As discussed in this post, Ply-Marts consented to the appointment of a receiver in the U.S. District Court last week. 

The primary element required to prevail on an involuntary petition is that the would-be debtor is not paying its debts as they become due.  See 11 U.S.C. §303.  Given the Consent Order in the District Court case, it will be difficult for Ply-Marts to overcome this allegation -

E . In the fall and winter of 2007, Ply-Marts experienced significant financial difficulties, and by no later than early 2008, events of Default under (and as defined in) the Loan Agreement had occurred and continue to exist .problems have intensified and accelerated to the point that there is imminent danger that Plaintiffs interests in the Ply-Marts Collateral will be irreparably harmed.

G. Ply-Marts' financial problems have intensified and accelerated to the point that there is imminent danger that Plaintiffs interests in the Ply-Marts Collateral will be irreparably harmed.

H. Ply-Marts has commenced an orderly wind-down and liquidation of its lumber products business . The remaining operating divisions of Ply-Marts have sustained and continue to sustain substantial operating losses .

It appears more likely that Ply-Marts will either not contest the involuntary petition, as in most cases, or it could file its own Chapter 7 or 11 petition.  Although the Receiver is still in control of the company, its board of directors likely have the authority to consent to bankruptcy relief even over the objection of the Receiver.

Donovan filed a Chapter 13 bankruptcy petition on February 17, 2004, prior to the passage of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act. ... Donovan became unable to make the payments under the plan as they came due. Accordingly, Donovan—apparently at the bankruptcy court’s suggestion—converted the case to Chapter 7 on June 14, 2006; the bankruptcy court dismissed the Chapter 13 case on June 30, 2006.

Barben objected to the conversion and moved to dismiss the Chapter 7 case. She argued that the conversion to Chapter 7 was presumptively  abusive within the meaning of the 2005 Act ... The bankruptcy court held that the more stringent standards of the 2005 Act for conversion to Chapter 7 did not apply ... Accordingly, her motion to dismiss was denied on November 8, 2006. It is this denial of the motion to dismiss that was appealed first to the district court, which affirmed and granted costs to Donovan, and now to this court.

A court of appeals has jurisdiction over only final judgments and orders arising from a bankruptcy proceeding, whereas the district court may review interlocutory judgments and orders as well....Finality is given a more flexible interpretation in the bankruptcy context, however, because bankruptcy is an aggregation of controversies and suits. ..Instead, “[i]t is generally the particular adversary proceeding or controversy that must have been finally resolved rather than the entire bankruptcy litigation.”... Thus, to be final, a bankruptcy court order must “completely resolve all of the issues pertaining to a discrete claim, including issues as to the proper relief."

Based essentially on this logic, the weight of circuit authority has concluded that orders denying a motion to dismiss for bad faith or abuse are not appealable. At least three other circuits have specifically held that an order denying a motion to dismiss a Chapter 11 bankruptcy case for abusive filing is not a final order. In re Jartran, 886 F.2d 859, 864 (7th Cir. 1989); In re 405 N. Bedford Dr. Corp., 778 F.2d 1374, 1379 (9th Cir. 1985); see also In re Comm. of Asbestos Related Litigants, 749 F.2d 3, 5 (2d Cir. 1984) (declining to issue mandamus to review denial of motion to dismiss; suggesting in dicta that such denial was insufficiently final for direct appeal). But some courts have concluded to the contrary. In particular, the Third Circuit has held that the denial of a motion to dismiss for bad faith is immediately appealable in both Chapter 7 and 11. See In re Brown, 916 F.2d 120, 123-124 (3d Cir. 1990) (citing In re Christian, 804 F.2d 46 (3d Cir. 1986)). These cases, however, do not discuss whether a particular adversary proceeding must be final. Here, the bankruptcy court’s order denying Barben’s motion to dismiss the Chapter 7 case is not a final order. By denying her motion to dismiss, the bankruptcy court permitted the Chapter 7 case to continue. The court did not conclusively resolve the bankruptcy case as a whole, nor did the court resolve any adversary proceeding or claim.

In addition to the list below, filings include transportation company Will-Tech, Inc., Ch. 11 case no. 08-42087 (filed July 2, 2008) (see petition here) and in what is perhaps a sign that even debt collectors are not flourishing, collection agency First Centurion Receivables Management, Inc., Chapter 11 case no. 08-72770 (filed July 2, 2008) (see petition here).  

Ryan filed a voluntary petition for bankruptcy in early 2002. At the time, he owned 100% of the stock in a number of corporate entities (“the Entities”), including Riverside Capital Advisors, Inc. On August 7, 2002, the bankruptcy trustee sold Ryan's interests in the Entities to Entrust for the sum of $60,000. In an order approving the sale, the bankruptcy court stated, in relevant part:

Any original books and records, and/or assets of the Entities ... for which the Debtor has possession, custody, or control, shall be turned over to the Trustee forthwith. The Court shall retain jurisdiction to ensure that the Trustee and/or the Debtor turn over the books, records, or assets of the Entities to Entrust....

Bankr.Ct. Order of Aug. 16, 2002, at 2. The trustee then turned over most of the business records of the Entities to Entrust. There remain, however, business records of Riverside that have not been turned over because Entrust and Winchester disagree about who owns them. ...

At some point before 2001, Winchester, a trust company that acts as sole trustee for several trusts, retained Riverside to provide investment advice. Ryan was an officer, director, and sole stockholder of Riverside. In August 2001, Winchester and Riverside terminated their business relationship. Pursuant to severance agreements, Ryan and Riverside were required to return to Winchester all files, books, and records related to the Winchester trusts. Ryan returned most of the records, but failed to return 26 boxes of records that had been stored in a warehouse with Ryan's property and were not located until after Ryan filed his bankruptcy petition. Winchester asserts that it owns these records pursuant to the severance agreements. Entrust asserts that it owns these records pursuant to its purchase of Riverside in the bankruptcy sale.

The Bankruptcy Court held that it did have jurisdiction over the dispute between the two non-debtors, but the District Court reversed and remanded.  The Eleventh Circuit held that the Bankruptcy Court did have jurisdiction.

 Entrust argues that the bankruptcy court has jurisdiction under both the “arising in” and the “related to” language of § 1334(b). Winchester maintains that the dispute is a simple contract matter over the effect of the 2001 severance agreements and therefore neither arises in nor is related to the bankruptcy case. We conclude that the bankruptcy court has “related to” jurisdiction and therefore do not proceed to address “arising in” jurisdiction.

A dispute is “related to” a case under title 11 when its result “ ‘could conceivably’ ” have an “ ‘effect on the estate being administered in bankruptcy.’ ” Miller v. Kemira, Inc. (In re Lemco Gypsum, Inc.), 910 F.2d 784, 788 (11th Cir.1990)... In this case, we find the Lemco Gypsum/Pacor “conceivable effect” test satisfied. The dispute between Winchester and Entrust over the Riverside documents could conceivably affect the bankruptcy estate because the resolution of the dispute could impact the amount of money in the estate. If the documents are not turned over to Entrust as arguably required by the bankruptcy court's order approving the sale of the Entities, Entrust will have a viable claim for a refund from the estate of all or part of the $60,000 purchase price...In the case presently before us, the dispute between Entrust and Winchester does have a conceivable effect on the bankruptcy estate, which could be subject to a $60,000 refund claim.

As of the time of the hearing, the Debtors' monthly post-petition debt service included a $157 per month payment to Circuit City for a big-screen television and other electronics and computer equipment; a $139 per month payment on a debt reaffirmed with the Bank of Coweta, a monthly student loan payment of $150 for Timothy and a monthly student loan payment of $69 for Matthew; a payment of $197 per month on the 2001 Dodge Ram; a payment of $309 per month for a 2005 Ford F-150; and a payment of $430 per month for the reaffirmed debt that is secured by the 2001 Ford F-150. The Debtors also testified that they give approximately $500 per month to Timothy and Matthew for spending money and $300 per month to Matthew to assist with his rent. Accordingly, the Debtors' combined monthly expenses and debt payments total $5796.

Many of these installment payments and household expenses were incurred for and are made for the benefit of the Debtors' two adult sons. These expenses include the payment of $309 per month for Timothy's vehicle (the 2005 Ford F-150), $66 per month for car insurance on Timothy's vehicle, $500 to $1,000 per semester for Timothy's books, $120 per month for cellular phones for Timothy and Matthew, the payment of $430 per month for Matthew's vehicle (the 2001 Ford F-150), $144 per month for car insurance, $300 to $400 per semester for Matthew's books, $500 per month for spending money for both sons, and $300 per month for Matthew's apartment rent. As noted above, the Debtors also make a payment of $69 per month on a student loan incurred to permit Matthew to attend college and are repaying a student loan incurred for Timothy's tuition with payments of between $150 and $200 per month. The Debtors also pay for the *835 annual registration and taxes associated with both vehicles.
...

Having considered the testimony of the Debtors and the evidence before the Court, the Court finds that the totality of the Debtors' financial circumstances indicates that granting relief under Chapter 7 would be an abuse. The Debtors have the income to pay a meaningful dividend to unsecured creditors. The impetus for the filing of their petition was not illness, calamity, or job loss. Instead, it appears to the Court that the Debtors simply reordered their priorities once their two oldest children reached college age. The Debtors have re-directed their income to enable them to provide Timothy and Matthew with cell phones, spending money, book money, rent assistance, vehicles, and car insurance. The Court is not implying that supporting college-age children is not admirable when parents have the means to do so. However, the Court agrees with its learned colleagues that supporting adult children at the expense of unsecured creditors is not permissible. See In re Hess, 2007 WL 3028422 (Bankr.N.D.Ohio Oct. 15, 2007) (debtor's contribution of $300 per month to support her 24-year old son while attending optometry school was not proper deduction from income); In re Pfahler, 2007 WL 2156401 (Bankr.N.D.Ohio 2007) (finding abuse where debtor had stable employment and income and was spending $350 per month for the support of his college-age son) (citing U.S. Trustee v. Harrelson, 323 B.R. 176, 179 (W.D.Va.2005), In re Staub, 256 B.R. 567, 571 (Bankr.M.D.Pa.2000), and In re Studdard, 159 B.R. 852, 856 (Bankr.E.D.Ark.1993)); In re Hicks, 370 B.R. 919, 923 n. 7 (Bankr.E.D.Mo.2007) (holding that the debtor was not entitled to deduct under section 707(b)(2) expenses of college-age son because “[f]or an adult to be able to attend college as a full-time student is a luxury, not a necessity, and the costs associated with such attendance do not constitute expenses incurred for the provision of a person's necessary care and support”); In re Haar, 373 B.R. 493 (Bankr.N.D.Ohio 2007) (expenses for maintenance of two cars and cell phones for debtors' adult daughters were not appropriate allocation of debtor's financial resources). 

The Debtors have no legal obligation to support Timothy and Matthew, who are now able-bodied adults. The Debtors propose to shift the use of their income from paying their own obligations to enable their adult children to attend college full time without the burden of working to support themselves. This results in the devotion of at least $1860 per month to support Timothy and Matthew.FN10 Without these expenses, the Debtors' monthly expenses and payments for debt service would total $3,788.16.FN11 Even with the Debtors' lower projected monthly net income of $5,000, the Debtors would be left with approximately $1200 per month with which to pay a substantial portion of their unsecured debt. Permitting a discharge in this case would be an abuse, as the Debtors are not needy. While it would take time and sacrifice to do so, the Debtors can repay a portion of their debt. Contribution of this $1200 per month would amount to $72,000 over the life of a 60-month chapter 13 plan. Even assuming that the $83,448 in scheduled unsecured debt is increased substantially by the filing of deficiency claims by the mortgage and car creditors, contribution of these funds to a chapter 13 plan would still result in a worthwhile dividend to unsecured creditors.

 Notably, the Court listed several legal issues that have not been settled (after the jump):

The Court has not yet considered many of the legal issues that will be relevant to this determination, such as: 1) whether, in a chapter 13 case, an above-median income debtor is entitled to deduct secured debt payments for collateral that has been surrendered for purposes of determining projected disposable income, compare In re Oliver, 2006 WL 2086691 (Bankr.D.Or.2006) (deduction permitted), with In re Spurgeon, 378 B.R. 197 (Bankr.E.D.Tenn.2007) (deduction not allowed) and In re Crittendon, 2006 WL 2547102 (Bankr.M.D.N.C. Sept. 1, 2006) (same); 2) whether the requirement that a plan be filed in good faith requires a chapter 13 debtor to propose a dividend when projected disposable income is a negative number or zero, but the debtor has significant actual disposable income available for payment to unsecured creditors, compare In re Barr, 341 B.R. 181 (Bankr.M.D.N.C.2006) (not appropriate to consider whether debtor is contributing all actual disposable income to plan payment as part of good faith analysis) and In re Winokur, 364 B.R. 204 (Bankr.E.D.Va.2007) (if the debtor has proposed a plan payment that complies with the mathematical requirements of  section 1325(b), the debtor has “done everything Congress asked him to do” and such a plan is proposed in good faith), with In re Edmunds, 350 B.R. 636 (Bankr.D.S.C.2006) (because debtor's actual income and expenses showed that they had the ability to pay a greater amount to unsecured creditors than plan proposed, debtors' plan was not proposed in good faith), and In re McGillis, 370 B.R. 720 (Bankr.W.D.Mich.2007) (if debtor's plan payment complies with the requirements of section 1325(b), court may still deny confirmation on the basis that debtor's failure to make an honest effort to repay creditors is a lack of good faith); and 3) whether the debtor's actual expenses may be deducted in lieu of the 707(b)(2) means test expense deductions, compare In re Hughey, 380 B.R. 102 (Bankr.S.D.Fla.2007) (holding that a debtor's actual income can be considered for purposes of determining projected disposable income, but the debtor's actual expenses may not be considered), with In re Ries, 377 B.R. 777 (Bankr.D.N.H.2007) (for purposes of projected disposable income, above-median income chapter 13 debtor's expenses are calculated in accordance with section 707(b)(2), but debtor or party opposing confirmation can rebut the amount of those expenses with evidence of actual expenses), and In re Edmunds, 350 B.R. 636 (Bankr.D.S.C.2006) (when determining “projected disposable income,” court can consider the debtor's actual income and actual expenses). It is not appropriate to resolve these issues in a case in which no chapter 13 case is pending and may never be pending, as the Debtors may determine that a non-bankruptcy resolution is preferable to conversion. In re Carney, 2007 WL 4287855 (Bankr.N.D.Ohio Dec. 5, 2007) (“Contrary to the implication of Debtors' argument, the court does not believe that it is necessary, or even possible, in this case to decide the legal and factual issues that might arise should they elect to convert to Chapter 13 in order to analyze whether it would be an abuse for them to obtain a Chapter 7 discharge.”).

]]> Northern District Cases Scott Riddle 2008-06-29T08:11:52-05:00 http://www.georgiabankruptcyblog.com/archives/news-and-comments-large-metroatlanta-home-builder-shuts-down.html Another large home builder in metro Atlanta has apparently shuts its doors as a result of the horrible residential real estate market. 

Atlanta-area Homebuilder Fires Sales Staff
By KEVIN DUFFY
The Atlanta Journal-Constitution

Sales agents for a large metro Atlanta homebuilder, Robert Harris Homes, were told Thursday to head home. ... Woodstock-based Robert Harris Homes has built more than 2,500 houses, mostly in Georgia and a few in Manatee County, Fla., according to its Web site. It had recently expanded to North Frisco, Texas.

In metro Atlanta, the company built in Cherokee, Cobb, Forsyth, Fulton, Gwinnett and Jackson counties.

Management at Robert Harris Homes did not return phone calls Friday. A phone answering service in Texas said Robert Harris Homes employees there were suspended Thursday. The Florida office has a recording directing questions to Dustin Lough, a director with CRG Partners Group, a turnaround company with an office in Atlanta. Lough did not returns calls.

Robert Harris Homes was founded in 1994 and grew to be the nation's 135th biggest residential builder last year, according to builderonline.com. Its closings in 2007 numbered 337, down 15 percent from the year before, builderonline says...

A Robert Harris Homes representative told the family Thursday that "the [sales] agents were all told to get their stuff and go home, that they were closing their doors," Hays said.

The Supreme Court finally answered the question, in a 5-4 decision in District of Columbia v. Heller.  Read the analysis at the Supreme Court Blog.

In Schultz v. United States, 2008 WL 2229495 (6th Cir. June 12, 2008) (pdf opinion here), the debtor argued that the Means Test violates the United States Constitution because the test is reliant on state and local income standards and deductions.

Because of these deductions, eligibility under the new regime is calculated at least in part based on the state and county where the debtor resides. The housing expense deduction, for example, is governed by the county where the debtor resides. Id. § 5.15.1.7(4)(A). Although the national standards, which identify amounts for “food, housekeeping supplies, apparel and services, and personal care products and services,” and a fixed miscellaneous” amount, id. § 5.15.1.7(3), are mostly uniform throughout the United States, the local standards, which define amounts for housing and transportation, vary greatly. 

...the Schultzes brought a separate suit against the United States, which challenges the five sections of the BAPCPA that employ the “means test”-Sections 707(b)(7), 707(b)(2), 704(b), 1325(b)(3), and 1325(b)(4)-under one central theory: because median-income calculations are based, at least in part, on the state and county in which the debtor resides, the BAPCPA is not a “uniform Law[ ] on the subject of Bankruptcies throughout the United States.” U.S. Const. art. 1, § 8, cl. 4   

The District Court granted the United States' summary judgment motion and the debtor appealed. The Sixth Circuit affirmed.

We turn to the central issue in this case: Is the BAPCPA a uniform law on the subject of bankruptcy? The Bankruptcy Clause of the Constitution grants Congress the power to “establish ... uniform Laws on the subject of Bankruptcies throughout the United States.” U.S. Const. art. I, § 8, cl. 4. What distinguishes these “peculiar terms” from the other Article I powers is the concept of uniformity, which, as Chief Justice Marshall noted nearly two centuries ago, “deserve[s] notice. Congress is not authorized merely to pass laws, the operation of which shall be uniform, but instead to establish uniform laws on the subject throughout the United States.”

Over the last century, the Supreme Court has wrestled with the notion of geographic uniformity, ultimately concluding that it allows different effects in various states due to dissimilarities in state law, so long as the federal law applies uniformly among classes of debtors. In Moyses, one of the first cases dealing with the validity of a bankruptcy statute, the Court upheld the incorporation of varying state exemptions into the 1898 Bankruptcy Act. 186 U.S. at 189-90, 22 S.Ct. 857. Geographic uniformity in this context, the Court observed, was satisfied “when the trustee takes in each state whatever would have been available if the bankrupt law had not been passed. The general operation of the law is uniform although it may result in certain particulars differently in different states.” Id. at 190, 22 S.Ct. 857. In 1918, the Court reaffirmed the Moyses principle in a case involving the Bankruptcy Act's incorporation of varying state fraudulent conveyance statutes, despite the fact that the laws “may lead to different results in different states.” Stellwagen v. Clum, 245 U.S. 605, 613, 38 S.Ct. 215, 62 L.Ed. 507 (1918). See also Vanston, 329 U.S. at 172, 67 S.Ct. 237 (explaining that the Bankruptcy Clause “does not mean wiping out the differences among the forty-eight States” and holding that state tort and contract law may determine the validity of creditors' claims).

Nearly sixty years later, the Supreme Court, applying Moyses, held that Congress may enact non-uniform laws to deal with geographically isolated problems as long as the law operates uniformly upon a given class of creditors and debtors. Blanchette v. Connecticut General Ins. Corps., 419 U.S. 102, 95 S.Ct. 335, 42 L.Ed.2d 320 (1974). ...The Court ultimately concluded that the “uniformity provision does not deny Congress power to take into account differences that exist between different parts of the country, and to fashion legislation to resolve geographically isolated problems,” id. at 159, 67 S.Ct. 237, so long as the law “appl[ied] equally to all creditors and debtors,” id. at 160, 67 S.Ct. 237. See also Leidigh Carriage Co. v. Stengel, 95 F. 637, 646 (6th Cir.1899) (holding that the Bankruptcy Clause “imposes no limitation upon congress as to the classification of persons who are to be affected by such laws, provided only the laws shall have uniform operation”).

Applying these principles to the instant case, we conclude that the BAPCPA is a constitutionally uniform law. Congress is allowed to distinguish among classes of debtors, and to treat categories of debtors differently, whether it be through the incorporation of varying state laws “affecting dower, exemptions, the validity of mortgages, priorities of payment and the like.” Stellwagen, 245 U.S. at 613, 38 S.Ct. 215. And this is precisely what the BAPCPA does: Sections 707(b)(7), 1325(b)(3), and 1325(b)(4) distinguish between two classes of debtors, those whose annualized current monthly income is above the family median income for the applicable state and those whose income is below. All Chapter 13 below-median-income debtors have only a three-year instead of a five-year applicable commitment period, and are subject to more favorable treatment in calculating their disposable income than all debtors above the median; all above-median-income debtors are subject to an applicable commitment period of “not less than 5 years,” and have their income recalculated in accordance with the IRS Handbook's national and local standards. Yes, the Schultzes may receive less favorable treatment simply because they are residents of Tennessee, a state whose median monthly income is lower than a host of others, but the same could be said of debtors living in states with less favorable state property exemption laws. See Moyses, 186 U.S. at 190, 22 S.Ct. 857. Accordingly, “[t]he general operation of the law is uniform although it may result in certain particulars differently in different states.” Moyses, 186 U.S. at 190, 22 S.Ct. 857.

Had Congress described the “means test” in explicit geographic terms, by enacting legislation exempting residents of certain states without justification, we would be faced with a significantly different case. In St. Angelo v. Victoria Farms, Inc., 38 F.3d 1525 (9th Cir.1994), for instance, the Ninth Circuit considered whether a statutory amendment extending the deadline for two states to implement an administrative program violated the uniformity provision of the Bankruptcy Clause. The Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy Act of 1986, Pub.L. No. 99-554, 100 Stat. 3088 (1986), permanently established the United States Trustee Program, an administrative agency responsible for overseeing the administration of bankruptcy cases and private trustees. Congress curiously chose to phase the program in over a two-year period for every state except North Carolina and Alabama, who instead had the option of voting into the Trustee program over an extended period of time. Several years later, in Section 317 of the Judicial Improvements Act of 1990, Pub.L. No. 101-650, 104 Stat. 5089 (1990), Congress extended the deadline for North Carolina and Alabama to implement the program to October 1, 2002, without any corresponding explanation for the special treatment. St. Angelo, 38 F.3d at 1529. ...

The Schultzes next argue that the uniformity requirement was enacted in response to the fear that the national government would use its power over commerce to the disadvantage of particular states. (Appellants' Br. 12-21; Amicus Br. 4-5.) Accordingly, even if a federal bankruptcy law may vary in application from state to state, employing federal income standards enables the preferential treatment of debtors in some states over debtors in other states, a form of discriminatory treatment the Framers explicitly prohibited. We do not find their argument or their view of history compelling. ...

... we find no merit in the Schultzes' argument that Congress can incorporate state laws, but cannot incorporate federal standards. At the time of the Constitutional Convention, the fear was not, at least in the bankruptcy context, of Congress discriminating in favor of or against a particular locality. Quite to the contrary, uniformity in the Bankruptcy Clause was viewed as a way to safeguard the nation's interest in establishing and maintaining a single system of debt and credit without interference from the parochial or otherwise obstreperous action on the part of the fifty states.

Developers with foundering subdivisions are seeking shelter in bankruptcy court, sometimes days before their foreclosed property goes up for auction. AK Builders, Inc. of Buford, Allegiance-Tyson Woods II Properties, LLC in Woodstock, Green Tree Estates LLC in Atlanta, and several others have filed for bankruptcy recently, just ahead of "Foreclosure Tuesday..." 

AK Builders, Inc., which was developing Lynnfield Park in Lawrenceville, Millside Manor III in Dacula, Sedgefield of Hamilton Mill in Buford, and Creekside at Stonecrest in Sugar Hill, all in Gwinnett County, filed Chapter 7 bankruptcy June 3.  Its largest creditors include Georgian Bank .. Gwinnett Community Bank... Peoples Bank and Trust...and United Community Bank. 

Norris Lake, LLC, with property in DeKalb County, filed for Chapter 11 bankruptcy June 2. ... New Market Properties, Inc., in Fayetteville, a land developer founded in 1995, filed Chapter 7 bankruptcy March 28. 

 The article also includes comments from lawyers, including your truly (who had to resort to the word "meltdown").

As banks foreclose on property from past-due loans, bankruptcy filings in the residential market have become more common and that is leading to a "complete meltdown," said Scott B. Riddle, bankruptcy attorney with The Law Office of Scott B. Riddle in Atlanta.  On any given week, I get calls for subcontractors, suppliers and individual homebuilders. .. Lenders are not willing to lend on the same terms they were two and three yeas ago, Riddle said. ...

The banks are forcing developers into bankruptcy, said L. Matt Wilson of The Wilson law Firm, P.C., who filed the paperwork for Allegiance-Tyson Woods II Properties. Banks need to avoid foreclosure, "which is a horrible remedy" for both developers and bankers, he said. The banks "end up putting their clients out of business, so they'll never get paid." ... "There will be banks going out of business, and that will have long-term economic effects on the community." ...

Rachel Tobin Ramos has an article in the Atlanta Journal Constitution about the Order and Ply-Marts' financial troubles:

Ken Southerland, PlyMart's president and CEO, said that the company has one solid offer for its specialty and custom stair divisions, with several in the wings if the first doesn't go through. Those divisions operate in Georgia, as well as Greer, S.C., and Charlotte, N.C.

In the meantime, two Georgia PlyMart lumber locations are still operating through the liquidation process: 2009 Dorsey Road in Marietta and 1159 Hog Mountain Road in Winder. The stair and special order division is still operating as well, and the Web site is still functional.

Southerland said that the company — which at its peak employed about 1,150 with $360 million in sales — now employs about 300.

The article also mentions the possibility of bankruptcy :

Receivers, similar to bankruptcy trustees, take full control of a company and act as managers to preserve value for creditors, according to Scott Riddle, an Atlanta bankruptcy and litigation attorney, who is not involved with this case. Receivers also have the authority to take a company into bankruptcy if needed, he said, although that has not been determined in the PlyMart case.

Thanks for the mention, Rachel.  Although bankruptcy is often a possibility, here Ply-Marts consented to the appointment of a receiver so it appears unlikely they would opt for bankruptcy (even though the directors could likely authorize a filing even over the objection of the receiver). However, for creditors, bankruptcy is often advantageous because, among other things, it provides for avoidance actions, such as preferential transfer actions, that are not available under state law.  Generally, a bankruptcy trustee has more powers than a receiver.  It is more likely that the creditors of Ply-Marts consider an involuntary bankruptcy petition if it would be advantageous to them.

 The Atlanta Business Chronicle also profiled Ply-Marts' troubles just a few weeks ago in Housing Drive Slams Ply-Marts, by Lisa Schoolcraft. 

With $20 million in accounts receivable uncollected and Ply Mart's sales a quarter of what they once were, Ply Mart Chairman Randy Mahaffey said this market "has been all of the challenge that anyone can stand." ...  Nearly two years ago, Ply Mart had $400 million in annual sales, but today that number is closer to $100 million, Mahaffey said. ...

Ply Mart is one of Atlanta's top 100 private companies, ranking No. 34 in 2007, according to Atlanta Business Chronicle's 2007-2008 Book of Lists. Atlanta Business Chronicle also named it one of Atlanta's Best Places to Work in 2006...  "We've had to reduce operating expenses dramatically," Mahaffey said. In September, the company had 961 employees and cut staff to about 700. Employees also took pay cuts of 10 percent to 20 percent. ...  But then came a second round of staff layoffs to about 515 employees and in April the company pared down staff to a little less than 450, he said. ... Operational cutbacks have closed half of its facilities and reduced the number of lumber yards from 11 to five, Mahaffey said.

The article also mentions another builder, Manis Lumber (d/b/a Wheeler's):

Manis Lumber Co. of Rome, which once had $200 million in annual revenue, filed for Chapter 11 bankruptcy reorganization Feb. 11. The company did business as Wheeler's throughout metro Atlanta.

Like Ply Mart, Wheeler's saw its sales drop from a peak of $20 million a month to $4 million a month and saw its accounts receivable "getting staler and staler," said G. Frank Nason, a bankruptcy attorney with Lamberth, Cifelli, Stokes, Ellis & Nason P.A. in Atlanta.

Nason represented Wheeler's, which recently sold most of its assets to former owners Mark and Jim Manis as Home Team Builders Services LLC.

When Wheeler's filed bankruptcy, 64 percent of its accounts receivables were beyond 90 days, he said.

A summary of the article:

On May 23 2008, in American Home Mortgage Investment Corp. v. Lehman Brothers, Inc., the United States Bankruptcy Court for the District of Delaware held that a transaction involving the purchase and sale of subordinated notes secured by mortgage loans was a "repurchase agreement" and a "securities contract" entitled to the financial contract safe harbor protections of sections 559 and 555 under the Bankruptcy Code. In so deciding, the Court found that the subordinated notes were "interests in mortgage loans." In addition, the Court ruled that the "commercial reasonableness" standard of Article 9 of the New York Uniform Commercial Code did not apply to the foreclosure and liquidation of the subordinated notes subject to the repurchase agreement. Am. Home Mortgage Inv. Corp. v. Lehman Bros. Inc., et al. (In re Am. Home Mortg. Holdings, Inc.), No. 07-11047, Adv. Proc. No. 07-51739, 2008 WL 2156323 (Bankr. D. Del. May 23, 2008).

For many years, there was a diversity of opinion — including judicial opinion — with respect to various issues connected to the duties of directors and officers in the troubled company situation. Can they be sued directly by creditors? Does the business judgment rule apply to protect them? Is there a tort called “deepening insolvency?” To whom are duties owed? Can directors and officers continue to take (prudent) risks to maximize the value of the enterprise?

Discount clothing retailer Goody's Family Clothing Inc. has filed for Chapter 11 bankruptcy protection blaming pressures from tightening credit markets, strain on merchandise flow and dozens of underperforming stores in the chain.

Knoxville, Tenn.-based Goody's said it will close 69 underperforming stores, consolidate distribution centers by closing one facility in Russellville, Ark., which will shrink expenses.

Goody's has 17 stores in Georgia, but will close stores in Kennesaw, Conyers, Newnan, Austell, Cumming, Gainesville, Hiram, Tucker and South Augusta.

The Chapter 11 cases (including 19 related cases)  was filed in the District of Delaware.  The New York Post also has an article about the filing.

The Federal Trade Commission has sued Atlanta-based credit card marketer CompuCredit Corp. and its debt collection unit Jefferson Capital Systems LLC, charging them with using deceptive marketing and abusive debt collection tactics on consumers in the subprime market. 

...  The federal government is seeking $200 million in fines and restitution from CompuCredit (NASDAQ: CCRT), Wilmington, Del.-based First Bank of Delaware and Brookings, S.D.-based First Bank & Trust. FDIC has settled with a third bank, Columbus, Ga.-based Columbus Bank and Trust, a Synovus (NYSE: SNV) banking unit that paid a $2.4 million fine and agreed to a cease and desist order.

The FDIC is further seeking $6.2 million in penalties against CompuCredit.

FTC has alleged CompuCredit misrepresented the amount of credit that would be available immediately to consumers, failing to disclose up-front fees, failing to disclose certain purchases could reduce a consumer's credit limit and misrepresenting a debt collection program as a credit card offer. FTC has accused Jefferson Capital of misrepresenting a debt collection program as a credit card offer and using abusive collection tactics such as making debt collection calls to individual consumers more than 20 times per day, including before 8 a.m. and after 9 p.m., and on Sundays. ...

It has been a common practice for residents of northeast Georgia to file bankruptcy petitions in Chattanooga, Tennessee rather than Rome, Georgia, in spite of the Bankruptcy Code's requirement that cases be filed in the district in which the debtor resides.

According to an article from the Chattanooga Times ...

Georgia may not yet be successful in its border battle for water from the Tennessee River. But the Peach State could lay claim to more bankruptcy cases -- and millions of dollars in legal and court fees -- that now end up in U.S. bankruptcy courts in Tennessee.

Although no policy change has been made yet in Chattanooga about cross-state filings, one of the 21 U.S. trustees who represent the government in bankruptcy courts has objected to border crossings from Mississippi residents into the Memphis bankruptcy court, and a Memphis bankruptcy judge has moved to enforce the border. ...

Last year, 1,049 North Georgia residents filed for bankruptcy relief in Chattanooga, representing more than one of every six cases filed here, according to the Eastern Tennessee district of the U.S. Bankruptcy Court....

U.S. Bankruptcy Court Judge Thomas Stinnett, one of two bankruptcy court judges in Chattanooga, said the local court "has always maintained close connections" with the North Georgia bankruptcy courts in Rome and Atlanta.

"This is something that we've known about for a considerable period, and we would certainly accommodate them on whatever may be needed," he said. ...

But whether a policy change is made for Chattanooga may end up being decided by either U.S. Trustee Richard Clippard in Memphis or U.S. Trustee Donald Walton in Atlanta, either of whom might object to bankruptcy filings from Georgia residents in Chattanooga. Jane Limprecht, public affairs officer for the U.S. trustee's executive office in Washington, D.C., declined to discuss any plans to object to cross-state filings.

The practice might come to an end after a recent 6th Circuit opinion -

But a 4-year-old case along the Tennessee-Mississippi border near Memphis threatens to create a new border fence there against people crossing state lines or federal districts to file bankruptcies.

In 2004, the U.S. trustee's office in northern Mississippi moved to transfer out of the Memphis court two bankruptcy cases from Mississippi debtors.

After conflicting rulings in bankruptcy and federal district courts, a three-judge panel of the U.S. Court of Appeals for the 6th Circuit in Cincinnati ruled that bankruptcy cases should be filed in the same judicial district in which the debtor lives. Previously, many bankruptcy courts have accepted filings outside their district as a matter of convenience unless a creditor or debtor objected.

In a seven-page opinion, Chief Judge Danny Boggs said venue requirements of the bankruptcy code "are mandatory and not optional" and therefore debtors from Mississippi should not cross the state line to file their bankruptcy case in Memphis.

The case is Thompson v. Greenwood, 507 F.3d 416, (6th Cir. 2007) (click here for .pdf opinion).  The facts are the following:

Debtors Reuben and Patricia Thompson and Leonard Jordan (“the debtors”), all of whom reside in the Northern Mississippi suburbs of Memphis, filed voluntary petitions for bankruptcy in the United States Bankruptcy Court for the Western District of Tennessee in June 2004. In both cases, the United States Trustee in the Northern District of Mississippi filed motions to dismiss or transfer on the ground that venue was lacking because the debtors did not reside in the district, as required by 28 U.S.C. § 1408. Although the debtors conceded, both then and now, that venue in Tennessee was “technically improper,” Appellants' Br. at 9, they maintained that, both as a matter of statutory construction and for equitable reasons, the bankruptcy judges had inherent authority to retain the cases in the interest of justice or for the convenience of the parties. The Trustee argued that a proper interpretation of the applicable venue statutes left the judge with no discretion to retain the cases, and that the court was required either to dismiss or transfer the cases under the plain language of 28 U.S.C. § 1406.

The decisions of the bankruptcy judges in the two cases were contradictory. In the case of Mr. Jordan, Chief Bankruptcy Judge David S. Kennedy agreed with the debtor's position, holding that “the court, in its discretion, pursuant to its inherent or implicit authority, ... may retain ‘cases' filed in an improper district ‘for the convenience of the parties' or ‘in the interest of justice’ even if a timely motion is filed to contest venue....” In contrast, in the case of the Thompsons, Bankruptcy Judge Jennie D. Latta… found that venue was not proper in the Western District of Tennessee and ordered the case transferred to Mississippi. Both cases were appealed to the District Court for the Western District of Tennessee, which thoroughly analyzed the applicable venue statutes and determined that the Trustee's position was “the most coherent reading of the statute as a whole in conformity with accepted norms of statutory construction.”… The court therefore affirmed Judge Latta's ruling in In re Thompson and reversed Chief Judge Kennedy's ruling in In re Jordan.

A very liberal cut & paste of the Court's analysis, and authority from the Northern District of Georgia, after the jump:

 As this court has recognized, a fundamental canon of statutory construction is that “when interpreting statutes, the language of the statute is the starting point for interpretation, and it should also be the ending point if the plain meaning of that language is clear.” United States v. Boucha, 236 F.3d 768, 774 (6th Cir. 2001) (internal quotation omitted). Venue in a Title 11 case is governed by 28 U.S.C. § 1408, which reads, in pertinent part:

[A] case under title 11 may be commenced in the district court for the district . . . in which the domicile, residence, principal place of business in the United States, or principal assets in the United States, of the person or entity that is the subject of such case have been located for the one hundred and eighty days immediately preceding such commencement . . . .

28 U.S.C. § 1408 (2006). Under this standard, the debtors concede that venue is not proper in the  Western District of Tennessee, or, at least, not “technically” proper. Appellants’ Br. at 9. Improperly venued cases are governed by 28 U.S.C. § 1406, which is headed “Cure or waiver of defects” and instructs:

(a) The district court of a district in which is filed a case laying venue in the wrong division or district shall dismiss, or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought.
(b) Nothing in this chapter shall impair the jurisdiction of a district court of any matter involving a party who does not interpose timely and sufficient objection to venue.

28 U.S.C. § 1406(a)-(b) (2006). Although this section does not specifically mention Title 11
bankruptcy cases, its broad language plainly encompasses all improperly venued cases of whatever variety.... Therefore, under § 1406, if a case is brought in an improper venue and an interested party3 timely objects, a district court has only two options: (1) dismiss the case, or (2) transfer the case to a jurisdiction of proper venue, if it be in the interest of justice.

The debtors, however, argue that § 1406 is inapplicable to bankruptcy cases because another,  more specific provision applies—§ 1412, which is headed “Change of venue”and reads: “A district court may transfer a case or proceeding under title 11 to a district court for another district, in the interest of justice or for the convenience of the parties.” 28 U.S.C. § 1412 (2006). The debtors argue that the use of the term “may” implies that the court is not required to transfer a case, but may also retain it. See In re Jordan, 313 B.R. at 256 (quoting In re Lazaro, 128 B.R. at 168, 172-74, which in turn quotes In re Boeckman, 54 B.R. at 111: “[T]he permissive language used in Section 1412 . . . merely says that a district court ‘may’ transfer a case to another district; it does not say it must transfer the case . . . .”). While at first glance this might appear to be a plausible interpretation, it erroneously assumes that § 1412 applies to both properly and improperly venued cases. If this assumption were accurate, and the debtors’ interpretation adopted, it would render § 1408 a nullity, or at least significantly diminish its importance. Under such an interpretation, parties would be free to disregard the venue strictures of § 1408 and file their Title 11 cases in any court in the country, so long as the bankruptcy judge thought the choice of venue just or convenient—factors nowhere mentioned in § 1408. Because courts must “give effect, if possible, to every clause and word of a statute rather than . . . emasculate an entire section,” Bennett v. Spear, 520 U.S. 154, 173 (1997) (internal quotation omitted), the better interpretation is that § 1412 applies only to bankruptcy cases that are properly venued in the first instance; § 1406 applies to improperly venued cases. This makes sense given that § 1406 governs “[c]ure or waiver of [venue] defects,” whereas § 1412 merely governs “[c]hange of venue.” Thus, § 1412 is no “more specific” in application to this case than is § 1406.

Federal Rule of Bankruptcy Procedure 1014, though not carrying the weight of a statute, also supports this interpretation. The rule implements the provisions of both § 1406 and § 1412 under the heading “Dismissal and Change of Venue,” and divides cases into two groups:

(1) Cases filed in proper district

If a petition is filed in a proper district, on timely motion of a party in interest, and after hearing on notice to the petitioners, the United States trustee, and other entities as directed by the court, the case may be transferred to any other district if the court determines that the transfer is in the interest of justice or for the convenience of the parties.

(2) Cases filed in improper district

If a petition is filed in an improper district, on timely motion of a party in interest and after hearing on notice to the petitioners, the United States trustee, and other entities as directed by the court, the case may be dismissed or transferred to any other district if the court determines that transfer is in the interest of justice or for the convenience of the parties.

Fed. R. Bankr. P. 1014(a). Thus, part (a)(1) of the rule provides that if a case is properly venued, it may be transferred (in accord with § 1412). Part (a)(2) states that if, on the other hand, the case is improperly venued, it may be dismissed or transferred (in accord with § 1406). As in § 1412, the use of seemingly permissive language (“may be transferred,” rather than “must be transferred”) could be interpreted as granting the court authority to also retain the case. It could, that is, if such an interpretation were not explicitly foreclosed by the rule’s accompanying advisory note:

Formerly, 28 U.S.C. § 1477 authorized a court either to transfer or retain a case which had been commenced in a district where venue was improper. However, 28 U.S.C. § 1412, which supersedes 28 U.S.C. § 1477, authorizes only the transfer of a case. The rule is amended to delete the reference to retention of a case commenced in the improper district. Dismissal of a case commenced in the improper district as authorized by 28 U.S.C. § 1406 has been added to the rule.

Fed. R. Bankr. P. 1014 advisory committee’s note. The advisory note makes clear that, since the repeal of 28 U.S.C. § 1477,4 which explicitly permitted retention of an improperly venued case, there is no longer any authority for such retention, and only dismissal or transfer of the case is authorized. While we acknowledge that this note (and, indeed, the entire rule) must give way to conflicting statutory authority under some circumstances, see 28 U.S.C. § 2075 (2006) (stating that the “rules shall not abridge, enlarge, or modify any substantive right”), there is no conflict between the rule and any applicable statute on the specific question at issue in this case—whether a bankruptcy court has authority to retain an improperly venued case over the timely objection of an interested party. Both Rule 1014(a)(2) and § 1406 answer that question in the negative. To be sure, as the district court recognized, there is some conflict between Rule 1014(a)(2) and § 1406 vis-à-vis the transfer of an improperly venued case. See In re MacDonald, 356 B.R. at 427-28. Specifically, the statute permits transfer only to a district where venue would have been proper in the first instance, and only in the interest of justice. In contrast, Rule 1014(a)(2) appears to permit transfer to “any other district,” whether the case could have been brought there originally or not, and includes the “convenience of the parties” as an additional consideration. Compare 28 U.S.C. § 1406 with Fed. R. Bankr. P. 1014(a)(2). Although resolving these apparent discrepancies is not strictly necessary to render a decision in the case before us, in the interest of providing guidance to the lower courts in future bankruptcy cases, we note that the statute trumps the rule. See Fed. R. Bankr. P. 9030 (“These rules shall not be construed to extend or limit the jurisdiction of the courts or the venue of any matters therein.”). Thus, where a bankruptcy case is brought in an improper venue, and an interested party timely objects, the court must either dismiss it or transfer it to a jurisdiction of proper venue in accordance with § 1406, notwithstanding any differing language in Rule 1014(a)(2). Note, however, that no such conflict arises with regard to cases that are properly venued in the first instance. Compare 28 U.S.C. § 1412 with Fed. R. Bankr. P. 1014(a)(1) (both authorizing transfer to another district, without limitation, in the interest of justice or for the convenience of the parties). Thus, a case that is properly venued in the first instance could be transferred to another district (even one where the case could not originally have been brought) in accordance with § 1412 and Rule 1014(a)(1).

Those courts adhering to the minority view take issue with this interpretation because of the seeming illogic of this rule—that a case that is filed in an improper venue must be dismissed or transferred to a proper venue, but one that is first filed in a proper venue can be transferred to a district where venue is improper. See, e.g., In re Lazaro, 128 B.R. at 172 (“It is an odd construction indeed to maintain that New Mexico would be free to transfer this case to the Western District of Texas . . . , but that the Western District of Texas is not free to retain the self-same case.”). We, however, are inclined to agree that “[t]he statutory scheme . . . merely recognizes that it is the role of the ‘home’ court to make [the] determination [whether to transfer a case to another district].” In re Petrie, 142 B.R. at 407. Whether this framework is the best way to manage venue in bankruptcy cases is not for us to decide; it is enough that the textual authority inescapably leads to our conclusion. Thus, we agree “that fixing any perceived problem is a job for Congress and not the courts.” Swinney, 309 B.R. at 641. ...

Because we find that the plain text of § 1406 governs this case, it is not necessary—indeed, it would be inappropriate—to explore the legislative history surrounding the repeal of former § 1477. See Conn. Nat. Bank, 503 U.S. at 254. Suffice it to say, the legislative history (as is so often the case) is hardly definitive one way or the other. Compare In re Jordan, 313 B.R. at 257 (concluding that the legislative history supports the view that Congress did not intend to change bankruptcy venue by repealing § 1477) with In re MacDonald, 356 B.R. at 425 (concluding that the “statutory history simply does not support the proposition that Congress intended to maintain the status quo”). Similarly, the equitable considerations cited by the debtors and those courts adhering to their viewpoint cannot trump the plain meaning of the statutory authority, even if the consequences of requiring a debtor to file his case in a proper venue were as dire as the debtors make them out to be. See Reno v. Bossier Parish Sch. Bd., 520 U.S. 471, 485 (1997) (“[I]t is well established that courts of equity can no more disregard statutory and constitutional requirements and provisions than can courts of law.”) (internal quotation omitted). 

For the reasons set forth above, we hold that (1) the venue requirements of 28 U.S.C. § 1408 are mandatory, not optional; (2) 28 U.S.C. § 1412 applies only to bankruptcy cases filed in a proper venue; (3) 28 U.S.C. § 1406 applies to cases, including bankruptcy cases, filed in an improper venue; and (4) Federal Rule of Bankruptcy Procedure 1014(a)(2) must be interpreted as authorizing the transfer of an improperly venued case only to a district in which the case could have originally been brought, and only in the interest of justice, in accordance with the plain language of § 1406. See In re MacDonald, 356 B.R. at 428. The decision of the district court is therefore AFFIRMED. 

 Notably, there is already authority in the Northern District of Georgia that reaches the same result as the 6th Circuit. In In re The Sporting Club at Illinois Center,* 132 B.R. 792 (Bankr. N.D. Ga. 1991), Judge Drake held the following:

The next issue for the Court to decide is whether an improperly venued case may be retained, or whether it must be transferred or dismissed pursuant to Federal Rule of Bankruptcy Procedure 1014(a)(2). The parties have correctly pointed out that there is a split of authority on whether a court may retain an improperly venued case. See In re Pick, 95 B.R. 712, 715 (Bankr.D.S.D.1989); In re Lazaro, 128 B.R. 168 (Bankr.W.D.Tex. 1991). This Court thinks that the better view, and one that is consistent with the wording of the Rule and the advisory committee notes, is that a court must either dismiss or transfer an improperly venued case.

The statute which governs change of venue for bankruptcy proceedings is 28 U.S.C. § 1412. As is evident, this statute does not expressly address cases in which venue is improper. Pick, 95 B.R. at 715. However, when Rule 1014, which does address improperly venued cases, was amended in 1987, the advisory committee added an explanation:

Both paragraphs 1 and 2 of subdivision (a) are amended to conform to the standard for transfer in 28 U.S.C. § 1412. Formerly, 28 U.S.C. § 1477 authorized a court either to transfer or retain a case which had been commenced in a district where venue was improper. However, 28 U.S.C. § 1412, which supersedes 28 U.S.C. § 1477, authorizes only the transfer of a case. The rule is amended to delete the reference to retention of a case commenced in the improper district. Dismissal of a case commenced in the improper district as authorized by 28 U.S.C. § 1406 has been added to the rule. If a timely motion to dismiss for improper venue is not filed, the right to object to venue is waived.

Fed.R.Bankr.P. 1014 (Advisory Committee Note 1987). Section 1477(a),  which was superceded by § 1412, was similar to the current § 1412, except that it expressly applied to improperly venued cases. Thus, when § 1477 was not enacted, there was no statute which dealt specifically with improperly venued cases. Pick, 95 B.R. at 715. This Court agrees with the court in Pick that when Congress failed to enact § 1477, they intended that improperly venued cases be treated the same as all other federal civil actions under § 1406, and that upon the motion of a party in interest, the case must either be dismissed or transferred. Id. This view is consistent with both Rule 1014(a) and the advisory committee notes. Id.; see also In re Townsend, 84 B.R. 764, 767 (Bankr.N.D.Fla.1988); In re Frame, 120 B.R. 718, 722 (Bankr.S.D.N.Y.1990); ICMR, Inc. v. Tri-City Foods, Inc., 100 B.R. 51, 54 (D.Kan.1989); In re Greiner, 45 B.R. 715 (Bankr.D.N.D.1985). Thus, the only situation in which the Court may retain an improperly venued case is where no party in interest files a timely objection. ICMR, 100 B.R. at 54.

The Court is aware that other courts have reached the opposite conclusion. Lazaro, 128 B.R. at 175; In re Leonard, 55 B.R. 106 (Bankr.D.D.C.1985); In re Boeckman, 54 B.R. 110 (Bankr.D.S.D.1985). However, this Court respectfully disagrees with the holdings of these cases. Accordingly, since venue in this case is improper, the only alternatives are to dismiss the proceedings or transfer them to the proper district.

* Interestingly, the two Bankruptcy Judges in the Rome Division, Judge Diehl and Judge Bonapfel, were counsel in the Sporting Club case.