Asset Management & Recovery: Working in the Bankruptcy Court – Basics # 1

I recently wrote a very basic blog about a couple of things to look out for when listing property in a bankruptcy case.  It really left a lot out.  Over the next few posts, hopefully I can give a little more detail on working in this arena.

The first thing to get out on the table is that not all people in bankruptcy are bad people.  There is a saying that bad things sometimes happen to good people.  Things like medical bills, divorce and unemployment. 

It wouldn't be like me, however, if I didn't point out that there are also the people who bought and bought like idiots and don't know how to deal with money, but they are not in the majority.

There are 3 basic types of bankruptcy filings, CH7, CH11 and CH 13.

CH 7 is an all out liquidation and can be for a corporation or an individual.  In a CH 7 filing, a person called a panel trustee or a CH7 trustee is appointed to manage the liquidation of assets.  The person filing, now called the debtor, does not control the assets that they own.  Everything is under the control of the trustee.

CH 11 is a corporate reorganization where the company will come up with a plan of reorganization (the Plan) and will work to restructure debts, create a workout plan and exit bankruptcy intact.  New financing may be put in place during the period that the company is in BK called DIP financing or Debtor in Possession Financing.  Basically, this is because the debtor is still in possession of the company and its' assets.  A CH 11 trustee may be appointed, but it is not all that common.

CH13 is an individual reorganization.  Essentially a plan is drafted, payments are made on debt and things are stretched out for, I think, 5 years.  I can't remember the last time I worked on anything in a 13, so my understanding of the process is VERY rusty.

The types of engagements that will be available to professionals on AR will be appraisal, brokerage, property management and auction.  In some cases, business brokers may be engaged.  The company in a CH 11 may engage a financial advisor and/or a turnaround specialist.

If you are looking to prospect into this community, there are a variety of places to seek clients.

1. Create a list of local bankruptcy and creditors rights attorneys.  You can find their contact information through the local bar association or http://www.lawyers.com/.  
2. You may consider joining a trade association such as American Bankruptcy Association (ABI) http://www.abiworld.org/, Turnaround Management Association (TMA) http://www.turnaround.org/, or National Association of Bankruptcy Trustees (NABT) http://www.nabt.com/ or International Women In Insolvency Council (IWIRC).

ABI  will have 4 regional conferences and one national convention annually.  TMA has local chapters that meet 6-9 times a year, usually have a golf outing and then they have 2 pretty big conferences a year.  NABT has one conference a year.  I think it is coming up this weekend in Chicago.  IWIRK will have local events.

I will get more down on paper possibly tomorrow about how to become employed as a professional in court.  For now, let me offer this. 

Breaking into this arena is a long road.  It takes focus and constant reminder to the prospect that you are there for them.  You need to get involved in local events and join local insolvency groups like IWIRC.  It's not just for women, at least here.  You might find out information on your local Bar Association Bankruptcy Committee and see if you can speak to them about real estate trends.  You can also call the United States Trustees office to obtain a list of local panel trustees.

Just a few thoughts.  I've done them all and had good response.  As a matter of fact, it's time to call Myron about speaking on the current market trends and how the lending markets are effecting sales.