Is It Bankruptcy? Or Is It Cake?

There’s a new game show on Netflix called “Is It Cake?” On it, expert bakers make cakes that look exactly like everyday objects. The people on the show have a few seconds to decide if the object they are looking at is cake or the real deal.

The cakes are so realistic looking, and the participants are under so much pressure to quickly assess the objects they are looking at, that real objects are often mistaken for cake (and vice versa). The only way to know what is actually a cake is to cut into it. 

This is reminiscent of the way adversary proceedings work. From the outside, a bankruptcy case may look run-of-the-mill, but an experienced practitioner must quickly assess whether it is appropriate to cut into the case and file an adversary proceeding. 

What Is An Adversary Proceeding? 

An adversary proceeding is a lawsuit filed within a bankruptcy case, typically by a creditor or ex-spouse, in order to preserve their claim against the debtor’s assets. If an adversary proceeding is successful, the person or entity who files suit will still be able to seek payment from the debtor, even after their bankruptcy case is closed and other debts have been forgiven. 

These cases are of critical importance for both parties. For a debtor, an adversary proceeding may make the difference between coming out of bankruptcy with a clean slate or coming out still owing a significant amount of money to creditors. For someone in a financial relationship with a bankruptcy filer, an adversary proceeding may be what salvages their financial claims and keeps them from having to file their own bankruptcy case. At Hanon & Payne, we have worked for both debtors and creditors in these cases and seen their importance close up. 

Adversary Proceedings Come In Many Shapes And Sizes

Some common examples of adversary proceedings include:

  • Claims arising from the debtor’s fraud or intentional misrepresentations 
  • A divorced spouse owed maintenance, or who is worried that their ex-spouse will not pay the debts assigned to them in the Marital Separation Agreement
  • Contractor theft claims, specifically in construction or development cases  
  • Claims arising from bad (bounced) checks
  • Claims between former business associates or affiliates
  • Claims against former employees for breach of a non-compete agreement or for theft/embezzlement
  • Actions taken by the bankruptcy trustee in order to recover gifts or transfers of property to friends or family members of the debtor in the 1-year period prior to the bankruptcy filing.

What determines whether an adversary proceeding will be successful varies from case to case. In fact, the list of claims that are not dischargeable in Chapter 7 cases is even different from the list of claims that are not dischargeable in Chapter 13 cases. 

This is why it is important to get advice from an experienced bankruptcy attorney like those at Hanson & Payne if you are considering filing for bankruptcy, or have a financial relationship with someone who has filed for bankruptcy. This is a complex area of bankruptcy law, so “winging it” will not work. Messing up could cause you financial hardship, or even get you sanctioned by the bankruptcy court. 

A Milwaukee Bankruptcy Attorney You Can Trust 

Whether you are a debtor or creditor in the Milwaukee area, the Hanson & Payne team is here to answer any questions you may have about the bankruptcy process. Rather than making snap judgments, or going off first looks alone, we will slice into any case before us so we can give the best advice possible. Please contact us today to schedule a meeting.

“The One” That Got Away

A Los Angeles megamansion once expected to list for $500 million has sold at a bankruptcy auction for $141 million. While Milwaukee’s real estate market isn’t as hot as LA’s, the entire saga provides an interesting look at the bankruptcy process. Hanson & Payne has been involved with several similar but smaller bankruptcy cases like this in our area

One Of A Kind

When he started building The One more than a decade ago, developer Nile Niami planned for it to be one-of-a-kind. He bragged that it would be the most expensive home in the world.

The compound sits on 3.8 acres, and has 360-degree views of the Pacific Ocean, downtown Los Angeles and the San Gabriel Mountains. According to the listing, there is 105,000 square feet of living space, which includes 21 bedrooms, 42 bathrooms, and 7 half-baths. There is also a nightclub, a juice bar, a full-service beauty salon, a wellness spa, a tennis court, a home theater that seats 40, a bowling alley, a 10,000-bottle wine cellar, 30-car garage, and a 400-foot private outdoor running track. The property features seven water features, including a massive moat that runs around the property.

It truly is one of a kind. And there will never be another home like it built near LA, which has changed its property laws to prevent similar developments from cropping up. 

One Major Headache 

Delays and disputes dramatically increased the cost of building The One. 

The developer originally wanted to list it for $500 million. However, his debt on the property ballooned to more than $190 million. The property was placed into receivership and then went into bankruptcy. As part of a bankruptcy agreement, it was listed for $295 million and, when no buyer emerged, it was put up for auction.

It sold for $141 million. This makes it the third most expensive home ever sold in Los Angeles. It’s behind the Jack Warner Estate (as in Warner Brothers) bought by Amazon’s Jeff Bezos for $165 million, and a Malibu compound that sold for $177 million last year. 

The selling price is also “about $60 million less than the total debt on the house, meaning several lenders may still end up losing money on the home. The biggest lender was Los Angeles subprime lending magnate Don Hankey, who loaned more than $125 million to the project. People familiar with the sale said Hankey, who could have used his loan to “credit bid,” was not the final buyer.”

This is not an unusual situation. Properties that sell at bankruptcy often go for less than they would on the open market. 

One For The Road

Though the house has been sold, there are still a number of issues that the new owner will need to spend money addressing. CNBC says, “According to the receiver’s report and an engineering study, the house has cracks in and around many of the pools and stonework, as well as signs of mold. It has several outstanding building and occupancy permits, and a local homeowner’s association is challenging its construction.”

One-Stop Shop

Hanson & Payne LLC is a full-service bankruptcy law firm in Milwaukee. We have worked with developers, lenders, and property buyers in the Milwaukee area when their properties are put into receivership or someone involved in a project files for bankruptcy. Our experienced team of attorneys are “the ones” you should reach out to if you have questions about real estate transactions and bankruptcy.

A Return To Rigidity? A Look At Commercial Lending Post-Pandemic

Since the beginning of the coronavirus pandemic, commercial lenders have been more willing than ever before to give borrowers some grace when they fall on hard times. But that willingness to be flexible is decreasing by the day. 

The Hanson & Payne team is working with commercial lenders and borrowers in the Milwaukee area as they try to navigate the shifting financial landscape. 

FDIC Encourages Flexibility A Return To Rigidity? A Look At Commercial Lending Post-Pandemic 

One of the big reasons banks have been so willing to work with borrowers over the past two years is because the FDIC told them to. 

As the FDIC says on its website:

Just days after the World Health Organization formally declared a global pandemic, we issued a statement acknowledging that this unique and evolving situation could pose significant temporary business disruptions and challenges, and encouraging financial institutions to work with customers and communities affected by COVID-19. Specifically, we stated that an institution’s prudent efforts to modify the terms on existing loans for affected customers would not be subject to examiner criticism. We committed to working with affected financial institutions to reduce the burden when scheduling examinations, including making greater use of off-site reviews, consistent with applicable legal and regulatory requirements.

We have encouraged banks to work with all borrowers, especially those from industry sectors particularly vulnerable to economic volatility. We have clarified that prudent efforts to modify the terms on existing loans for affected customers will not be subject to examiner criticism and that certain loan modifications made in response to COVID-19 are not troubled debt restructurings (TDRs). We have also provided flexibility to enable mortgage servicers to work with struggling consumers and to allow for delayed receipt of required appraisals for certain residential and commercial real estate loans.

These are just a summary of the specific directives released by the FDIC, but it is clear that banks were supposed to be much more flexible than usual. 

And they were. Over the past two years, Hanson & Payne has worked with banks and borrowers to renegotiate or restructure a lot of debt and make sure everyone’s interests are protected when new documents memorializing these agreements are drafted. 

What Comes Next? 

The big question everyone is asking now is what comes next? Pandemic guidance is going to go away at some point. However, in the face of inflation, banks may want to continue being flexible in order to attract borrowers. 

On the other hand, banks can’t be too generous lest their portfolios appear rosier than they actually are. This could destabilize the financial system more than the pandemic and the uptick in inflation already have. 

Milwaukee Area Bankruptcy Attorneys You Can Trust

Come what may, the Hanson & Payne team is always ready to assist Milwaukee area borrowers and lenders. Our experienced team of attorneys can assist with restructuring and workouts, or help guide our clients through the bankruptcy process. Please contact us today to schedule an initial consultation.