Banking & Financial Services Industry Legal Blog

Many vendors have had the unfortunate experience of a customer filing for bankruptcy. If it hasn’t happened to you yet, it probably will at some point in the future. There are certain steps a vendor should (or must) take to protect itself and maximize its opportunity to collect any debts owed by the customer. Vendors that take advantage of these protections can maximize recoveries, better preserve their positions in their dealings with the debtor, and avoid pitfalls inherent in the bankruptcy process. Vendors, and their attorneys, should use this checklist and take immediate action when a customer files for bankruptcy.

An involuntary bankruptcy case is typically commenced by a petition joined by at least three petitioning creditors. However, an involuntary petition may be filed by a single petitioning creditor if the debtor has 11 or fewer “qualified” creditors. This is often called the “numerosity” requirement. The Bankruptcy Code, in Section 303(b)(2), expressly defines which creditors count in the numerosity requirement. In determining whether there are 11 or fewer creditors, certain creditors are ignored, including (a) any employees of the debtor who are also creditors, (4) any “insiders” of the debtor who are creditors, and (3) any creditors who received voidable transfers under §§ 544, 545, 547, 548, or 724(a) of the Bankruptcy Code.

If you are considering bankruptcy for your insolvent business, an Assignment for the Benefit of Creditors (“ABC”) might be your answer. An ABC is a less expensive, quicker, quieter, and simpler alternative to traditional bankruptcy. An ABC is a state law procedure utilized to liquidate a failed, insolvent, or no longer viable business. Fla. Stat. § 727.101. An ABC is normally much simpler and usually less expensive than a comparable bankruptcy proceeding. This savings means larger payouts to both unsecured and secured creditors. This blog provides a general overview of the ABC process, and highlights a few benefits of ABC as compared to a Chapter 7 bankruptcy.

Quite often a creditor discovers that one of its debtors has avoided satisfying a liability by fraudulently transferring assets to another individual or entity. This is a frustrating discovery, but the creditor is not without remedies. Under Florida Statutes fraudulent transfers can be attacked and unwound through two methods. The popular method is filing a lawsuit to include a statutory cause of action to invalidate the fraudulent transfer under Chapter 726, Florida Statutes. A lesser used approach is through a post-judgment procedure known as proceedings supplementary under Section 56.29, Florida Statutes. This blog post discusses these two differing approaches for unwinding fraudulent transfers, when proceedings supplementary is the preferable approach, and a related doctrine of Florida common law known as the Diligent Creditor Rule.

Lenders should be aware of a new Florida law, which requires lenders to provide existing tenants with at least thirty days to vacate the property after the foreclosure sale. Florida Statute § 83.561, titled “Termination of Rental Agreement Upon Foreclosure”, became effective on July 1, 2015. The law replaces a recently expired federal law titled Protecting Tenants at Foreclosure Act. As such, the implementation of this new Florida statute may come as no surprise to lenders. However, lenders should understand their statutory rights and responsibilities prior to evicting tenants after foreclosure.

In a post-housing crisis economy, many homeowners, facing a plummet in home values, found themselves trapped in homes that are worth less than the amount they owe bank. Those homeowners have sought refuge in Chapter 7 bankruptcy proceedings, attempting to strip down the first mortgage and leaving many junior lienholders holding nothing but the bag—until now. In a big win for lenders, the U.S. Supreme Court recently ruled that a debtor in a Chapter 7 bankruptcy proceeding cannot void a second mortgage, when the debt owed on the first mortgage exceeds the current value of the collateral. See Bank of America, N.A. v. Caulkett, 135 S. Ct. 1995 (2015). The decision reverses an interpretation of the Bankruptcy Code in Florida bankruptcy courts—an interpretation further affirmed by the Eleventh Circuit—which allowed a Chapter 7 debtor to strip off and void a mortgage lien that is wholly underwater.

Occasionally a borrower’s counsel or counsel for an institution that has served as a lending partner in some capacity will get crafty in trying to shift the blame for bad business transactions to the originating and lead lending institution by asserting claims against the original lender for not performing like a reasonable and prudent bank can be expected to perform in the administration of a loan. The claims come in many forms, but they are all predicated on the same fundamental premise: if the bank had performed a better/reasonable underwriting or processing of the original loan, then the losses that ultimately occurred would have been prevented. Fortunately for banks, these types of claims are unsustainable in Florida law. There is no tort duty for banks to process loans competently. See Silver v. Countrywide Home Loans, Inc., 760 F. Supp. 2d 1330, 1339 (S.D. Fla. 2011).

When a customer deposits a check the bank customarily credits the customer’s account in a practice known as a “provisional settlement.” Under a provisional settlement customers are allowed to draw on the deposited funds even though the bank has yet to present the check to the drawee bank and receive […]

This blog is related to the previous blog post of “Setting Aside Fraudulent Transfers” as it relates to a creditor’s efforts to recover from a dissolved corporation or dissolved LLC.  Setting Aside Fraudulent Transfers Part I: What to look for when going after officers or successor company discussed how a […]

You have a claim against a corporation and/or its officers, but you find out that the corporation is dissolved and there is a successor corporation in its place that appears to be essentially the same corporation. Now what? In Bernard v. Kee Mfg. Co., Inc., Florida’s Supreme Court adopted the […]