WHAT HAPPENS TO ME WHEN MY FRIEND FILES BANKRUPTCY?

            You may be asking yourself: “Why should I care when my friend files for bankruptcy?”  Well, if you are like many of my clients, friends and associates, you have a big heart.  At some time in the past, especially in some of the difficult financial times your friends may have gone through recently, they may have come to you for some assistance in co-signing for a car loan or on a credit card.  You agreed to it because you knew the person for a long time and that they are a good person and would pay their debts.   Unfortunately, as much as your friend fully intended for you not to have any responsibility for the loan and it was only a technicality, the reality is, if they have no job and cannot make the payments, when the choice is between paying for a credit card or buying medicine for their children, the credit card does not get paid.  Now, this favor that you provided to your friend or, more commonly a family member such as a parent co-signing for a child, turns into a nightmare.  We often see the situation of a parent co-signing on anything from a credit card to a mortgage loan for their children and then being faced with a huge liability.

            One of the most powerful tools in the Bankruptcy Code is the Automatic Stay.  The Automatic Stay means that upon the filing of a bankruptcy petition by an individual, any parties attempting to collect a debt such as a credit card company or a mortgage company must stop.  If they fail to stop their collection efforts they can be held in contempt of court and sanctioned.  However, certain secured creditors such as a mortgage company or a vehicle lender, can proceed with their collection efforts against the collateral if they file a motion with the court requesting that the Stay be lifted for the limited purpose of pursuing the collateral, but not a deficiency from the debtor.  However, from your prospective, if your good buddy stopped making payments on the credit card, you may have already received phone calls and letters prior to his filing for bankruptcy.  The question then becomes: “Are you protected by your friend’s bankruptcy filing and the protection afforded by the Automatic Stay?”  As with most cases in the law, the answer is: “it depends”. 

            If your friend or family member has filed for a Chapter 7 bankruptcy, the Automatic Stay does not apply to you as a co-debtor.  Therefore, a credit card company can continue to pursue you for collection of that debt.  However, if your friend filed a Chapter 13 Bankruptcy, which provides for repayment to creditors, then you may be protected by the Automatic Stay provision.

            Specifically, pursuant to Section 1301(a) of the Bankruptcy Code, if you are liable on a debt with your friend and it is a consumer debt, the Automatic Stay applies to you as well and the creditor may not pursue you for collection of that debt.  However, your friend must also agree in his Chapter 13 Plan to pay the claim in full.  If he does not agree to pay the claim in full, then the creditor could pursue you for the amount that your friend is not agreeing to pay.  Also, it must be a consumer related debt.  Therefore, if you co-signed for a lease on a commercial property for your friend’s new tattoo parlor in Sarasota or Port Charlotte, you may be subject to the rent for the balance of the ten year lease. 

            Hopefully, you will never have to face this issue.  However, the lesson to be learned from this is that if you want to help out a friend or family member, it is important to get a full financial disclosure just as if you were a bank lending to this person.  As hard as it may be to say “no” to a lifelong friend or your son or daughter, in the end, you may learn the meaning of the phrase: “no good deed goes unpunished”,  and be stuck holding the bag, while they are discharged from any further liability.

            If you have co-signed for a loan as we described in this article and have questions or concerns, please do not hesitate to call on us to answer your questions.

How NOT to Succeed in Business without Really Trying - Part II

[This article first appeared in the July 2012 Charlotte County Chamber of Commerce Newsletter]. 

Last month, I wrote about the first five reasons of my top ten reasons why businesses fail.  I based my selection from the 30 reasons listed in Napoleon Hill’s  book “Think and Grow Rich”.  Here are the second five in no particular order of importance. 

6.  Lack of a well-defined power of decision. Making decisions is one of the key skills necessary to be a successful entrepreneur. If you're unable to make quick decisive plans with regard to your company, indecision results in no decision.  In the new economy, businesses that fail to react in a timely manner will be left behind and not in business for much longer. Your business’ success depends upon you making prompt decisions and providing the required leadership for your employees. As the owner of the company, your goal is not to be friends with your employees, but rather, a leader of them, for not only your benefit, but for the benefit of your employees and their families.

7.  Over caution. Part of being an entrepreneur requires the ability to take risk.  Any time someone opens their new business, there is that fear that no one will come through the door. However, if you have spent the time, putting together a proper business plan and required systems in place for not only your services but you're marketing as well, the risks are diminished.  Being too conservative, over cautious and not willing to take any chances will lead to failure.  One philosophy followed by some entrepreneurs is “ready, fire, aim”, meaning that if you just keep “aiming” until you get the product, service or advertisement “perfect”, you may never make the decision to “fire” and take the required action to move your business into profitability.

8.  The habit of indiscriminate spending. Obviously a clearly defined budget that your business sticks to is crucial to a business' success. Spending more than budgeted because you have a good month is a big mistake, and not planning for possible downturns and bumps in the road with regard to your business is fatal.  Saving for a rainy day is an important part of your business plan.  Budgets must be monitored carefully and adhered to religiously.

9.  Guessing instead of thinking. Too often assumptions are made by business owners without a factual basis. In my line of work, I often have clients come to see me after making bad decisions when we could have directed them towards a proper path. Consultation with professionals such as attorneys, accountants, architects, engineers and other advisors, is invaluable and ultimately will save you more money than trying to fix mistakes down the road.

10.  Lack of capital. Again, if I were ranking these, this would be number two. Often I see owners starting to launch a business which, if given time, would be successful. However, they are undercapitalized, expect to reap great revenues in a short period of time, and by month six, they can't even pay their rent.  I generally tell clients when starting a new business that they should have at least 6 to 12 months of their personal living expenses put away in order to survive in case there is no money coming in from their business, and that they should have access to lines of credit (not credit cards or a second mortgage on their home) or other funding sources that will carry the business through the first 12 months based on conservative projections of income.

I hope the foregoing will give you something to think about with your business. Please send me your questions or comments at mark@martellalaw.com, and I'll be happy to discuss these with you further.

How NOT to Succeed in Business without Really Trying - Part I

[This article first appeared in the June issue of the Charlotte County Chamber of Commerce's June 2012 Newsletter.  Part 2 will be published in the July Newsletter.

Also, if you receive the Chamber Newsletter, keep your eye out for an insert with a very special and tasty offer coming in your July Newsletter!!!]

One of the best business books ever written is the classic "Think and Grow Rich" by Napoleon Hill.  If you have not read the book, I highly recommend it.  A note of caution.  The title is misleading.  It should really be called “Think, Take Action and Grow Rich”.  In one Chapter of his book, Hill offers  the 30 reasons why most businesses fail.  In my experience as an attorney practicing law for over 24 years, I have come across many of the same common downfalls I see in small businesses which lead to ultimate failure.  While I don't agree with all 30 of Mr. Hill's reasons why businesses fail, I did pick my top 10 reasons from his list.  Since space does not allow me to cover all 10, this will be a two part series with the first five presented below.

While the following list is not all-inclusive of the reasons businesses fail, these are my top 10 reasons listed in no particular order:

 1. Lack of ambition to aim above mediocrity. Too often, especially in this new economy, good enough is no longer good enough. Businesses that do not seek to go the extra mile in the new economy will ultimately be left behind when competing against companies that go above and beyond their customers’ expectations.  Think Disney!

2.  Lack of self-discipline. All entrepreneurs are excited about starting a new business. However, if they fail to implement systems and impose standards upon themselves personally, and their employees, that will allow them to provide a consistent, high value (not to be confused with cost), product or service to their customers, they are doomed for failure.

3.  Procrastination. We all suffer from this at times. However, as a small business owner, procrastination can be the death of your business, especially when it comes to marketing. For example, with regard to the Chamber, many businesses do not take advantage of the marketing opportunities provided by the Chamber in a systematic fashion, such as providing information in our weekly e-newsletter, Business Online, or regularly attending events such as our breakfasts, lunches and after hour business card exchanges.   Putting this type of marketing off by saying: "I'll do it next week”, may lead to “next week” being the last week that you're open.

4.  Negative personality. Think about it.   Do you like dealing with someone who's always down and is always negative in their thoughts and the prospects of the future. It is very easy to join in with the naysayers about how difficult it is in this new economy.  However, if you wish to succeed, your mindset must change and you must take control of your future and not be controlled by the negative thoughts of others.  As the leader of your business, you must convey a positive attitude to your employees if you want them to convey it to your customers.

5.  Wrong selection of associates in business. If I were putting these in order of importance, this would be number one. Too often I have clients come to my office who want to form a business venture and they tell me, literally, that they only know each other for a couple of weeks.  Those of you who may have been in business partnerships for a long time know that it is just like a marriage which requires give and take and excellent communication skills.  Good communication between partners is essential, and a common belief in the mission of the business and how it will proceed is vital.  While different personalities and different skill sets can enhance the business, the differences must complement each other and not result in constant agitation and conflict.

            This is the first five of ten reasons.  Look for the next five in the July Newsletter. I hope the foregoing will give you something to think about with your business. If you have any questions or comments please feel free to contact me at mark@martellalaw.com, and I'll be happy to discuss these with you further.

What happened to the compassion in "Compassionate Conservatism"?

       It was with great dismay and sadness that I read the headline of the Charlotte Sun this week announcing that the Florida Legislature has voted to eliminate $2.3 million in homeless coalition funding over the next two years.  At a time when the need is greatest, the legislature has turned its back on the most vulnerable and helpless, our state's homeless children. 

     To provide full disclosure, I am currently a Board member of the Charlotte County Homeless Coalition and the Immediate Past President.  I have seen first hand our feeding program grow form serving 35 hot dinners a day back in 2008 to over 120 meals a day now.  We consistently have a waiting list for families with children waiting for one of our four family units to open up in our Shelter so they don't have to live on a friend's couch, their car, or in a storage unit.  Frankly, as we faced significant cuts from the federal government this past year, I don't know how we can replace the funds the Coalition received from the state of Florida.  In 2011, the Charlotte County Homeless Coalition provided 660 individuals and families at its emergency shelter, 8,000 take home meals, as well as rent and utility bill payment assistance to 372 households.

   

     I challenge any member of the Florida House or Senate, as well as Governor Scott, to click on the following link and watch Scott Pelley's report on 60 Minutes about the homeless children epidemic in Florida, and then look at themselves in the mirror and justify the cutting of homeless coalition funds.  The one thing that is certain is that homeless coalitions across the state will be closing over the next two years resulting in more children going without food, clothing and a warm and safe place to sleep at night. 

      Where is the compassion in this latest form of conservatism?

FRAUD CLAIM FILED AGAINST DEUTSCHE BANK FOR $512 MILLION.

The common refrain I hear from foreclosure clients is the anger at Wall Street for helping to create the devastating downturn in the real estate market.  Here is an interesting article by Chris Dolmetsch of Bloomberg.com outlining the fraud suit filed by an investor in the mortgage backed securities offered by Deutsche Bank.

By Chris Dolmetsch - Feb 15, 2012

Deutsche Bank AG’s Ace Securities was sued in New York state court for fraud for allegedly misrepresenting the quality of $512 million worth of residential mortgage-backed securities by Phoenix Light SF Ltd.

Phoenix Light, which bought and later sold the securities, is seeking at least $300 million in damages, according to a summons filed yesterday. It accuses Ace Securities of making“material misrepresentations and omissions” regarding underwriting standards used to issue the mortgage loans that were pooled together into the offerings, according to court filings.

Ace Securities knew about problems with the mortgages underlying the securities because of reports they received from mortgage-review firm Clayton Holdings, yet still included them in the offerings that were sold to the plaintiffs, according to Phoenix Light.

“The securities have performed worse than expected due to the poorer-quality collateral, and defendants’ wrongdoing has led directly to plaintiffs’ damages, which include loss of market value on the securities,” Phoenix Light said in the filing. “Plaintiffs have lost the entire value of certain of the securities.”

Pools of home loans securitized into bonds were a central part of the housing bubble that helped send the U.S. into the biggest recession since the 1930s. The housing market collapsed, and the crisis swept up lenders and investment banks as the market for the securities evaporated.

Duncan King, a New York spokesman for Frankfurt-based Deutsche Bank, said in a phone interview that the claims had no merit and the company would fight the suit.

CAN BANKRUPTCY SAVE THE LEGENDARY TWINKIE?

As reported by the Wall Street Journal on January 9, 2012, Hostess Brands, Inc., is planning to seek protection under Chapter 11 of the Bankruptcy Code to restructure its company.  Hostess Brands, Inc., is the baker of the legendary Twinkie snack cake.  Could the good food police have finally brought down one of the poster children for unhealthy eating?  Hopefully not.

The Journal further reported that the bankruptcy is being dubbed as a "Chapter 22" as Hostess Brands, Inc. had previously filed a Chapter 11 plan back in 2004.  It came out of Bankruptcy in 2009 but continued to face economic challenges in this new economy.  It was reported that Twinkie sales were down by 2% in its last fiscal year.

The goal for the privately owned company is to reduce its debt and renegotiate contracts with its unions.  The filing is an indication of how broad the economic downturn is, and it is not limited to only housing and banking, but businesses as diverse as airlines and the food industry.  If Hostess can not get a Plan approved by its creditors, it could face a sale or, a worse case scenario, liquidation, which could mean the end of a childhood memory for many, many people.  However, on a serious note, the filing affects many employees and their families, so hopefully Hostess can come out stronger than after its last filling and continue to produce childhood memories and save the jobs of its employees.

Do you have childhood memories of  Twinkies or Ho Ho's or some other favorite indulgence?  Share it below.

Thoughts for the New Year.

As we begin 2012, as President of the Charlotte County Chamber of Commerce, I am obviously a big proponent of Chambers as a way to Market your business.  I urge you to take advantage of your local Chambers as a great way to jump start your business in 2012.

If you are a Charlotte County Chamber member, there are less than 30 days before the "Hottest Business Day in Paradise", the 2012 Charlotte County Business Expo, to be held at the
Charlotte Harbor Event Center on February 2, 2012. If you are not an
exhibitor, but would like to be, there are a limited number of booths remaining as of the writing
of this article.  Go to the Charlotte County Chamber website for more information by clicking here.  If you are not an exhibitor, please mark your calendar for February 2nd to
join us for an opportunity to meet over 100 local Chamber members who are
showcasing their businesses on this day. I am confident that if you attend
our Business Expo, and have the opportunity to meet 100 business owners in
Charlotte County, you will be able to walk away with at least one new
customer. Therefore, please put February 2nd on your calendar and don't
miss this opportunity to get a jump start for your business in 2012.

Our motto this year is The Charlotte County Chamber, "Your
Partner Takin' Care of Business". One of the ways we help you grow your
business is through the numerous networking opportunities that we provide in
addition to the Business Expo we are having in February. These other events
include our monthly coffees held on the third Wednesday of the month,
business card exchanges and lunches each month. Also, please take advantage
of our weekly e-newsletter Business Online to make announcements about your
business such as special offers, honors and awards as well as new employees
joining your company. It is the Chamber's goal to make 2012 one of the best
years for all of our members.

At the start of a new year, as a business owner, it is a great time to review the
past year to see what successes we had and capitalize on them further, as
well as tweak those areas of our business that could use improvement.
Examining ones processes and procedures is an important exercise in making
sure one's business continues to improve and provide the best possible
customer service. As I said before, a good business is not good enough in
the present economy and, to succeed, we must all try to be extraordinary in
our businesses and in our customer service.

On a final note, I believe that it is very important to sit down and write
down goals at the beginning of each year. I am not referring to resolutions
such as quitting smoking or losing weight that you make every year but are
not really motivated to do (like me) but, rather, goals that are material to
you in your business that will improve not only your business, but your
lifestyle. So my challenge to you is to write down five business goals and
five personal goals, and hang them some place where you will see them every
day. By looking at these goals, setting out a plan of action, and actually
taking steps towards them, you will have taken the first step in achieving
them. The biggest reason for people not reaching their goals is the fear of
taking that first step. However, once you get past that first step and take
action, the second step becomes easier and the momentum you build will lead
you to reaching your goals.

I would like to wish all of our clients, friends and family, a happy, healthy and prosperous New Year.
    
Mark Martella, Esq.
MARTELLA LAW FIRM, P.L.
18501 Murdock Circle
Suite 304
Port Charlotte, FL 33948
941-206-3700
941-206 3701 (Fax)
mark@martellalaw.com
www.martellalaw.com

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