This episode of Take It To The Board sheds light on a legal process that may be needed to help both struggling associations and their individual members. In these challenging economic times, more people are asking whether filing for bankruptcy protection is the right decision for an individual or a struggling community association. Host Donna DiMaggio Berger speaks with attorney and founder of Bast Amron LLP, Jeffrey Bast about the bankruptcy process from start to finish and how it can be used as a successful strategic tool to navigate financial challenges. Jeff has practiced in the insolvency and litigation arena for 30 years.
Together, Donna and Jeff dissect the implications of chapters 7, 11, and 13 of the US bankruptcy code, highlighting how Chapter 11 might serve as an unexpected lifeline for community associations wrestling with serious financial problems like soaring insurance premiums, costly statutory requirements and large damage awards resulting from litigation. They explore the unique and compelling circumstances that may prompt Homeowners Associations (HOAs), condominiums, or cooperative associations to contemplate filing for bankruptcy as a last resort.
Donna and Jeff also venture into the thorny realm of involuntary bankruptcy. Picture being thrust into bankruptcy by your creditors – daunting, right? They demystify this process, highlighting the twin requirements of authority and transparency. They also look at the historical stigma attached to bankruptcy and aim to debunk the misconceptions around this legal process. This episode of Take It To The Board brings a fresh perspective to understanding bankruptcy and how a reorganization might become a more frequent option for struggling associations. The potential of a bankruptcy is not just about failure or a last resort but also about strategy, planning, and ultimately financial survival.
Conversation Highlights Include:
This episode of Take It To The Board sheds light on a legal process that may be needed to help both struggling associations and their individual members. In these challenging economic times, more people are asking whether filing for bankruptcy protection is the right decision for an individual or a struggling community association. Host Donna DiMaggio Berger speaks with attorney and founder of Bast Amron LLP, Jeffrey Bast about the bankruptcy process from start to finish and how it can be used as a successful strategic tool to navigate financial challenges. Jeff has practiced in the insolvency and litigation arena for 30 years.
Together, Donna and Jeff dissect the implications of chapters 7, 11, and 13 of the US bankruptcy code, highlighting how Chapter 11 might serve as an unexpected lifeline for community associations wrestling with serious financial problems like soaring insurance premiums, costly statutory requirements and large damage awards resulting from litigation. They explore the unique and compelling circumstances that may prompt Homeowners Associations (HOAs), condominiums, or cooperative associations to contemplate filing for bankruptcy as a last resort.
Donna and Jeff also venture into the thorny realm of involuntary bankruptcy. Picture being thrust into bankruptcy by your creditors – daunting, right? They demystify this process, highlighting the twin requirements of authority and transparency. They also look at the historical stigma attached to bankruptcy and aim to debunk the misconceptions around this legal process. This episode of Take It To The Board brings a fresh perspective to understanding bankruptcy and how a reorganization might become a more frequent option for struggling associations. The potential of a bankruptcy is not just about failure or a last resort but also about strategy, planning, and ultimately financial survival.
Conversation Highlights Include:
Hi everyone, I'm Attorney Donna DiMaggio-Burger and this is Take it to the Board where we speak condo and HOA. It has been generally understood that filing for bankruptcy protection is not really a viable option for private residential communities. The vast majority of association boards wouldn't even consider it. However, there can be unique and compelling circumstances which lead in HOA, condominium or cooperative association to consider filing for bankruptcy as a last resort. Usually, this happens when the association is faced with severe financial difficulties, including those stemming from large monetary awards imposed against an association during litigation. I'm also hearing from more associations than ever that huge insurance premiums, in addition to new statutory requirements mandating reserves and engineering reports in Florida, are pushing them to the brink. Is the only way out for some of these communities going to be a termination and sale to a developer or filing for bankruptcy? Just what are the pros and cons of filing for bankruptcy? Well, we're going to hear, because today's guest is attorney Jeffrey Bast.
Speaker 1:Jeff has been practicing in the insolvency and litigation arena for 30 years. He guides business clients through all types of insolvency related issues, including bankruptcy and bankruptcy avoidance, emphasizing corporate reorganization, workouts and liquidation. Jeff represents corporate and individual debtors, shareholders, trustees, receivers, indenture trustees and creditors committees, as well as secured and unsecured creditors in workouts, reorganizations and litigation. After law school, jeff completed two bankruptcy judicial clerkships in Texas and Florida. He then practiced law in the restructuring groups at two international law firms, working his way up to equity partner at both firms. In 2008, jeff left the big firm life to start his own solo practice. In 2009, he founded Bast Amron LLP with his partner, brett Amron. Jeff is a frequent speaker and writer, both in the US and abroad, on topics related to insolvency. Jeff has been recognized by his peers and numerous publications for professional excellence, including Best Lawyers in America, chambers and Partners, martindale Hubbell, south Florida Legal Guide and Florida Super Lawyers. So, jeff, welcome to take it to the board.
Speaker 2:Thank you, Donna. Thanks for having me. Happy to be here.
Speaker 1:So can you walk us through the differences, Jeff, between chapters 7, 11 and 13 of the US bankruptcy code?
Speaker 2:Sure, chapter 7 is liquidation and that can be for an individual or a corporation or an entity, and essentially, in a chapter 7, the debtor hands over its keys, if I like to say, to a entity. It's a court-appointed fiduciary selected from a panel of pre-approved trustees administered by the US Department of Justice, the US trustees office, and that trustee takes control of the assets and liquidates them for the benefit of creditors. And chapter 11, on the other hand, is a reorganization tool, also for individuals or businesses, but more generally used for businesses or more frequently used for businesses. And in a chapter 11, the debtor is what we call a debtor in possession. So the debtor stays in possession of its assets and manages those assets, might liquidate some, may sell some through a court-approved process.
Speaker 2:But the general notion is in a chapter 11, the individual or business will operate and then formulate a plan of reorganization or sometimes a plan of liquidation, but generally a plan of reorganization, and emerge with a clean bill of health and a restructured balance sheet and paying its creditors over some period of time, the life of its plan, typically three to five plus years. The idea is that as a society we are better off with this business surviving, employees staying employed, vendors continuing to have customer relations and allowing this company to survive even if it doesn't pay all of its creditors in full. Basically, the plan provides for payment of what the company can afford over a period of time. Chapter 13 is kind of a version of that, but only for consumers. It's a reorganization, but through a more streamlined format. With a. There's typically a single trustee for each jurisdiction and that trustee administers all the chapter 13 cases, but purely for wage earners.
Speaker 1:So I said in the intro that this is not historically been seen bankruptcy protection as a good fit for community associations. Now, community associations are not for profit corporations typically occasionally we'll see a for profit one. These are organizations that operate and administer private residential communities. They don't really make anything. There's not a revenue stream other than the assessments coming in and those assessments go back out to pay for essential services. So, if I'm hearing you, it sounds like the only chapter that might be applicable is 11.
Speaker 2:That's correct Right. So the association cannot be a debtor in chapter seven because it's a liquidation and, as you indicated, they're not able to be liquidated.
Speaker 1:You know I should have said in the intro that I am a complete and less than I'm an association attorney. I am not a bankruptcy attorney. I turned to folks like you when I get bankruptcy questions, but I believe one of the things that bankruptcy might be able to do for an association is get them out of executory contracts. For instance, if I have an older cooperative that's subject to a recreational lease and it's onerous in terms of the payments each month, is that something that they can get out of by filing for protection?
Speaker 2:So you know enough to be dangerous and you're on target on this one.
Speaker 2:So one of the benefits of bankruptcy, in chapter 11 specifically, is the ability to assume and reject leases, unexpired leases and executory contracts.
Speaker 2:And generally, an executory contract is a contract that has a lot of different bankruptcy definitions, but the most common one is where it's a contract where there's some performance remaining by both sides and such that, if the failure to continue performing would you know, would affect the breach. And so chapter 11 allows the debtor the luxury of deciding which contracts it wants to assume and which contracts it wants to reject, and so it's a nice way of particularly debtors that have multiple locations or multiple agreements leases it has the opportunity to pick and choose the winners and losers reject the ones that it doesn't like or that are not beneficial in the long run, and keep the ones that it likes. Now, in order to assume a lease, they have to cure the defaults, so they can't just assume a lease and continue not paying. They have to cure any defaults to assume it as a condition. But the real benefit is the ability to reject leases, and those creditors even have a cap on their claim amounts under the bankruptcy code.
Speaker 1:Yeah, that's significant. I imagine when a potential client comes to you for a consultation whether it's an individual, it's a for-profit business or even a community association you kind of walk them through to figure out whether or not their financial stressors are temporary and there's alternatives to filing for bankruptcy. Can you just sort of talk us through? You know what that consultation would look like in terms of figuring out whether or not this is a temporary situation or they really do need to seek protection.
Speaker 2:So yeah, I mean, the process of determining whether a debtor is a good candidate for restructuring through bankruptcy is a process. It's not a one-time conversation and certainly not something we determine on an initial consultation. But generally we're trying to look at can this business operate or the association? Can it operate at least cash flow neutral if we put a pause on the burden of some debts? Oftentimes those burdensome debts will come in many forms. Sometimes it's, like you said, a contract or lease that is just too much for the company, or sometimes it could be a product of litigation, a lawsuit. That is burdening the debtor. It's typically burdening them not only with time but also cost distraction. Ultimately, if we can put a pause on all those burdens, can the company operate cash flow positive, if it can, or cash flow a neutral lease? And if it can or can we make changes that will allow it to get to that point? Then typically we can restructure. But part of that process, of that analysis, is determining are these issues temporary? Can they be solved by other means? We always look at bankruptcy as an option of last resort.
Speaker 2:I'm a bankruptcy lawyer, but I always like to say that I'm a bankruptcy lawyer who specializes in bankruptcy avoidance. If I can keep a client out of bankruptcy, I will always do that. In fact, if I can keep my client out of any court proceeding, I will always do that, and that's litigation as well. Now, sometimes it's necessary, and certainly we know how to take clients through litigation or through bankruptcy, and we do that very often. But I always will like to try to determine if we can resolve these issues, either through an out-of-court workout or some alternative financing arrangement or any other vehicle, before we're going to march them into bankruptcy court. One other thing is I'll say I don't like to go into bankruptcy unless I have a plan to get out. It's like the rule I use with my kids always they want to climb a tree or any climb anything. How?
Speaker 1:are you going to get down?
Speaker 2:Yeah, I want to know if you have a plan to get down before you go up. Don't go up without a plan to get down.
Speaker 1:So, jeff, aren't there some alternative solutions a community association can consider, like renegotiating contracts or raising dues or pursuing delinquent members, maybe passing a special assessment?
Speaker 2:Yeah, absolutely, and I would encourage any association that's considering bankruptcy, including our clients, to explore each of those alternatives before they file the bankruptcy. But those are not unlimited resources, as you know. You can't just keep passing special assessments. You need to pass only what can be afforded by the members, so there are some limits to those available solutions.
Speaker 1:But even trying to take a loan, if an association is having some of these issues, they're not going to be a very attractive bank customer.
Speaker 2:Correct. If an association is struggling with, you know, on the brink of solvency or on the brink of insolvency, then the ability to get traditional financing is going to be limited.
Speaker 1:Well, you mentioned creditors and look, they want to get paid. But let's say we have an association that just decides we're not going to pay you. We don't have the money. Can you briefly talk to us about an involuntary bankruptcy and not to delve into it? We don't have the time for a for a law school class on bankruptcy, but there are circumstances, right, jeff, where even if the association's not seeking bankruptcy protection, if they're not paying creditors, they could be thrown into an involuntary bankruptcy. Is that right?
Speaker 2:That is correct. So it's not. It's not super common, but involuntary bankruptcy is an option available to unsecured creditors and it requires for any company that has more than 12 creditors, which I think in this day and age is really any company, because you know, when you start adding utilities and other debts, almost every entity has 12 creditors. For any entity with 12 creditors or more, any three creditors that hold claims in excess of I'd have to pull out my bankruptcy code, but it's something around $15,000 in the aggregate can file an involuntary, provided that their claims are not the subject of a bona fide dispute. And so really any three creditors that are have valid claims that are not disputable, and so that's that, ultimately, is the question is, are they subject to a bona fide dispute or not?
Speaker 2:The perfect client is a client who has a judgment, a creditor that has a judgment, so there's really no dispute us to the validity of the debt and those 3 creditors can file an involuntary. But there are great risks that if an involuntary case is dismissed, then the court can award not only attorney's fees as sanctions but also punitive damages. So it can be. It's very risky proposition for a lot of creditors and I would certainly not recommend it without capable sophisticated business bankruptcy council.
Speaker 1:You know, as you're walking us through this, I'm thinking we're both attorneys and I've seen associations rack up legal bills in the hundreds of thousands of dollars and I could almost see a law firm along with other creditors. If they're not paying the lawyer, they didn't pay the engineer, they didn't, you know, they didn't pay the management company, it is a possibility.
Speaker 2:Yeah, sure, Any three of them. They would need three of them. So three separate independent creditors that have unsecured claims that are not sub to the dispute could file an involuntary Absolutely.
Speaker 1:Thinking law firm management company accountant.
Speaker 2:Right.
Speaker 1:Well, your three most likely suspects in the association realm.
Speaker 2:Yeah, sure, and I don't think. But I think if you and I are going to plan an involuntary, we shouldn't do it on a podcast.
Speaker 1:No, we're not, and we love our we love our clients and we don't have those issues. But we've got a lot of people listening here who might not have the same stable relationships with their clients. So when you deal, jeff, with a community association board, do you get into it with them in terms of the authority whether or not they have the authority to file for bankruptcy protection what they should be saying to their members, how much they should include their membership in that decision?
Speaker 2:So you know. I like to say that you know 90 something percent of my clients come to us through other council, and so I like to say that I'm an I'm an augmentation of that council, not a replacement. So if I'm representing a condo association in a bankruptcy, I am typically working with their condo council. Like yourself, I would never go and start trying to represent a condo association through a bankruptcy without sophisticated condo council and particularly the condo council that currently represents them and is on an ongoing engagement. So I'm going to consult with the association council on those types of decisions and the client, of course. But at a minimum we do need authority. We cannot file a corporate Chapter 11 or the Chapter 11 for any entity without the applicable authority, and so typically that's going to be some association, sometimes it's board authority, sometimes it's a vote of the members. It really depends on the governing documents.
Speaker 1:Let's take an example. We've got a high rise in Miami-Dade. They are sitting on a piece of land that the developer is leasing to them under the terms of a long-term lease. We already said that Chapter 11 is their option. That's their vehicle. Assuming they've got a lot of long-term financial stressors, chapter 11 is the way they're going to go. How long would they be looking at and I realize every case is different but are we talking in terms of from the day they file to the day their rework plan gets approved? Are we looking at a year? Are we looking at multiple years? Is there any sense of how long this process takes? No, truthfully, I mean, I could tell you that.
Speaker 2:I would say six months is probably a decent average, but sometimes it's a month. If we have the proper planning and we're capable, we can plan it out and file the plan with the petition and so we're going to confirmation right away. Other times it takes more than a year or multiple years to get to confirmation. It really depends on the circumstances of the case, the litigation that's ongoing, how much of it needs to be resolved before confirmation. There's really not a way to come up with a broad brushed timeframe for a chapter 11. How do you find all the creditors, Jeff?
Speaker 1:I don't my client does If they don't know who their?
Speaker 2:creditors are, then we have a big problem on our hand. Bankruptcy is only as good as the notice that you give. I mean, there's a very powerful tool you can restructure debt. You can modify rights, but you got to give notice. If you are not giving notice to the creditors, you are not giving notice to the creditors, you are not modifying their debts.
Speaker 1:It's garbage and garbage out proposition If they're not giving you all the creditors. But you've dealt with condo boards and HOA boards, you know that sometimes there are some real knowledge gaps, particularly if there's been a transition for management companies or there's a new board. They have suspected some financial infopriities and a new board got on. So that concerns me. What we just talked about, you rely entirely on bank as bankruptcy council. I'm on the client to say here's my list, here is every creditor. This is what we owe them, correct.
Speaker 2:Well, client, their management, their council, I mean whoever has the information? Yeah, absolutely. How else would I know who their creditors are? Yeah, so they have to have good books and records and there's extensive reporting requirements in bankruptcy. And so you know that.
Speaker 2:I always tell clients that the quality of their records is proportionate to the cost of their filing or inversely proportionate to the cost of their filing. If a client comes to me with a box of unopened envelopes and puts it on my conference room table and says here's my creditor's list, that's going to cost them a lot more money because I'm going to have to put that together, whereas if they can send me a spreadsheet, an Excel spreadsheet or using some software to provide their creditor's list, then that's obviously much more efficient. But they're going to know that because I'm going to tell them that what I just told you about notice that the bankruptcy is only as good as the notice that we give. And the other thing is that we're always going to be over inclusive. So if somebody may or may not be a creditor they once were we're putting them on the list if we can, if we have it. But I can't create a list without the client's help.
Speaker 1:I imagine when somebody's discussing with you that they might potentially file for bankruptcy protection, you're asked what the lasting impact will be, how long the impact will be. Do you get that question off? And I know there's still somewhat of a stigma in terms of filing for bankruptcy. How do you address that?
Speaker 2:So how long does it last on your records is an individual issue. It's whether it's how long does it stay on your credit report, and the traditional wisdom is seven years. But I always remind my clients that a judgment stays on your record as well. And so if you're in litigation and you're filing bankruptcy because of litigation, if you lose which is what we're talking about to begin with, is the prospect of loss typically, then that's going to stay on your credit for some while.
Speaker 2:And then, in terms of the stigma, I think nowadays people are a little bit more sophisticated about the benefits of bankruptcy and how bankruptcy doesn't mean necessarily that the company is failing or the association that it's shutting down or going out of business. People typically help our clients craft a message for their various constituents, vendors, members, et cetera so that they can calm everyone down and explain the process that we're still in possession, we're still operating, we're going to continue to operate. The plan is to emerge as a general sense, and I do think people have seen now over the years in the news major companies that file and they see that they're still operating and maybe they don't understand the nuance. But I think I'd like to say that the stigma has declined a bit. I hope so.
Speaker 1:Yeah, I mean listen, I know some people personally that think would have benefited from filing for bankruptcy protection and again, it was just like telling them they should jump off a cliff. It was a very scary proposition, but it probably would have benefited them and helped them get back on their feet quicker. Sure, so is everything public record in terms of all of the pleadings and all of the proceedings.
Speaker 2:Yes, yeah, everything in court is public record.
Speaker 2:I mean there are circumstances where you might seal something that's confidential or you're obviously going to redact personal information in cases, but generally everything that's filed is public.
Speaker 2:But that's everything that's filed is not everything that happens in a Chapter 11.
Speaker 2:In fact, some of the judges would like to say that Chapter 11 is like a swan on a lake.
Speaker 2:What you see on the docket is what you're seeing on the top, but underneath all the dirty stuff is what's happening behind the scenes, where we're negotiating with the various constituents and trying to resolve all the problems before we get into court, because Chapter 11, and bankruptcy in general, is a consensus building system and it works best when we can build consensus and it's a way to force consensus where you can't otherwise do it out of court. So it's a really useful tool and I hope for all those clients that you say that could have benefited, I hope in the future you refer them over to me and I'll have a conversation with them, because I do think a lot of people view it as a sign of failure. But it really isn't. It's something that, look, our forefathers put it in the Constitution the Congress shall enact uniform bankruptcy laws. It's the same reason we have erasures on pencils. People make mistakes and the bankruptcy process is designed to give an honest debtor a fresh start and doesn't necessarily mean that you're a bad person or that you're a failure or anything else.
Speaker 1:That might. The founders might have put it in there because, for historically, there were debtor's prisons, right, yeah, right. So they want to make sure they clean that up. Well, the reason I asked that question is because I'm wondering about any impact on sales in the community. Now I will tell you, jeff, that I've had a lot of guests on here, I've had real estate professionals, and we talk about how much due diligence do most potential purchasers do when they're buying a condo or a cooperative or a home in a Homer's association, and I can tell you the answer is not enough.
Speaker 1:So most people are looking at the more superficial things in the community what does the unit look like? What's my view? How much do I like the pool? They're not really looking at how old's the roof. Is there a generator in this building? You know, very, very few search the Civil Court docket to see how litigious the association might have been. So I can't imagine that they're really doing a search to see if the association has filed for bankruptcy. But that's the reason I asked that question. I also will tell you, in terms of screening, one of the questions and I just had a guest on a couple months ago talking about background screenings. One of the things that associations are looking at into is whether or not an individual has ever filed for bankruptcy protection. So I liked your analogy of an eraser. And what would you say to boards who rely on that and think, oh, this person filed for bankruptcy in the past. We have to turn them down because they're likely not going to be able to afford the assessments here.
Speaker 2:I would say, let me see the case, let me look at the case, because there's so many factors that might drive someone into bankruptcy and it's kind of like you got struck by lightning in a certain place, saying I'm never going to go to that place again. But what are the odds that you're going to be struck by lightning in the same exact place two times? So what are the odds that a debtor is going to file a bankruptcy again? I don't know the stats on that, like every individual, nor would I try to apply those stats to any particular debtor, but we've definitely seen our fair share of serial debtors over the years and I just think, as a general proposition, the idea that somebody filed bankruptcy on its face may not appear to be a favorable consideration.
Speaker 1:Applicant it's favorable applicant.
Speaker 2:No, but it really depends how long ago, what type of bankruptcy, why they filed. I'd want to know more. I don't think you could just judge potential resident on that basis alone. And the other thing you were asking about the impact on sales and whether or not people would pick that up and do diligence. I think that if you did pick it up as a potential buyer, I would suggest that the initial reaction would be I'm not going to buy that that the association's in bankruptcy or just got out of bankruptcy. But again, I would say the same thing Let us look at it a little closer to figure out why they filed this. Actually, this might be the best place to buy because the association just emerged from, or they're about to emerge from, bankruptcy, and so we have a very good sense of one. We have great financial data because there's so much reporting in bankruptcy, there's a tremendous amount of transparency. And two, they may be emerging with a clean bill of health and it's a perfect time to buy.
Speaker 1:So you mentioned serial debtors and I had my partner, joy Mattingly, who heads up the firm's collection department, on in the first year of the podcast and, yeah, that makes her tear her hair out when she's dealing with that situation. So let me ask you, how many times can an individual file for bankruptcy protection? Is there a cutoff where they say you're done?
Speaker 2:No, there's not a cutoff, but there are provisions in the code that modify the protections that are available to them.
Speaker 1:So we're talking right now about individuals filing for bankruptcy. Can you briefly tell us about the automatic stay period, because this comes up a lot because we have Jeff, we have associations that not only is the person not paying but they may also be violating a lot of the rules and regulations. So our conservative approach has been going and sending that person, that violator, a notice about your parking in the wrong spot or you have a guest or a tenant violation, that that might be a violation of the automatic stay if they've also applied for petition for bankruptcy protection.
Speaker 2:So the automatic stay is an aptly named tool for bankruptcy. It is a stay and it is automatic. So when a debtor files for bankruptcy, that filing operates as an order for relief and that order for relief effectuates an automatic stay. Now some parties may not have notice of that automatic stay and so you have to give them notice and that typically is done in litigation by filing a suggestion of bankruptcy or notifying creditors by ordinary means, by mail. But the stay is automatic and it stops any action or effort to collect from either the debtor or the debtor's assets. Now it doesn't stop or prevent a creditor from communicating with the debtor. There's no stop. You know. There's not a cessation of communication, but creditor can't make a demand.
Speaker 2:So if you're representing creditor, I typically would advise them, if there is a bankruptcy, to not communicate. Allow any communication to go through you so that you can evaluate and determine if it is in some way could be construed as a demand or an attempt to collect pre-petition, pre-bankruptcy debt. But there's no prohibition against attempt to collect. You know, post bankruptcy, you know debts, and so with an association it's a little more complicated because the question is there's and there's splits of case law dealing with this questions of whether or not a debt arises pre-petition or post-petition, because the community assessments arise out of a pre-petition agreement, but there are post-petition obligations as well. But generally the automatic stay, as I indicated, is a powerful tool and one that a creditor does not want to take its chances with, because it also is. It carries with it Very compelling sanctions provisions.
Speaker 1:That's something that our managers in these communities need to know about, because sometimes they're not keyed in as to what's going on, that this individual has filed for bankruptcy and is subject to an automatic stay. How long is there a defined time period for the?
Speaker 2:automatic stay Until it's lifted or the case is closed.
Speaker 1:Okay, but the association could seek relief from the stay, correct?
Speaker 2:Can't seek relief from the automatic stay. Yes, with counsel.
Speaker 1:Yes, Okay, good, yeah, so that was my question with regard to if I'm sending a letter saying hey, you're parking in the wrong spot, we're going to find you. I think that's a no-go.
Speaker 2:If they had been parking in the wrong spot pre-petition, then I would say you can't find them. If they, I guess, are parking now currently, then it's a little bit more nuanced. Yeah exactly, exactly.
Speaker 1:So you've been doing this a long time. What are some of your top tips for people or businesses to avoid bankruptcy? That may sound like a very unsophisticated question, which is just pay your bills.
Speaker 2:But that would be tip number one.
Speaker 1:But do you have any other advice for people in terms of avoiding bankruptcy?
Speaker 2:Obviously, paying your bills, budgeting, planning, are the key ways. If you're growing, make sure the growth is calculated and that the company can bear the burden of the growth. And good communication with vendors customers relations is always an important quality, but oftentimes, when we come in, creditors have had no communication. It's one thing if you're failing to pay a debt when it becomes due, but it's another thing when you're not answering the calls either. So when you have no information, you start making assumptions, and oftentimes the assumptions are going to be the worst assumption they're assuming the worst.
Speaker 2:And so oftentimes when we come in, we are, our first job is to reestablish credibility, because our clients have gone dark on the creditors, and so we have to assure them that there was no ill intent, nothing bad happened, nothing was absconded with, there haven't been transfers to new companies. So I would say, besides paying your debts and budgeting, communicating with the various parties is the best tool. And then the other obvious answer is consult with someone like me early, because the earlier you consult with restructuring counsel, the more options you have available. With the passage of time, the options be diminished dramatically and oftentimes clients will come to us, talk to us, we wrap out a plan, then they decide not to go forward with it, and then they call us a year later and say okay, now I'm ready, but I have an additional $4 million of debt and I personally guaranteed all of it and it's a problem.
Speaker 1:You do forensic audits when you onboard new clients.
Speaker 2:I do have people in my staff who have forensic expertise, but we typically are not going to do a full blown audit. We will very often bring in financial advisors or forensic accountants to work with us who have that capability, but it's not usually going to make sense for a client to pay a law firm to do accounting work, so we're going to leave that to the experts.
Speaker 1:Look, I asked you for top tips. I imagine one of them is if you get a company or an association who hasn't done an audit in years, so they really don't have any idea whether or not fraud has perhaps taken a foothold in the organization, maybe one tip is make sure you are, you know, fiscally responsible.
Speaker 2:Sure, absolutely Fiscal responsibility.
Speaker 1:Right at the top of the list, right at the top of the list, absolutely.
Speaker 1:You know I'm always shocked with these high profile bankruptcy cases. I mean, right now we just heard that we work, it has filed for bankruptcy protection. I mean, there's any number of huge cases that get filed every year that the media reports on and yet it's interesting to me that with some of these very high profile bankruptcies, the debt restructuring and reorganization that the management team that was in place that contributed to some of the problems that led to the bankruptcy are the same. It's the same team that's in place throughout the reorg.
Speaker 2:Not always, not always. Okay, I just want your take on it. What do you think of that? So, first of all, oftentimes they're not. If there was some type of misconduct, then you would often see that those parties, those individuals, removed.
Speaker 2:Oftentimes restructuring advisors come in before filing, like that, and they will stay on. But you need some continuity, and so there's even you'll see in a lot of these cases key employee retention plans approved by the bankruptcy court on the early stages, with bonuses to these folks. Because, think about it, if you want this company to survive, you need people to stay, and there's a question as to whether or not the company is going to survive. Certainly it's in file, chapter 11, for that reason. So if you want to stop the key employees from just starting to go interview and abandoning SHIP, you have to compensate them to keep them around for continuity's sake.
Speaker 2:Now I will say, in the circumstance where a board has made bad decisions, oftentimes there's insurance director and officer liability insurance. That's one of my firm's specialties is pursuing claims against the former and keyword former former directors and officers of a company that led to a business failure and that often can be a real source of recovery for creditors, and sometimes it's the only source of recovery for creditors and that's why we will do it on a contingency fee basis and I've always thought that associations would want to pursue that. We have never handled one for an association, but I always thought that there has to be opportunities where associations may replace a board. A board comes in, replaces the board and realizes what a terrible job Not only was it a bad job, but they breached their fiduciary duties and that a board might want to pursue claims against the former board with a view towards recovering from the insurance. But to date I haven't seen it. I'd be willing to look at it and the question is do association members want to sue their neighbors or be associated with suing their neighbors?
Speaker 1:The answer is they do. They do, I will tell you I get asked that question frequently, especially when it's a potential new client who's coming in and maybe they have displaced a longstanding board, usually a longstanding president who's been in for 10 or more years. They've uncovered some fraud and the question is can we go after the D&O Now? I'm glad you said that, because I don't know that they would think to go to a bankruptcy attorney to pursue that. But you're saying you can handle that type of litigation outside the scope of bankruptcy.
Speaker 2:Yeah, yes, yeah, the whether or not it's covered claim.
Speaker 1:Jeff, I think your phone's going to rain. That's all I'm saying. Be prepared, because that happens a lot. I'm sure you've read about the hammocks HOA case down in Miami date with the over $1.5 million fraud that case actually generated last year's House Bill 919, which was filed by Representative Poris. We understand there's going to be another bill next session, so I think your phone is definitely going to rain.
Speaker 2:Yeah, most insurance, most of those policies, exclude coverage of fraud. But there may be a misconduct that doesn't rise to the level of fraud that could be actionable and recoverable.
Speaker 1:You think we'll see more associations filing for bankruptcy in the future?
Speaker 2:I think so. I mean, I think we're at a point with interest rates rising and the availability of capital diminishing as a result, and with the additional burdens on associations. Now I think, more and more they're going to feel the pressure of balancing their books, and because associations rely on one source for revenue, that's their members, but the burdens of liability are substantial, and so it will be a tool that is available and valuable. So I do think we're going to see more and more of them.
Speaker 1:So I want to ask you the same question. I ask my colleagues who handle family law and they do not often see people at their best. They see people who are getting divorced and they're stressed and there's custody issues and I ask them how they cope with that, because it can be very emotional. I imagine your practice can also be very emotional.
Speaker 2:It is, it can be, and I have seen, you know, marriages, you know fracture and grown. You know adults break down in tears in my conference rooms and I consider myself not just an attorney but sometimes a therapist and I like to say that I sell peace of mind and sometimes, when a client's evaluating the benefits and risks of a bankruptcy, I will ask them when was last night they had a good night's sleep? Last time they had a good night's sleep? Because you know we talked about this earlier that people view it as a failure. I'm a failure and you're not a failure. Your business failed.
Speaker 2:You know you may or might be failing and you know even the even the word, the use of the word fail or failures is inappropriate but you're not a failure. You took a chance and it didn't work out. And but? But here's this, this tool that can help us fix things, and I have. I'm fortunate. I am fortunate that I can make a living by helping people who are in a situation where they don't know where to go. They're overwhelmed, their phone is ringing, they, they are trying to figure out who to pay, who do I not pay? And you know I throw them a lifeline and oftentimes I'm able to level the playing fields for them a little bit when they don't when they're otherwise are, you know, dramatic underdog.
Speaker 1:So that must feel great and I'm sure you've gotten some success stories where you've helped a business reorg, you know, reorganize and they've turned things around.
Speaker 2:Yeah, absolutely, and that's actually one of the reasons why, you know, I left big law. Not the reason I left big law, but I practiced most of my career in big law and then started my own firm. And not until I started my own firm that I start to really appreciate that I can. Now I'm affecting real people who this is, this business, is their life. They started this business, or their grandfather started the business, or their father, you know whoever it is, and it is their life. It's not just the CEO dealing with another file on their desk or a CFO dealing with a file on their desk. This is, you know, we're fortunate to have to be able to make a living impacting people, and you know, giving them some you know protection when they really otherwise have none.
Speaker 1:Was there anything in particular, Jeff, that drew you to this area of the law?
Speaker 2:So I majored in accounting undergrad and I had this vision of going to law school to study tax. And I went, you know, got into NYU the top you know tax school and and I took a tax class and was taught by the former commissioner of the IRS and this is going to be great and I just did not like it at all. I hated it. And somebody recommended bankruptcy is similar to code based practice and you know from there. So you know how things sort of start falling in line. I knew someone who knew someone who was a bankruptcy clerk and then I ended up getting a bankruptcy clerkship myself and you know, one thing follows the next. And so here I am, 30 years later.
Speaker 1:So every one of my legal guests gets asked this question recently how is artificial intelligence impacting your practice? And I think bankruptcy is the is the practice area that had a bot about two years ago. Wasn't there some sort of a robot that was created for bankruptcy decisions?
Speaker 2:I am not familiar with that? I don't. I don't think it was bankruptcy, but I but I am aware of many circumstances where people have put in bankruptcy related searches and gotten wrong answers. And so we use it. But we'll use it for sort of marketing and non traditional legal searches. But I'm open to it, I'm always playing with it and I'm looking for the right opportunity, but I'm reluctant to rely upon it because of the wrong answers that occasionally come. I do expect it will. It's, it will at some point make our lives easier and we'll be able to be some sort of bigger projects like document review projects and things like that. We use it for, you know, doc review and litigation, in particular our DNO cases that have massive volumes of documents. But I think it will. It will develop in a manner that allows us to, you know, to serve the clients in a more efficient manner in the near future.
Speaker 1:But it doesn't sound like you're worried that you're going to be replaced anytime soon by AI in terms of your practice.
Speaker 2:No, Well, and maybe that's naive I'm 55. I think in our 10 years I can can I hang on 10 years? Something like that. I think. I'll think I'm safe, I think you're safe too.
Speaker 1:And it's the same thing for association law, because it's a very personal relationship, right, and it's not just about spitting out case law and you know statutory citations. It's really working with people and problem solving.
Speaker 2:Absolutely, Absolutely. I don't think. I mean I don't think we'll see AI replace the human connection anytime soon, but certainly it's going to help in a lot of ways.
Speaker 1:Well, I want to thank you for your time. This has been, this has been great, and I know we've got a lot of people listening who hopefully, will have a different view now about bankruptcy, what's involved and what the possible advantages could be. Where can people find you?
Speaker 2:They can find me my email is a great way. I'm an old school kind of guy. Imagine that it's that's old school nowadays. I'm not giving out a fax number anymore. My email is JBast at bastameroncom. I am active on LinkedIn. You can always pick up the phone and call me at 305-3797904 or, you know, just knock on my door.
Speaker 1:And you have a podcast too.
Speaker 2:We have a podcast that's not quite as exciting as yours, but it's called the Practice and it's available on Spotify and wherever you get your podcasts.
Speaker 1:Jeff, I'm available as a guest anytime you want.
Speaker 2:We'd love to have you on Donna. We'd love to.
Speaker 1:Thanks so much for joining us, thank you. Thank you for joining us today. Don't forget to follow and rate us on your favorite podcast platform, or visit takeitotheboardcom for more ways to connect.