The latest episode of the AZ Big Podcast with Michael & Amy has officially dropped. Episode 139 features Alan Meda, bankruptcy lawyer and shareholder at Burch & Cracchiolo.
Listen to more of the AZ Big Podcast here.
Transcript:
Michael Gossie
Welcome to the AZ Big Podcast sponsored by Burch & Cracchiolo. I'm Michael Gossie, editor in chief at AZ Big Media. And I'm joined, joined by my co host, our publisher, Amy Lindsey. Today we're very excited to be joined in the studio by Alan Meda, shareholder, Burch & Cracchiolo. Alan, thank you so much for being here today.Alan Meda
Thank you for having me.Michael Gossie
We're going to talk about a subject that most people probably don't want to hear about, but it's super, super important, especially in the business world, in our in our audience. Amy?Amy Lindsey
Absolutely. Alan, before we start that tell us a little about your background and your legal practice.Alan Meda
So I work in the area of commercial bankruptcy. I've been practicing now for over 40 years, graduated in 1983. So I've been primarily focused on the commercial bankruptcy area. There's there's a couple of other sections of bankruptcy, but primarily, I'm working with businesses.Amy Lindsey
I have to imagine that's changed drastically over the years.Alan Meda
It's changed quite a bit for a lot of different reasons. I think first of all, you have to understand that in 2009, that was probably the heyday of commercial bankruptcy. 2009 I think there were over 60,000 bankruptcy cases filed in my car in 2022. And by contrast, you're probably looking at about 13,000 cases. Wow. So there's been a significant decrease in bankruptcy filings for businesses. Why? Well, there's probably several reasons. One reason is because we had the pandemic, there was a lot of uncertainty as a result of the pandemic, there was a lot of free money being offered to businesses from the government. There were tax credits and employee retention credits. And then there was the interest rates in the economy. For a long, long time, interest rates were extremely low. And businesses were able to get by now that rates are coming up, businesses are getting squeezed a little bit and so we expect filings to increase, but we just haven't really seen that yet.Amy Lindsey
Okay.Michael Gossie
So for those people who don't know, can you explain it explain exactly what is commercial bankruptcy?Alan Meda
Right, so commercial bankruptcy is where an individual or an entity that's engaged in a commercial or business enterprise, it really needs to seek protection from creditors who are being aggressive and are trying to collect on their debts. And so basically, what we do is we keep the ship afloat by buying time and trying to restructure the debts. For we do that in various different ways. We maybe we sell assets off or we use the income from the business to repay the creditors.Michael Gossie
So are there other types of bankruptcies people should be aware of?Alan Meda
There are other types of bankruptcies. There is a chapter seven bankruptcy, which is known as a liquidation. That's primarily used by consumer debtors who have a lot of credit card debt, or medical bills, sometimes tax debt that they're seeking to discharge. Now, the quid pro quo for that discharge is you have to give up all of your non exempt assets. And so you're really starting over in life by going that route. There is also a chapter 13 bankruptcy, which is a reorganization primarily for consumer debtors who have debts of less than $2,750,000. Then there's the chapter 11 bankruptcy, which is really what I am engaged in primarily. There's also a sub chapter of chapter 11, known as sub chapter five. Sub Chapter Five is a new type of bankruptcy. It's really a streamlined bankruptcy process. That was adopted right at the eve of COVID. When COVID hit, Congress passed a new law that made it easier for businesses to get through the bankruptcy process. It made it easier by eliminating some of the stages some of the steps that you have to go through. And it made it easier by making the time that it takes to get through the process to make a lot less time to get through that process. And because of that the cost the attorneys fees for representing the debtors through that process are simple Post to be significantly less. So that that new model of bankruptcy case is what we're seeing more often now. That that's really what makes up most of my practice today.Michael Gossie
Alan, you mentioned like non exempt assets. Can you give us some examples of what what are some exempt assets and what are some non exempt assets?Alan Meda
Right, so when we talk about exempt assets, that exemption is not a bankruptcy specific concept, okay? It every state has its own set of exemptions, and you're entitled to those exempts exemptions, regardless of whether you're in a bankruptcy. So for example, every resident in Arizona has what we call a homestead exemption. A homestead exemption is what protects the equity in your in your house, that's over and above what the mortgage is. So for example, if you have a million dollar house, and you have a $500,000 mortgage, you have $500,000 of equity in your house. Now in Arizona that exemption, that protection is $400,000. So you are entitled to protect up to $400,000 of equity, creditors can't touch that. And that's what we mean by exemption. And there are exemptions in a car. There's exemptions for household furnishings, there's exemptions for cash in the bank account life insurance, a number of exemptions that really offer a lot of protection to to credit to debtors. Now, you know, when we talk about the Homestead To give you an idea about the different laws in different states, as I said, Arizona, it's a $400,000 exemption. In some states, it's unlimited. Oh, wow. So that's a big difference, a big difference, right. And so you could see where people might tend to migrate into certain states because they offer more protections than other states. So just to give you an example, we've all heard about OJ Simpson passing away. And everybody knows what happened with OJ Simpson and, you know, the criminal proceedings and the civil proceedings. You know, he had a there's a big judgment against him as a result of the civil proceedings. What most people may not know, is, after that judgment was entered, OJ Simpson moved to Florida, and he bought a million dollar house. You know why he bought a million dollar house, because Florida had an unlimited homestead law. So he was able to buy this large mansion and live there comfortably without worrying about creditors going after the house.Amy Lindsey
So, Alan, Are there advantages to filing under Chapter 11?Alan Meda
There are several advantages, the biggest advantage to seeking bankruptcy protection is what we call the automatic stay. The automatic stay is like a wall that comes down. And that wall prevents creditors from proceeding with collection efforts. It's really what gives the businesses the peace of mind of knowing that things aren't going to crash overnight. The other advantage, and it's hard to quantify this, but the other advantage is really emotional. You can imagine the turmoil people are in when they're facing the prospects of filing bankruptcy, it's a very hard thing to come to grips with Sure. Maybe people have a moral problem with bankruptcy. A lot of people just feel like it's their obligation to pay their creditors. But they go through a very difficult time and just knowing that it's over. Just the fact that you can go to sleep at night not having to worry about it. You can't really quantify that benefit. And that's that's really a huge benefit to debtors.Michael Gossie
Sure, Alan, we have a million questions for you. But before we get to them, I want to say you want to make a difference in your business and life and 2024 contact an attorney at Burch & Cracchiolo to handle all your legal needs. Burch & Cracchiolo is a time honored full service law firm who can partner with you no matter what your challenges goals or new horizons on the radar? Contact them today at BCattorneys.com. That's BCattorneys.com. So Alan, we're in 2024. What does the bankruptcy market look like today?Alan Meda
Well, that's a good question. I don't know that anybody can really answer that. I think as I mentioned before, my practice today really focuses on what we call the sub five bankruptcy case for small businesses. That seems to be the new model. At least here in Arizona. And part of the reason for that is that the big companies, the retailers, they're all running off to Delaware, to New York to file their bankruptcy cases, they do that because Delaware is known as a debtor friendly venue. So these businesses, they know what they're going to get when they go into Delaware and file. And, and that certainty is what gives them the comfort of going that direction. So we're just not seeing the big bankruptcy cases here. And as a result, our our practice is really more focused on the small business. So that's really what we are looking at. I don't know, what's going to happen down the road, I don't think anybody can really tell you, you know, are interest rates going to come down? Are is the, we're already seeing the free money really drying up from the government. So that's certainly going to have an impact. We know that after COVID, the costs of goods have gone up considerably for businesses, that has to happen impact. So I think all of those factors are going to start squeezing businesses, and you're going to see perhaps more more bankruptcy being filed.Amy Lindsey
So historically, there are kind of negative connotations associated with filing bankruptcy, but when is it beneficial for business owner to look at bankruptcy as an option?Alan Meda
Well, I think when you get squeezed, it's really you don't really have much of a choice. I always tell business owners bankruptcies last resort. It should be a last resort. Now, sometimes you don't really have any other alternative. Yeah, I hear. Lots of people talk about debt consolidation. You hire a company to help you negotiate some of those, some of your dad's but I really don't find that to be very useful. In most cases, I haven't seen that really benefit most people who go down that road. I think at the end of the day, you have to make a decision whether you can make your business work, or whether you need help. And I just think that sometimes having that automatic stay the wall that gives you time and space to reorganize your debts is really what most people need.Michael Gossie
Alan, Can I ask you? Do you see success stories after you've helped businesses go through the bankruptcy process that they're able to kind of like, get their footing and then achieve success after having to file bankruptcy?Alan Meda
I think that most of the bankruptcies that I've reorganized have been successful. That's fantastic. They have gone through the bankruptcy process, they've come out on the other side, and they've enjoyed success. And that's what makes me that's what gives me that good feeling. Right. That's what gives me the satisfaction of feeling like I contributed to somebody's success. And and I hope we see more of that. I really do. I think that it's a good tool. I think people more people should take advantage of that. As I said before, I think some people they kind of feel like, morally, it's not right. You know, I I've been brought up to honor my obligations. And that's what I have to do. But, you know, I think what people have to realize is that there's a reason why we have a bankruptcy system, you know, a bankruptcy code. And that's to give debtors an opportunity for a fresh start. And there's really nothing wrong with taking advantage of that tool that's been made available to us. I think the other thing is that some people have to appreciate that. There's lots of reasons for filing bankruptcy. Maybe you have an unexpected financial situation. Maybe there was some lawsuit, some accident that occurred and you know, now all of a sudden, you know, you're a defendant in a lawsuit that took three, four years and millions of dollars in attorneys fees and resulted in a massive judgment against you. And now you're faced with either disaster, or you figure out a way to reorganize your obligations and go forward. And so, you know, there's really nothing wrong with trying to make things work out. And that's what I keep trying to tell people is that there's not You're not really, there's certainly nothing morally wrong with trying to make it work. And there's certainly nothing unlawful about trying to make it work. It's just a tool that's been made available to you.Michael Gossie
Well, that's fantastic. You know, whether it's sports or business, there's nothing better than a comeback story. So it's nice to hear that, that, you know, businesses can come out on the other side and achieve success. And that's fantastic. It's great. It's great that you're able to help them do that. So Alan Meda, shareholder and Burch & Cracchiolo. Thank you so much for being here. Thanks for listening to the AC big podcast with Michael and Amy. For the latest greatest business, real estate and lifestyle news, check out the all new AZbigmedia.com And once again, thank you to our sponsors Burch & Cracchiolo and check them out at BCattorneys.com.Amy Lindsey
Thank you, Alan.Alan Meda
Thank you.