Where are all the bankruptcy filings in Nashville?

Many years ago, I got a call from a bank attorney who was in the middle of a 4 day trial in Williamson County. It was a lawsuit by a bank to collect its post-foreclosure deficiency balance. The lawyer called me to tell me that the debtor’s attorney had printed out my very own blog post and had introduced it into evidence as a learned treatise under Tennessee Rule of Evidence 618 in order to cross-exam the bank’s expert witness.

While I was flattered (my initial reaction was to ask if the Chancellor was impressed), it was also strange–given my long allegiance to banks and creditors in litigation–that Creditor Rights 101 would be used against a bank. (Also, that debtor’s counsel must have been desperate if he resorted to using my blog post as his Exhibit 15).

Regardless, man-o-man, beware of using this law blog as learned evidence of anything, because I can be really wrong sometimes.

Like, on April 3, 2020, when I boldly predicted that bankruptcy filings in the Middle District of Tennessee would hit an all-time high in June 2020.

It didn’t happen. Not even close. Literally, the opposite happened.

As of today, October 29, 2020, there have been 4,820 bankruptcy cases filed in the Middle District of Tennessee. That sounds like a lot, but, for comparison’s sake, consider that the 4,820th case was filed on the following dates over the past decade: July 30, 2019; July 20, 2018; July 18, 2017; July 6, 2016; July 15, 2015; June 17, 2014; May 31, 2013; May 23, 2012; May 11, 2011; and May 4, 2010.

Not only are we not hitting a record high, but, instead, new bankruptcies are being filed at a record low pace.

As late as July, we were still wrong about the future of bankruptcy (I say “we” because the Nashville Post joined me on the bad predictions).

So, today’s news brings more predictions (but, this time, far less bold) via this American Bankruptcy Institute story, which predicts that the new bankruptcies are coming…in 2021.

“As stimulus checks and other forms of temporary relief run out, experts are projecting an increase in personal bankruptcy filings, which have so far been muted during the coronavirus pandemic,” the Wall Street Journal reports. “Only a new stimulus program targeting individuals or government actions forgiving or deferring student loans can keep individual filings from rising.”

In light of all this, I’m not making more predictions, because these are unpredictable times. Our General Sessions Court shuts down evictions and collections dockets, then re-opens them, then drastically limits them, and then reopened them again. People are afraid to leave their houses. Banks are afraid to foreclose on those houses. Lawyers are afraid to go to their offices.

The bankruptcies are coming. But who knows when.

Finally, to all you crafty debtor lawyers out there: I can edit any these blog posts on a moment’s notice.

Nashville Post: The Bankruptcies are Coming, but Where are the Bankruptcy Attorneys?

If a creditor rights attorney appears in a movie or TV show, he is generally the bad guy who galvanizes the stars of the movie to assemble a dance competition to save the community center from foreclosure.

In fact, for a long time, my LinkedIn bio described my creditor’s rights bankruptcy practice as:

This is an area of law they don’t make movies about. In fact, the only movie about creditor bankruptcy attorneys that I know of is Heart and Souls, a 1993 movie starring Robert Downey, Jr. In that movie, his childhood guardian angels come back to Earth to re-visit him as an adult and are horrified by what he does for a living. Well, that’s my job.

As a result, insolvency attorneys tend to be slightly self-conscious about our role in the legal ecosystem. When our law firms’ clients host open houses at their glitzy new facilities or shiny, over-budget restaurants, it’s the bankruptcy attorneys standing by the bar who eyeball it all and wonder how much all it cost and whether they can pay for it.

(Note: I’m actually kidding about this…the bankruptcy attorneys actually never get invited to grand openings or fun events. Kidding.)

So, in light of all that, you can imagine how proud I was that the Nashville Post ran a magazine article this week showcasing the starring role to be played by bankruptcy attorneys in the coming months and years.

Step aside, corporate mergers and acquisitions counsel, this is a job for a Bankruptcy Lawyer.

It’s a well-done article, with spot-on analysis of the issues facing our local economy. This quote from local debtor counsel Nancy King really nails the current mindset:

Most companies right now are either in the stunned phase, or they’re in the ‘I want to work it out with my bank’ phase, or possibly the ‘I’ve gotten a PPP loan, I think I might make it’ phase. … When all that comes to an end, I think Chapter 11 is going to end up being an option for a lot of those companies.

One of the most interesting aspects of the article is the narrative that there aren’t enough bankruptcy lawyers in Nashville.

It’s absolutely true.

Nashville is widely known as having a sophisticated bankruptcy bar, due to the wide range of complex cases that get filed in our district (both consumer and commercial), our really smart judges, and a deep roster of sophisticated bankruptcy lawyers.

Nevertheless, when the Middle Tennessee economy rebounded so quickly from the Great Recession, local law firms simply didn’t restaff their bankruptcy practice groups. Instead, from 2013 to 2019, the smart young lawyers went into real estate, development, and corporate work.

As a result, most Nashville law firms have bankruptcy practices that are, basically, composed of the same bankruptcy lawyers who steered the ship in the last recession. Sort of like the 2012-13 Boston Celtics–a good team, but lots of veterans and hardly any young prospects.

We’ve known this is coming for a long time. In fact, at the 2019 Bankruptcy Lawyer Holiday Party (yes, it’s a real thing), the three most popular party guests were the three new faces (all under the age of 30). They were subjected to an endless barrage of business cards, lunch invites, and recruiting pitches that night.

In fact, one of those young lawyers has already been poached away by an out-of-state law firm that has one of the largest bankruptcy practice groups in the country.

So, my advice to young law school graduates (or students)?

Learn Bankruptcy. Read the Bankruptcy Code. It’s literally an inch thick. There’s always another recession around the corner.

You’ll have a great (and long) career.

Also, while you’re quarantined at home, watch Heart and Souls. It really is a fun, under-appreciated movie.

COVID forces old-school lawyers to embrace new technology

Tennessee Courts get yanked into the 21st Century. This week, I’ve had two telephonic court hearings.  They’ve both been a little strange.

On one, I called the Clerk’s office, who then gave me the Judge’s cell phone number. When I called the Judge on her cell phone, she was pretty clearly on a walk outside.

On the other, the court set up a call-in line for the docket call, with about 25 attorneys waiting for their specific matter to be called. When my matter was called, about 6 attorneys all spoke at once.

When my matter was over, I stayed on the line and listened to the next argument (on mute) to see how it flows and to plan for when I have to conduct my own complicated hearing. I learned that there is definitely an art to effective presentation via a phone call.  Also, it was weird, just silently lurking. A Bloomberg news reporter listened in on a similar court hearing, and she described it as “uncomfortable and oddly voyeuristic.”

I think all this can be figured out, but there’s definitely going to be learning curve.  The Tennessee Supreme Court conducted oral arguments via video this past week, and those went well.

Although, if I were one of the lawyers arguing, I would have 100% had to stand up for my presentation.

tn sup cort

Personally, I’m not looking forward to more telephone or video hearings. I go to court a lot, and there’s so much you pick up by physically present in the courtroom, whether it’s a good read on the judge’s demeanor that day, on opposing counsel, or just the ability to be physically present when you’re making a huge argument for a client.

There is simply so much that goes into oral argument, and there’s so little of that in a phone call.

Zoom. Maybe we don’t need to see each other.  Speaking of how technology maybe doesn’t always make things better, when all this first hit, everybody wanted to do a Zoom call. But, then, after a week of seeing the decorations in everybody’s guest bedroom, we sort of figured out that all this could have been done via conference call.

Personally, I can’t decide where I look: at who is speaking; at myself (which I’m usually doing); or directly at the camera. Bonus points to the participants who just leave their camera off the whole time.

Either way, I guess I fall in the middle on this app. In some situations, it makes sense to be able to see the person and get a read of their social cues or to establish a rapport. For example, I represent a large class of clients on a matter, and I like to communicate with them via video so they can see me and my team.

Slack.  I acknowledge that I sound like a curmudgeon.  So, to counteract that, I’ll provide a whole-hearted endorsement of Slack, the real time messaging platform.  It seems like a really effective and well-done way to manage work teams.

Side-note: If you’re navigating all of this, I can’t recommend the Lawyerist website enough, as well as the Lawyerist podcast.  It’s run by a group of very smart lawyers, and they constantly talk about remote work, law firm management, and law tech and innovations.

I really enjoy all that they do on that site to educate lawyers.

New Developments versus Custom and Habit. It’s hard to tell how much of this is temporary or here to stay. Some part of that answer will depend on the Court leadership forcing all counties to fully embrace the new rules, policies, and technology.

Yesterday, we were figuring out how to get a garnishment form notarized with all of us spread out over town.  One of the lawyers on the e-mail chain correctly pointed out that Tenn. R. Civ. P. 72 and the brand new Supreme Court Orders allow for /e/-signatures and declarations in place of a notarized signature.

This was a garnishment, though, in a very small county, one that probably hasn’t read the Order from last week, and where the front desk clerk would take one look at the form, see the lack of a notarized signature, and potentially reject the filing.

This is what makes collections so different than other aspects of the law. Once you get the judgment, instead of dealing mainly with a judge, you’re mostly dealing with court clerk staff. You can be technically and legally correct, but, if you don’t follow their habit and custom?

Long story short, we got it notarized. Our goal wasn’t to be right. It was to get our garnishment issued.

My hope for all of this is that the Administrative Office of the Courts establishes a commission to look at all these issues and to anticipate as many of these issues that could arise in the future. And I hope that they don’t just pick the usual same people from the usual same big law firms to participate. Those lawyers don’t talk to clerks. They don’t file e-file documents. They don’t go to court on all kinds of matters.

The decisions that are being made today may set the policies and procedures across the state for years, and it’ll be interesting to see what changes implemented during this pandemic become the new custom and practice.

The CARES Act’s Exclusion of Debtor-in-Possession may be a death sentence to pending bankruptcy cases.

The Coronavirus Aid, Relief and Economic Security Act of 2020 is a great legislative response in helping thousands of struggling businesses navigate the financial disaster presented by the coronavirus pandemic.  The response to COVID-19’s spread has shut down thriving businesses, put people out of work, and is having ripples throughout the economy.

Despite the intent to provide wide and sweeping economic relief to affected businesses, Congress made an ill-advised exclusion when determining what businesses can be an eligible participant in the CARES Act loan program:

“(V) the recipient is not a debtor in a bankruptcy proceeding…” 

As the plain language indicates, any business that is a debtor-in-possession in an active Chapter 11 bankruptcy reorganization is ineligible for relief under the CARES Act.

This is a terrible oversight.

When a business files for relief under chapter 11 of the Bankruptcy Code, it then operates as a “debtor-in-possession,” continuing its pre-bankruptcy operations under the oversight and subject to the approval of the Bankruptcy Court.

The goal for the debtor-in-possession is to address, correct, and overcome whatever financial or operational issues that caused the bankruptcy and then reorganize its operations, finances, or governance structure in a way that a more successful business will result.

So, in short, a business operated by a debtor-in-possession operates like any other business. It has employees. It pays rent. It pays taxes. It buys goods and inventory.

If the DIP struggles and can’t pay employees, rent, taxes, and other operational costs, it fails.  Just like any other business.

And, just like any other business, a global pandemic has a catastrophic impact on its operations.

The exclusion of CARES Act financial relief to a debtor-in-possession in a chapter 11 reorganization is, in essence, a death sentence to that debtor’s ability to reorganize. It lays off employees. It can’t pay rent. It can’t pay taxes. It can’t confirm a plan of reorganization. It simply figures out a way to survive, without any help, or close.

Here, I’m guessing that Congress wanted to exclude the shutting down or liquidating bankruptcy debtor’s ability grab some cash. But, by including a broad exclusion, they’re hurting legitimate businesses that may already be on a path to survival.

With this exclusion, the Act forces the debtor to ponder a strange choice: Whether to voluntarily dismiss an otherwise viable bankruptcy proceeding in order to apply for federal relief.

 

 

Prediction: Tennessee Bankruptcy Filings will hit all time in June 2020

About two weeks ago–about 6-7 days into the COVID-19 shut down–I had a work call with a debtor’s bankruptcy attorney.

After we briefly talked business, we talked about how everything else was going. I asked him if he was swamped with anxious debtor phone calls. He said he wasn’t, which surprised me. During that first week, the news was full of businesses closing and mass layoffs.

In fact, he wasn’t even at his office. As we talked, I could hear that he was at the store, buying groceries and navigating an entirely separate conversation with the check-out clerk.

As he was loading the groceries in his car, he clarified: “It’ll be busy, like 20 hour a day work-days. But not yet. Right now, nobody knows what tomorrow looks like. Right now, people are worried about survival, not about their bills. Starting in April, maybe early May, that’s when it’ll start. It’ll be when they finally realize that Bankruptcy is their only option.”

I’ve thought about that call in all my conversations with bankers and small business owners navigating financial relief under the CARES Act (the Small Business Stimulus loans, the Paycheck Protection Program, or the expansion of the EIDLP programs), under their business interruption insurance, or calling their lenders for help.

This sense that a bankruptcy filing isn’t the first choice, but, for so many people, it’s inevitable.

Today’s Wall Street Journal has an article, Bankruptcy Lawyers Gear Up for Surge in Filings Due to Coronavirus Fallout, which previews this potential explosion in bankruptcy filings.  “The spike hasn’t caused an immediate jump in corporate bankruptcies, which require financing and—absent an emergency—usually take weeks or months to prepare.”

The reasoning, there, is that a really complex corporate bankruptcy isn’t something that you can rush into. It takes internal planning,  a massive review of financial records, and, in many cases, advance negotiation with essential creditors. In a different time, that process can take 6 months. The coronavirus hit us like a tidal wave, taking us from healthy to destroyed (financially) in a week.

But, what about the average consumer? Well, as a result of quick action by the Tennessee court administrators and Tennessee Supreme Court, most in-person court proceedings are suspended through the end of April.  As a result, even the most aggressive landlord can’t evict a tenant, because there’s no court to sign the order.  Plus, there’s a good legal reason to avoid conducting a foreclosure in Tennessee during this time.  There’s a good chance these suspensions are extended more as this situation develops.

Many debtors file Bankruptcy directly in response to a financial distress, often to stop a pending credit rights action (a foreclosure, a court date, a deadline in a lawsuit). Without these prompts, will there be an urgency for a debtor to call a bankruptcy attorney? Maybe not.

Are bankruptcy attorneys even meeting with potential clients during all this? Most of the ones I’ve talked to aren’t.

Also, as a matter of timing, what’s the benefit of filing early? Right now, many people are out of work and don’t have regular income. A filing now would draw a line in the sand of their debts at a time when their finances are most uncertain. Candidly, their debts will most likely extend far beyond that line. Why not wait and see if you’re forced to go deeper in debt before you file?

As strange as it sounds, it’s likely that bankruptcy filings will not spike until the economy starts to recover, when businesses start to reopen and people begin to go back to work. That’ll be when people can stop worrying about survival and start worrying about digging themselves out a financial hole.

So, yes, Tennessee bankruptcy lawyers are going to be busy and, if 2008 is any indication, Nashville bankruptcy lawyers may end up being some of the busiest in the country.

I think that happens in June.

341: Rent is Due Tomorrow; Lawyer Webinars

Rent is Due Tomorrow, and It’s Going to be Bad. Tomorrow is going to be a terrifying day for lots of people across the country.  That’s because it’s the first of the month, and  rent and mortgage payments will be due for millions of families, and a good number of those people are out of work.

Clients in all types of industries are scared. They’re scared for their business. For their employees. For their personal finances.

cheesecake

Some businesses are taking aggressive action to preserve/conserve cash, but that’s a bold move and beyond what most small businesses or individuals can envision.  Who on earth imagined a future where “I’m not paying my mortgage next month” is a valid financial planning option?

It’s important that we, as lawyers, figure out how to help. This article in the Wall Street Journal, Bankruptcy Law Needs a Boost for Coronavirus, suggests that our financial and restructuring bar is thinner than it should be.

This is a real concern that I’ve heard from bankruptcy lawyers for about a year, even before people had any idea that a global pandemic was possible. There aren’t many bankruptcy lawyers under the age of 40. It’s because, basically, in the last 10 years, the economy has been strong enough that there hasn’t been growth in new practitioners.

This Bloomberg News article, Bankruptcy Phones Ring Off the Hook; Firms Prep for Deluge,  suggests that there will be big time growth in the practice area.

So, we get our coronavirus updates whereever we can, right?

Tony Roma Covid

COVID-19 Webinars are the real fast spreading virus. Ok, so what role can lawyers play?

First off, slow down with the webinars. There are so many lawyer webinars right now.

I loved this tweet from @catmoon:

cat moon tweet

This is great advice, and it’s a good reminder to judge your client marketing first from a place of “Is this Useful to the Client?

Now, don’t get me wrong. I have watched a fair share of coronavirus webinars, and I’ve learned a lot about the state of the economy and business interruption insurance. I even taught one (see below).

(Side Note: I’ve also learned that lawyers should do a test run before going live on a webinar. “I just heard someone grimace.”)

My advice? I agree with Cat 100%. Don’t make me listen to an hour-long webinar, when you could put that together in an article that I scan in 5 minutes. Everybody is busy, so let’s get to the point.

Also, maybe just call the clients and see what they need.  Again, handing the mic to Cat Moon:

2nd cat moon tweet

Call. E-mail. Text. Check in.

Separately, I taught a webinar.  Ok, ok, I know. Webinars.

Mine was a CLE for the Tennessee Bar Association. It was titled “Navigating Client Financial Issues During the Pandemic,” and I hope it gave good, practical advice for both creditors and debtors.

But, yeah, do what I say, not what I do.

tba cle

 

 

 

 

 

 

Insight from a Bank Attorney: How to ask a banker for help.

By 10am yesterday morning, one of my bank clients had already received five calls from worried borrowers.

These weren’t high risk consumer loans; these were commercial borrowers whose business has been impacted by the pandemic. A fitness studio who can’t have in person classes. Two AirBnB owners who have empty houses. Two restaurants. And that was just by 10am.

(Sidenote: Yes, I just referred to a fitness studio, AirBnBs, and restaurants as not “high risk” borrowers. This is 2020 Nashville, people. It was a different world until a week ago.)

In yesterday’s Tennessean, I told nervous borrowers to call their banker and talk about their concerns.

But what do you say? Here’s an idea of what banks are looking for:

Have a Plan. Don’t just call and ask to not pay for 90 days. Instead, explain to the banker how you are going to use that extra cash in the next 90 days to strengthen your recovery and maximize your chances of survival (and your chances to repay the bank).

Are there easy expenses that you can cut? Are you changing your operations in response? What are you going to do with “the bank’s money” during this time?

Do your Homework. Experts suggest that we’re going to be dealing with coronavirus for weeks and, maybe, months. Even though we have no idea how long this will last, can you give the banker a detailed forecast of your operations during this time?

Show them the bad news (i.e. the projected income), show them the easy and hard cuts you’ve decided to make, show them the fixed costs you can’t avoid (rent, costs of supplies), and show them that you’re trying.

Can you get more capital from other sources? Can you give the bank more collateral? If you can (or can’t), let them know you’ve explored that before asking the bank for help.

The banker probably wants to help you, because your success helps their bottom line too. Here, your goal is to make it easy for her to help you. Provide a roadmap that relies on numbers, solid projections, and is something that your banker can show his bosses when he advocates for you (or, months later, explains why he said “yes” to you).

Have a clear request. If you’ve done your homework and have a detailed plan, you should also be prepared to have a specific “ask” of the banker.

Do you need an extension of your line of credit amount? How much? How did you get that figure?

Do you need a 90 day payment forbearance? Why 90 days?

Do you need a re-amortization of your debt or to make interest-only payments for a few months? How does the lowered payment fit into your budget?

Be a pessimistic optimist. When you call your bank, you’ll be inclined to ask for as little relief as possible, because you’ll want your “ask” to be granted. Maybe you’ll commit to a reduced payment that’s still a little too high.

Here, if you’ve done your homework and come up with a detailed plan, you’ll have a good idea of what you really need from your bank. Ask for that, but maybe a little lower (give yourself some wiggle-room).

You don’t want to get some relief from your bank, but, then, a few weeks later, realize that you can’t perform and need more adjustments.

Long story short, err on the side of being a pessimist, and give yourself some room to under-perform (or over-deliver).

Again, I encourage immediate contact. In my experience, bankers appreciate transparency and dislike surprises (in this context, because these are generally “bad” surprises). Call them, talk to them, and let them know you’re fighting to protect your business.

What's Good for Bankruptcy Lawyers Probably Isn't Good for America.

During my third year of law school, I signed up for “Intro to Bankruptcy” at the University of Tennessee College of Law.

It wasn’t a popular course, and that’s why I chose it. After a summer clerkship where my supervising attorneys couldn’t spell the word “bankruptcy,” I thought it would be a good niche area to know in a tough job market.

Of course, I never imagined that, 21 years later, I’d have spent nearly every working day of my life spelling the word.

My class was taught by Professor Tom Plank, who really loved bankruptcy law. Passionately. When he got really excited in class, he had a thing he’d say: “What’s good for bankruptcy lawyers is good for America.”

Over the years, though, I’ve wondered what he meant. In my 20 plus years of bankruptcy practice, honestly, when I’ve been the busiest in Bankruptcy Court, it’s been a pretty awful time for Americans.

Sort of like the time we are entering right now…

https://twitter.com/tamburintweets/status/1240332869962207232

This article in tomorrow’s Tennessean will discuss the the financial impact of the coronavirus. Spoiler alert: It’s not good.

The article, Bankruptcy lawyers’ warning as coronavirus crisis mounts: Act Now, has good practical advice for people wondering how they are going to pay their bills.

Nashville bankruptcy attorney Griffin Dunham and I were both consulted for the article.

Griffin’s first piece of advice? “Act now. Waiting to address financial concerns would only exacerbate problems.”

My advice? “People who are out of work or losing income because of the crisis shouldn’t wait until they’re out of money…If they feel like they’re in the pinch now, reach out to the landlord, reach out to the bank now.”

Dunham also advocates having a very deliberate plan when deciding to allocate limited cash resources. “The people and businesses that devise a plan, store cash, and think strategically are in the best position to weather the storm.”

It’s going to be bad. For many people, it’s already bad. Act now. Be proactive. Call your lender, call your landlord.

Or, if it’s really bad, call a bankruptcy lawyer.

Nashville Bankruptcy Lawyers Prepare for the Inevitable Spike in Filings

During this coronavirus pandemic, lots of us aren’t working. (Don’t worry, clients, I am 100% working.)

Many of us are staying at home with the kids. We’re definitely not shopping at the mall or meeting up for drinks (well, some of us aren’t). The hotels are empty. Reservations for dinner are being cancelled. AirBNBs are vacant.

This state of affairs is historically unprecedented, and the impact it will have on all businesses, big and small, and all people people, rich and poor, will be felt for years.

One Nashville bankruptcy lawyer, Griffin Dunham, sees it coming. He’s already hearing from businesses that are struggling, and the choices they are making today can have a big impact over the next months.

Here are his quick thoughts on the decisions that people are dealing with right now.

Now, don’t get me wrong. This blog is called Creditor Rights 101, and I don’t advocate for not paying landlords or banks. But, at the same time, I know that this situation calls for tough decisions, and you’ll need somebody in your corner helping you make these decisions.

From my experience, he’s dead right about the need to act deliberately and with good counsel. These are strange times, and it’s the bankruptcy lawyers who can help you navigate these really tough decisions.

Four New Bankruptcy Filings add More Mystery…and Misery…in the Riverwood Cabins Case

A few weeks ago, I posted about the Riverwood Cabins, LLC Bankruptcy, which was notable to me because of the scope and magnitude of the amount of money that the Riverwood cabin buyers lost.

It’s a case where about 65 customers (and that number continues to grow) are asking what happened to their $4.5 million in deposits (also a growing number). The customer deposits appeared to evaporate into thin air in the months before the Bankruptcy case was filed.

One of the biggest questions was when the related companies were going to file their own bankruptcy cases (and why hadn’t they already?). The hope was that, when that happened, maybe we’d get some answers then.

Well, we know the first part: Woodtex, LLC, Woodtex of New York, LLC, Woodtex of Tennessee, LLC, and Woodtex of Texas, LLC all filed their own Chapter 7 bankruptcy cases in Nashville Bankruptcy Court late on Monday afternoon.

As far as answers beyond that, the filings don’t do much else, but add more questions.

And more aggrieved customers. These filings show that there’s at least twice as many customers who lost their deposits, with these deposits still being unaccounted for.

But, strangely, there’s not that much debt owed, relative to the deposits that the companies were constantly taking in. With this much money coming into the company (as deposits), you’d expect to see an equally staggering amount of unpaid bills.

The only good news for the Woodtex customers is that, because the Woodtex entities focused on sheds and smaller buildings, the deposits are about 10% of the money that the Riverwood Cabins customers lost.