order.  Under the SBRA, the debtor will have the exclusive right to file a plan, though it must be filed within the first 90 days of the case.  Additionally, there will no longer be a fixed deadline to obtain confirmation. 

Confirmation Requirements

  • The confirmation requirements are changing. Specifically, the SBRA contains two key differences for cramdown plans. First, small business debtors are no longer required to have an accepting impaired class to confirm a cramdown plan. Instead, the plan need only not discriminate unfairly and be fair and equitable with respect to classes of impaired claims and interest. Second, the absolute priority rule is absent from the SBRA. As a result, equity holders can retain interests under the plan without paying higher-priority classes in full.

Preference Litigation and the SBRA

The SBRA also includes two provisions that specifically pertain to preference litigation. Historically, it has been the plaintiff’s burden to prove the elements of a preference under § 547(b), and the defendant’s burden to prove affirmative defenses under § 547(c).  Moving forward, the SBRA amends § 547(b) to provide that the trustee or debtor-in-possession:

“may, based on reasonable due diligence in the circumstances of the case and taking into account a party’s known or reasonably knowable affirmative defenses under subsection (c), avoid any transfer of an interest of the debtor in property.”

The transfer still must meet the enumerated elements of a preferential transfer. In other words, the SBRA requires a trustee to take into account a target defendant’s potential affirmative defenses when determining whether to exercise the authority to commence an action to recover a preference. 

The second provision addresses the venue where such preferential transfer actions might be commenced.  The current law requires a preference action to be commenced in the district where the defendant resides if the amount sought to be recovered was less than $13,650. The SBRA increases the monetary threshold to $25,000.

 

Michael B. Pugh
Thompson, O’Brien, Kemp & Nasuti, P.C.
40 Technology Parkway S., Suite 300
Peachtree Corners, GA 30092
(O) 770-925-0111 | (F) 770-925-8597
mpugh@tokn.com | www.tokn.com
www.linkedin.com/in/michaelbpugh

Michael Pugh is an experienced associate with TOKN’s Bankruptcy, Business Law, and Litigation teams. To learn more about Michael, please visit his profile here. To contact Michael, please see his email above.

FORECLOSING ON REAL PROPERTY IN GEORGIA AND FLORIDA

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Foreclosure on Real Property

The American legal system allows for two types of real property foreclosures: judicial and non-judicial. The judicial system, as the name suggests, requires a secured party involve a court by filing a lawsuit. The non-judicial system allows secured parties to foreclose without the involvement of a court. The non-judicial system is typically a quicker and cheaper process. While Georgia law provides for both methods of foreclosure, Florida only provides for the judicial method. Below we dig deeper into the salient features and differences between foreclosing on real property in Georgia and Florida. 

GEORGIA FORECLOSURE

Typical Foreclosure

Although Georgia law allows for judicial foreclosure of real property, the judicial route is rarely used. The preferred method is the non-judicial method due to the fact it is significantly cheaper and quicker.

Non-Judicial Foreclosure

The non-judicial method of foreclosing in Georgia typically begins with an acceleration or default letter. The letter demands payment of the debt within a pre-determined time frame. Although letters are not a statutory requirement under Georgia’s foreclosure laws, requirements exists in most security deeds and notes drafted in Georgia. After the acceleration or default deadline runs, the secured party must send notice of the initiation of foreclosure proceedings to the debtor to the property address no later than 30 days before the date of the proposed foreclosure. Alternatively, if the debtor provided written notice of a different service address, the secured party must send the notice to the provided address. Furthermore, registered mail, certified mail, or statutory overnight delivery are the proper methods of service. O.C.G.A. § 44-14-162.2 lists other requirements for the notice of foreclosure sale. . 

Georgia law requires that the secured party advertise the sale of the property in the legal organ of the county. The advertisement must run for four weeks prior to the foreclosure. See O.C.G.A. § 9-13-140. The actual foreclosure sale is then conducted on the first Tuesday of the month between 10:00 A.M. and 4:00 P.M. If New Year’s Day and/or the 4th of July fall on the first Tuesday of the month, foreclosure day moves to that Wednesday. See O.C.G.A. § 9-13-161. Finally, the execution and recording of a Deed Under Power in the county where the property is located finalizes the foreclosure sale. 

Additional References

For those interested in the unusual methods of foreclosing on real property in Georgia, refer to the following code sections: Foreclosure of a Mortgage at Law (O.C.G.A. §44-14-180 and §44-14-187); Foreclosure of Deed to Secure Debt (O.C.G.A § 44-14-210); and Judicial Foreclosure in Equity (O.C.G.A. §44-14-49).

FLORIDA FORECLOSURE

Florida foreclosures start in the same manner as Georgia foreclosures. First, an acceleration or default letter is sent if required by the underlying loan documents. Once the deadline to pay the debt runs, the secured party will file a lawsuit against the titleholders. It is important to note that Florida law also requires naming additional defendants in the foreclosure action. Examples of potential additional defendants include, but are not limited to, the holders of liens or judgments recorded after the mortgage being foreclosed, condominium/homeowner’s associations, those claiming the property as homestead, etc.

The Complaint

The complaint should include all facts that substantially affect the plaintiff’s right to foreclose. These facts include execution and delivery of the promissory note and mortgage, the present ownership of the note and mortgage, a description of the real property, the names of the present titleholders, defaults on the note and mortgage, and the amount remaining due. See Fla. Civ. Forms. 1.944a-b. Significantly, if the secured party does not possess the original note and allonges, the complaint should have a count stating that the named plaintiff is entitled to enforce the note. The complaint also needs to be verified. 

The Process

After serving the required defendants with the foreclosure lawsuit, the secured party can then move for final judgment via a motion for default judgment or a motion for final judgment depending on the circumstances. The final judgment will establish a date for the sale of the property. The sale date must be not fewer than 20 days, nor more than 35 days after the final judgment. See F.S. 45.031(1)(a). Florida law requires that the secured party publish the notice of sale once a week for two consecutive weeks in a newspaper of general circulation. See F.S. 45.031(2). Lastly, the foreclosure sale, just like Georgia, is conducted at a public action. 

Wherever you are

Foreclosing on real property is a necessary process. Know your state’s laws, review the statutes, and follow appropriate deadlines.

Author

Viraj Deshmukh

Viraj P. Deshmukh
Admitted in Georgia and Florida
vdeshmukh@tokn.com

If you would like to learn more about Viraj, please visit his profile or his LinkedIn page.

For information on our Real Estate practice group, click here.

New Georgia Law Simplifies Real Estate Recording Costs

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Effective January 1, 2020, the recording costs of various types of real estate instruments in the State of Georgia will be simplified. Once implemented, this change will impact all individuals and businesses that purchase or finance properties in Georgia. 

Prior Law

Under the prior law, the cost of recording real estate instruments in the public record were calculated based upon the type of document, the number of pages it contained, and potential surcharges. In counties with higher populations, surcharges could be included for each filing. For example, if a county had a population greater than 550,000 (as of the 1970 US census), a $1.00 surcharge could be charged on real estate filings. Furthermore, if a county had a population within its unincorporated areas of greater than 350,000 (as of the 1980 US census), a 50¢ surcharge applied to the first page of each filing. This meant that closing professionals had to determine what type of material was being recorded, the number of pages it contained, and any additional surcharges that might or might not apply. Consequently, the calculations could be dizzying, even for experienced professionals!

Moving Forward

Starting next year, a flat fee will be charged for most document types, regardless of the number of pages (subject to certain exceptions).  The chart below shows comparisons of the fee structure for some typical filings:

Type of Document Prior Fee Structure* New Fee
Deed of Transfer (e.g., Limited Warranty Deed, Quitclaim Deed) $10.00 for the first page, $2.00 for each add’l page $25.00
Security Instrument or Modification of Security Instrument (e.g., Security Deed, ALR) $10.00 for the first page, $2.00 for each add’l page $25.00
Assignment, Cancellation, Satisfaction, or Release of Security Instrument (e.g., Security Deed, ALR) $5.00 for the first page, $2.00 for each add’l page, $2.00 for each cross-reference $25.00 per instrument
UCC Fixture Filing, Amendment, Continuation, or Termination  (county or state-wide) $10.00 for the first page, $2.00 for each add’l page $25.00
Liens and Cancellation of Liens (e.g., Fi.Fa., Lis Pendens, hospital lien) $5.00 for the first page, $2.00 for each add’l page, $2.00 for each cross-reference $25.00
Tax Liens and Cancellation of Tax Liens filed by state or local government agency $5.00 for the first page, $2.00 for each add’l page, $2.00 for each cross-reference Same Fee Structure
Affidavit or Certificate (e.g., Scrivener’s Affidavit, Certificate of Trust) $10.00 for the first page, $2.00 for each add’l page, $2.00 for each cross-reference $25.00
Plat of survey $7.50 per page $10.00 per page

* These filing fees are based upon higher-populated county rates.

Lenders

It is highly recommended that lenders work with their vendors to ensure that the correct recording costs are included in the Good Faith Estimates (GFE) and Closing Disclosures for any transactions which might occur after December 31, 2019.  Likewise, any fees which are collected at the time of the loan closing for the future cancellation of the security instrument should be adjusted for any loans which are anticipated to be paid off and cancelled after December 31, 2019.

Buyers/Borrowers/Sellers

All parties should check the GFE and Closing Disclosure to ensure that the full and correct recording costs are included. For example, in a typical residential transaction, the new recording fee will be $50.00** (for a deed of transfer and a Security Deed).  For a typical commercial transaction, the new recording fee will be $125.00** (for a deed of transfer, Security Deed, Assignment of Leases and Rents, and a local/county and state-wide UCC-1 Fixture Filing).  These figures are solely for illustration of a typical Georgia transaction; specific costs will vary based upon the property, the parties, and the type of transaction.

**IMPORTANT NOTE:  Many counties in the State of Georgia have established the ability for e-recording of real estate materials.  The fees associated with e-recording are not impacted by this new law.

Pertinent References: 2019 Georgia Laws Act 231 (H.B. 288); Code Sections 15-6-77, et seq.

Beth Jones, Esq.
Thompson, O’Brien, Kemp & Nasuti, P.C.
Linkedin.com/in/beth-jones-atlanta
ejones@tokn.com | www.tokn.com

NDGA Bankruptcy Court Issues Opinion on Future Claimants’​ Representatives

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Mass tort chapter 11 bankruptcy cases typically involve two groups of claimants: individuals who know they have been injured (i.e. present claimants) and individuals who do not know of their exposure or injury (future claimants). A chapter 11 debtor typically proposes a plan to either reorganize to keep its business alive and pay creditors over time or to liquidate its assets. But how does a debtor in a mass tort bankruptcy case treat the claims of future claimants, the identities and injuries of which are not yet known? To help preserve the rights of these unknown, future claimants, a debtor may establish a trust under the bankruptcy plan. A chapter 11 plan may provide for a “channeling injunction,” which limits future claimants’ ability to assert claims solely against this trust. A channeling injunction requires the appointment of a legal representative on behalf of the future claimants, commonly referred to as a future claimants’ representative (an “FCR”).

In an April 17, 2019, opinion, the Bankruptcy Court for the Northern District of Georgia answered two questions relating to the appointment of an FCR: (1) What is the proper procedure for the appointment of an FCR?; and (2) What is the proper standard for appointment of an FCR?

In the matter of In re The Fairbanks Company, 2019 WL 1752774, 18-41768-PWB, Judge Bonapfel first determined that the procedures for appointing an FCR permits nominations from any party in interest in the case and requires the Court to independently inquire into the proposed representative’s qualifications and ability to protect the rights of future claimants. The Court then concluded that the proper standard for consideration of an FCR is akin to that of a guardian ad litem, such that the individual must not only be disinterested and qualified, but also objective, independent, and loyally committed to protecting the interests of future claimants.

After an evidentiary hearing, the Bankruptcy Court appointed the debtor’s proposed nominee as the future claimants’ representative.

Michael B. Pugh
Thompson, O’Brien, Kemp & Nasuti, P.C.
40 Technology Parkway S., Suite 300
Peachtree Corners, GA 30092
(O) 770-925-0111 | (F) 770-925-8597
mpugh@tokn.com | www.tokn.com
www.linkedin.com/in/michaelbpugh