PREFERENTIAL PAYMENTS IN BANKRUPTCY

Certain payments made to creditors may be what the Bankruptcy code defines as a “preferential” payments. The Bankruptcy Code defines a preferential payment as follows:

- The transfer of the Debtor’s property;

- To or for the benefit of a creditor;

- For an antecedent debt owed by the Debtor;

- Made while the Debtor was insolvent (the Debtor being presumed to be insolvent within the 90-day period preceding the filing of a petition); and made within 90 days before the filing of the bankruptcy petition (or within one year if the creditor was an insider);

- That enables the creditor to receive more than such creditor would have received in Chapter 7 liquidation proceeding. 11 U.S.C. Section 547.

One of the goals of a bankruptcy is to pay creditors on a statutorily-ranked basis. The law attempts to treat each class of creditors fairly, within the class. If the debtor paid a creditor just before filing of a bankruptcy petition, the law views that creditor as being preferred, or favored, if that creditor received more than it otherwise would have in the Chapter 7 bankruptcy. A debtor, once insolvent, must avoid preferring one creditor over another.
The trustee has the power to void the preferential payment and demand that the creditor return the funds. The trustee must prove that the payment was a preferential payment, and if proved, the payment must be returned to the bankruptcy estate.
If a creditor is alleged to have received a preferential payment, the creditor may have defenses that would allow the creditor to keep the payment. Two of the common defenses are 1) a contemporaneous exchange for new value 2) payments made in the ordinary course of business. If a creditor is facing a preference claim, the creditor should review the claim to determine whether if has legitimate defenses.

About the Author:
Mike Hall is an attorney at the Idaho Business Law Group, PLLC, located in Meridian, Idaho. You can find him at idahobusinesslawgroup.com, email at mike@idahoblg.com.

DON’T FORGET THE LEGAL

Earlier this year, the Idaho Supreme Court in Ray v. Frasure, 146 Idaho 625 (2009), ruled that a contract for the purchase and sale of real property in the State of Idaho is not enforceable if the contract lacks a legal description. The Court specifically held that a real estate contract consisting solely of a physical address does not satisfy the statue of frauds.

In a nutshell, the statute of frauds says that certain types of agreements, such as contracts for the purchase and sale of real property, must be reduced to a written document. The obvious reason behind this rule is to prevent fraudulent individuals from merely claiming they entered into a verbal contract for the sale of real estate. In other words, the courts don’t want the arduous task of hearing claims of “he said, she said” without some hard evidence of the transaction.

Well established Idaho law has consistently held that a contract for the sale of real property must speak for itself without resorting to parole (oral) evidence to provide any of the terms of the agreement, including the description of the property to be purchased. In short, the Frasure Court held that a common or physical address alone, without a proper legal description in a real estate contract is unenforceable because it does not designate “exactly” the property to be conveyed from the seller to the buyer. Further, if you attach a legal description to the back of your contract (opposed to typing the legal description in the body of the contract itself), make sure you attach it before the agreement is signed and not after the fact.

Although there are some exceptions to the statue of frauds rule, it is often times difficult to get around. So, a word to the wise, if you are in the process of selling or purchasing real property in Idaho, make sure you don’t forget to include a proper legal description before the agreement is entered into or you run the risk that the contract won’t be worth the paper it’s written on.

About the Author:


Chad E. Bernards is an attorney at the Idaho Business Law Group, PLLC, located in Meridian, Idaho. You can find him at idahobusinesslawgroup.com, email at chad@idahoblg.com.

BANKRUPTCY: SHOULD YOU FILE JOINTLY?

A common question when a married couple considers bankruptcy is whether to include both spouses in the bankruptcy petition. A bankruptcy can be filed by only one spouse, but whether you should file individually depends on several factors. A bankruptcy filing may not give the non-filing spouse the full protection of the automatic stay or the bankruptcy discharge. Below are some factors to consider.

- Community property state? Idaho is a community property state. Generally, assets and debts acquired during marriage are part of the community property, and will be part of the bankruptcy estate even if one spouse files separately.

- Recently married? If you are recently married, and one spouse has separate liabilities pre-dating the marriage, it might be advantageous for the spouse with the debts to file bankruptcy separately.

- Married, but separated? If you can’t get the cooperation of your spouse, you may need to file separate. However, this could put the non-filing spouse at risk. If you own property jointly, a joint filing may be advantageous.

- Generally, marriage alone does not make both spouses liable. Contracts such as home loans or credit cards may be separate liabilities. This will depend on state law where you are filing, and whether the debt was incurred before marriage.

It is generally advantageous for both spouses to jointly file a bankruptcy petition. However, the parties should analyze the facts and circumstances of each case in order to determine the best filing status.


About the Author:

Mike Hall is an attorney at the Idaho Business Law Group, PLLC, located in Meridian, Idaho. You can find him at idahobusinesslawgroup.com, email at mike@idahoblg.com.

The Rise of the Barter Economy -The Boise Weekly

A recent article by Tara Morgan in The Boise Weekly discussing bartering featured comments by Paul Stark.  Here is an excerpt:

In addition to these cumbersome tax requirements, barterers should also be aware of possible legal ramifications. To explain a potentially troublesome bartering situation, business litigation attorney Paul Stark set up a mock scenario: a plumber decides to barter his services with a Web developer.

"So, the plumber receives a benefit, which is the equivalent to income by getting free Web development for his plumbing business. But he has an expense that's going out, which is his plumbing services," said Stark. "As long as those are of equal value so on the fair market value--he does $500 worth of plumbing and he gets $500 of Web developing--there's not a lot of problems because it's for the business and it should essentially be a wash."

But issues start to arise when people begin trading their professional services for personal benefit.

"The problem comes ... when it's not a business service. In other words, the plumber gets his wife's fillings done. That's where you get into trouble because that is a benefit to the individual. At that point, that's where the liabilities can arise," explained Stark.

Which raises the question, when bartering your skills or hobbies outside of the confines of your business, how do you calculate the exact value of your time?

You can find the complete article at The Rise of the Barter Economy.
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About the Author:
Paul Stark is an attorney at the Idaho Business Law Group, PLLC, located in Meridian, Idaho. You can find him at idahobusinesslawgroup.com, email at paul@idahoblg.com or follow him @pstark on Twitter.

Subordination, Non-Disturbance and Attornment Agreements

A commercial lease typically contains a provision that requires the tenant’s lease to be subordinate to any current or future lender. This provides the property owner more flexibility with respect to financing. It also puts the tenant at risk in the event of foreclosure, because the lender is not required to recognize the lease and could terminate or attempt to renegotiate the lease. A commercial tenant should know its rights and priority with respect to the lender.

A Subordination, Non-Disturbance and Attornment Agreement (“SNDA”) provides the details for the rights between the landlord, tenant and lender. The SNDA describes when the tenant’s rights are subordinate to the lender’s rights. It also assures that the tenant’s rights will be preserved, or not disturbed, in the event the landlord defaults and the lender forecloses. Finally, the SNDA generally provides that the tenant will attorn to a new landlord. The term “attornment” means the tenant agrees to remain a tenant after a change in ownership

In a normal lease negotiation, the focus tends to be on the financial terms of the lease. The parties should not overlook the importance of an SNDA agreement, especially in the current economic environment.

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About the Author:
Mike Hall is an attorney at the Idaho Business Law Group, PLLC, located in Meridian, Idaho. You can find him at idahobusinesslawgroup.com, email at mike@idahoblg.com.

Tom Hank's Lawsuit Lives to Fight Another Day

Just when you thought Tom Hank’s Idaho construction lawsuit got knocked out by the district court in Blaine County, the Idaho Supreme Court’s recent, September 30, 2009 decision allowed Hanks to pick himself off the mat to fight another day in the judicial ring.

In the left corner, Tom Hanks and wife, Rita Wilson as beneficiaries of the Sun Valley Trust, had a home built near Sun Valley, Idaho. In the right corner you have Storey Construction, the construction company hired in 2000 to build the star-studded duo’s home. However, unlike Hollywood films where happy endings are expected, a dispute arose between the parties when construction of the home was nearly complete. In 2003, an arbitration hearing was held (via an arbitration provision in the construction contract) lasting nine days. The arbitrators dealt what at the time was believed to be a devastating knock-out blow to Mr. Gump by awarding the contractor damages exceeding 1.2 million dollars and denying the Hollywood couple’s counterclaims for then unknown construction defects.

Later, during the winter of 2005-2006, Hanks and Wilson alleged water intrusion in the home which was not known at the time of the 2003 arbitration. Accordingly, Hanks and Wilson put the gloves back on and demanded arbitration of the newly discovered defects. The contractor argued that the arbitrator dismissed any claims for defects back in 2003 and therefore barred Hanks and Wilson from raising these claims any further. The district court agreed with the contractor and threw movie star’s claims out.

Down but not out, Hanks and Wilson countered with an appeal to the Idaho State Supreme Court. The Idaho Supreme Court bandaged the eye of Hanks and Wilson by reversing the district court’s ruling and ordering the district court to have the parties proceed to arbitration again in order to hear the construction defect claims that were discovered after the 2003 arbitration. Thus, Hanks and Wilson stay on their feet to duke it out a few more rounds with the contractor. Only time will tell as to who will deliver the final knock-out blow. Was the Idaho Supreme Court’s decision grounded in sound legal reasoning or Hollywood star power? You be the judge.

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About the Author:
Chad E. Bernards is an attorney at the Idaho Business Law Group, PLLC, located in Meridian, Idaho. You can find him at idahobusinesslawgroup.com, email at chad@idahoblg.com.