Tag: Nashville Bankruptcy

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.

Adequate Protection Considerations in the Middle District of Tennessee Bankruptcy Courts

Despite using the same Bankruptcy Code, Bankruptcy Courts often have a broad range of practices on how the exact same statutes can apply.

While most creditors’ lawyers will call any Bankruptcy Court “debtor-friendly,” one way that the Bankruptcy Courts in the Middle District of Tennessee are markedly different than others is the threshold of proof required for creditors to receive “adequate protection” payments from the debtor.

Adequate Protection refers to payments made by the debtor to the creditor, generally, to compensate the creditor for the use of the creditor’s collateral. The statutory precedent is 11 U.S.C. § 361(1), which allows the debtor to make a “cash payment” to the extent that the automatic stay “results in in a decrease in the value of [the creditor’s] interest in the property.” In layman’s terms, if the bankruptcy stay hurts or impairs the value of your collateral, you may be entitled to a cash payment (or an alternate/replacement lien).

In some districts, like the Middle District of Georgia, the Bankruptcy Courts allow the resumption of contract payments to a secured creditor, without a deep analysis of depreciation.

The Middle District of Tennessee takes a different approach. Here, a secured creditor is only entitled to adequate protection in the amount that it can prove depreciation of its lien. So, with a car, the creditor would get compensation for the loss of value from the Debtor’s use of the collateral. (It’s substantially more difficult with real property, where depreciation is may be impossible to prove.)

In order to obtain Court approval and avoid an objection from the U.S. Trustee, the creditor will typically need to hire an appraiser to go look at the vehicle and assess the value and his estimate of how much wear and tear/depreciation is imposed on the car on a monthly basis. Then, the Court would order monthly adequate protection payments in that amount.

As an aside, this practice isn’t for the debtor’s benefit; it’s actually designed to protect unsecured creditors from arbitrary loss of cash/income from the Bankruptcy Estate.

As a creditors attorney operating in the Nashville Bankruptcy Courts, this a conversation I have a lot with outside counsel. It’s a hard lesson to teach, especially when the Courts in their backyard take the opposite approach.