Sunday, September 19th, 2010
If you have been reading your local newspapers, you may be aware that Nathan Deal, the Republican candidate for Governor of Georgia, is facing scrutiny about his personal finances and about the bankruptcy filings of his daughter and son-in-law.
According to the Atlanta Journal-Constitution, Mr. Deal personally guaranteed bank loans totaling over $2 million that was used to build and finance a sporting goods store owned by his daughter and son-in-law called Wilder Outdoors, located on Highway 365 near Gainesville. Unfortunately for the Wilders, the sporting goods business failed, leaving about $2.5 million due. Mr. and Mrs. Wilder filed Chapter 7 bankruptcy in 2009, discharging their obligations on the outstanding bank loans, leaving Mr. Deal exposed as the guarantor.
Mr. Deal and the Wilders were able to refinance the business loan several years ago prior to the closing of the business but now, a $2.5 million debt will come due in February, which would be about a month after he takes office if he wins.
Mr. Deal asserts that his financial quandary is no different from that faced by many parents who offered financial support to the entrepreneurial dreams of their children. He has put his primary residence and other property on the market and no doubt hopes to generate enough cash to satisfy the bank's demands. You can read more about the Wilder bankruptcy issues on my Bankruptcy Law Network post about this situation.
Democrats are pointing to Mr. Deal's financial troubles as proof of his questionable judgment, especially since it turns out that Mr. Deal's son-in-law, Clint Wilder, appears to have been ineligible to file Chapter 7 in July, 2009. Mr. Wilder had filed an individual Chapter 7 case in Atlanta back in December, 2001. Section 727(a)(8) of the Bankruptcy Code provides that a debtor must wait at least eight (8) years from the time a Chapter 7 case is filed before filing a second Chapter 7 – here the time period between the two filings was about 7 1/2 years.
Although the Wilders' case was closed in December, 2009, the United States trustee has the right to reopen this case and petition the judge to revoke the discharge. From what I am hearing, this is what is happening now.
Candidate Deal correctly points out that issues relating to his son-in-law's bankruptcy are not his doings and should not be attributed to him. On the other hand, the Deal campaign has to be concerned about the prospect of a candidate who could very well be insolvent the month after he takes office and who could face the prospect of filing a voluntary petition or having an involuntary bankruptcy file against him shortly after he takes office. You may recall that former State school superintendent Kathy Cox chose not to run for re-election after she and her husband filed Chapter 7 following her husband's failed business deals.
I think that the main lesson to glean from this situation has to do with the inherent problems associated with co-signing a loan for anybody, especially when the money put at risk is more than you can afford to lose.
What do you think? Will Mr. Deal's looming financial problems cost him your vote? Or do his financial problems give him insight into the economic plight of struggling Georgians?
Posted in 2, 2009 , Business, Chapter 7 issues, Finance, Georgia Bankruptcy, Involuntary Bankruptcy, Loans, Nathan Deal, Revocation of Discharge-Section 727, a, and, bank, build, called, chose, correctly, cox, daughter, deal, failed, goods, guaranteed, guarantor mr, happening, hearing, ineligible to file Chapter 7, july, kathy, mr, now candidate, outdoors, owned, personally, points, recall, revocation of Chapter 7 discharge, school, son in law, sporting, state, store, superintendent, the, totaling, wilder, wilders | Comments Off
Wednesday, June 30th, 2010
Not surprisingly, I get calls from small business owners who are contemplating personal bankruptcy when their businesses fail. There are many issues that arise in these types of cases but I would like to focus on one problem that, more than any other, can force the business owner into bankruptcy.
Generally when the owner of a small business leases retail space, the landlord will demand a personal guarantee. This means, of course, that in the event of a default, the business (which may be a corporation or LLC) faces liability and the business owner personally faces liability.
Given this reality, every small business owner should seek counsel to discussion asset protection options before starting his business, but that is a topic for another day.
If the business fails you might be surprised to learn that the landlord does not necessarily have to take any steps to "mitigate damages" by releasing the retail space. Instead, the landlord can demand payment for the full value of the lease from the business owner personally. If the business owner has a house with $100,000 of equity, that equity is therefore at risk, and given that Georgia's bankruptcy exemption statute is stingy ($10,000 for an individual or $20,000 for a married couple filing jointly), bankruptcy may not offer much protection.
I ran across two helpful resources that go into more detail about the landlord's obligations or lack thereof. The first is a blog post from Atlanta lawyer David Pardue in his Georgia Real Estate Litigation blog. In his post, David discusses a recent Georgia Court of Appeals case called Sirdah v. North Springs Assocs., LLLP, which was decided by the Court of Appeals in June, 2010. In the Sirdah case, the Court restated its previous holding that a landlord is under no duty to mitigate damages unless (1) the landlord accepts the tenant's surrender, or (2) the tenant successfully terminates the lease. In the Sirdah case, the tenant returned his keys to the landlord and argued that by accepting the keys, the landlord accepted the tenant's surrender. The Court said that accepting the keys did not constitute an acceptance of the surrender.
Another helpful resource is a more extensive article written by attorney Stephanie Everett of the Bloom Law Firm in Atlanta. In this paper, Stephanie examines the various scenarios that could arise when a tenant breaches a lease and the resulting consequences. Although Stephanie's article is written for the benefit of landlords, tenants will find the information very helpful as well.
As the law in this area could change, you should not rely on these resources in the absence of counsel. If you are a small business owner and you are coming to the realization that your business may not survive, you would be wise to consult with a lawyer to discuss your options both in business and in terms of bankruptcy. I have seen far too many business owners who simply left and discovered after the fact that their bankruptcy options were limited, or too painful.
Posted in 1, Business, David Pardue, General consumer bankruptcy info, Georgia Bankruptcy, Protected property issues, Sirdah v. North Springs Associates, a, accepted, accepts, and, appeals, assocs, breach of lease, breaches, called, case, consequences , damages, duty, faces, landlord, lease, lease , leases, liability, liability given, llc, mitigate, mitigation of damages, north, owner, personally, resulting, retail, retail lease and personal liability, sirdah, small, space, springs, successfully, tenant, terminates, the, v | Comments Off
