Transcript AFTER A BANKRUPTCY FILING – HOW TO CONTINUE THE …

AFTER A BANKRUPTCY
FILING – HOW TO
CONTINUE THE
COLLECTION EFFORT
Dominique M. Varner
Hughes Watters Askanase, L.L.P.
Partner
Notice of Bankruptcy?
STOP EVERYTHING!
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Evaluate your options.
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Automatic stay prohibits collection efforts
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enforced with punitive damages.
Stay terminates in certain cases
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secured creditors can exercise rights
The Automatic Stay:
Not So Automatic
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Termination of automatic stay allows
repossession of collateral without costs.
Second bankruptcy filing in the past year?
Automatic stay terminates on the 30th day.
 Debtor can extend the stay.
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“PLEEEASE....”
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Debtor can extend stay if:
motion is filed;
 notice and hearing;
 notice and hearing within 30-day stay; and
 Debtor proves new filing is in good faith as to
creditors to be stayed. [1]
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[1] In re Collins, 335 B.R. 646, 650 (Bankr. S.D. Tex. 2005);
11 U.S.C. § 362(c)(3)(B).
Good Faith: “Really?”
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Presumption of not filing in good faith if
more than one case filed within prior year;
 case dismissed within prior year for failure to
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amend as required by court/statute
provide adequate protection or
perform a confirmed plan; OR
No substantial change in financial/personal
situation. [1]
[1] In re Collins, 335 B.R. 646, 650 (Bankr. S.D. Tex. 2005);
11 U.S.C. § 362(c)(3)(B).
Good Faith: “Yes, really.”
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If presumption of not filing in good faith arises,
debtor may rebut by clear and convincing
evidence.
Factors of good faith.
Factors of Good Faith:
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Extension sought as to all or single creditor;
Timing of cases;
Reasons giving rise to presumption;
Change in financial or personal affairs;
More Factors of Good Faith:
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Creditors position opposing extension;
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Even of bankruptcy purchases;
debtor’s:
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Nature of debt
Nature of collateral
Conduct in new case
Reasons for seeking extension; AND
Unique facts or circumstances to case. [2]
[2] In re Collins, 335 B.R. at 652; In re Wilson, 2005 Bankr. LEXIS
2388, * 24 (Bankr. E.D. Tenn. Dec. 5, 2005).
“ Charles II” Analysis
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Creditors agree case filed in good faith
Creditors disagree  good faith exists?
Objective: is a discharge likely?
 Subjective: “totality of the circumstances”
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Debtor’s motives
 Relationship with creditors
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Totality of the Circumstances
Factors:
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Nature of debts;
Nature of collateral;
Eve of bankruptcy purchases;
Debtor’s conduct in present case;
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Effort to obtain discharge
Why debtors wants to extend stay; and
other circumstances.
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Negotiate with home lender
Even if Good Faith,
Discretion to Consider
Equitable Factors
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No creditors oppose
Best interests test met
Does Stay Terminate
as to Property of Estate?
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Case filed within prior year  automatic stay as
to debtor terminates on 30th day after new filing
Split of authority: statutory language
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“with respect to the debtor”
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Include property of estate?
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Majority: not include property of estate
 Comparison of other provisions
Minority: includes property of estate
 Congress’ intent and purpose in BAPCPA
 Prevent repeat filers
Dismissed Automatically?
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Section 521 requires filing the following within 45 days
from filing date:
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creditors
assets and liabilities
current income and expenses
financial affairs [SOFA]
itemized monthly net income
reasonably anticipated increase in income/expenses over one
year following filing date
certificate of consumer counseling AND
payment advices received within 60 days
Automatic Dismissal, unless
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party in interest requests dismissal
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order must be entered within 5 days (7 days after
12/1/09)
debtor timely requests extension within 45 days
after filing date
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no to exceed 45 days
trustee objects: not in best interest of creditors
split of authority: discretion to extend deadline
To Extend or
Not to Extend ?
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Not:
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In re Wilkinson: inadvertent duplicate payment advice
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In re Hall: missing monthly net income and anticipated
financial changes statements
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sua sponte
Trustee did not seek dismissal
No party in interest objected to confirmation
Debtor did not request extension
Trustee did oppose dismissal
In re Parker: debtor’s motion to dismiss denied
In re Bonner: missing stub filed on 46th day
Trustee Saves the Case
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Trustee timely requests case not be dismissed
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Within applicable period
Notice and hearing
Good faith to file required documents, and
Best interests of creditors served
Credit Counseling 101
Credit counseling course and
 Within 180 days before filing date
Otherwise, dismissal in most cases
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Debtor moves for temporary relief
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File certification
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Exigent circumstances merit waiver,
Debtor requested but was unable to receive counseling within 5
days of request; and
Court satisfied with certification.
To Extend or
Not to Extend?
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Extend
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In re Bricksin: credit counseling outside 180-day period.
Trustee’s motion to dismiss denied.
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Very best efforts to comply with requirement and substantial
compliance,
Extensive pre-petition counseling and made substantial payments,
Need to file not obviated by additional counseling and debtors knew
of bankruptcy filing implications,
Costs by taking counseling, and
Equitable considerations: start over, filing fees, limitations of
automatic stay.
Exigent Circumstances?
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In re Davenport: creditor actively seeks to
repossess debtor’s only car, but because
counseling taken 2 days after filing, dismissed.
In re Henderson: Pro Se debtors get a break.
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Urgent situation render debtor unable to comply?
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Legal advice: prepetition or postpetition
Exigent Circumstances?
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Foreclosure
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Notice
Other
Resources
 Language barriers
 Incapacity
 Disability
 Active duty
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Dismiss v. Strike
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Automatic stay
Debtors prefer case be stricken.
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Uncertainty
Return of filing fees
 Trustee compensation
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No consensus:
Congress did not intend for counseling requirement
to limit relief
 Encourage debtors to do it right the first time
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Commencement of Case
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Automatic Stay
In re Rios: no commencement if debtor fails to
obtain counseling.
In re Tomco: commencement when petition is
filed.
Depends on whether all requirements are met.
Problem: uncertainty among creditors.
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Stay violations
Tax Returns
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Section 521(j): taxing authority may move for
conversion or dismissal if not filed or no
extension.
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If not filed within 90 days, court must convert or
dismiss
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Best interest of creditors and estate
Diamond Necklace: $10,000.00
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Section 523:
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Credit card companies may except:
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Cash advances
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Luxury goods or services
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$825.00
Consumer open end credit plan
On or within 70 days prior to order for relief
Consumer debt
$550.00
On or within 30 days prior to order for relief
Presumed nondischargeable
Fraud, Actual Fraud
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Presumption
Rebuttable
Shifts burden of going forward
Burden on proof on plaintiff
Circumstantial evidence
Intent to repay
Mere inability to pay not sufficient
Is it a Luxury?
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Reasonably acquired for support or maintenance
of debtor
Extravagant, indulgent, or nonessential
In re Paesano: Citibank moves for SJ for:
$208.80 Four Seasons Enterprise
 $716.54 Value City
 $475.90 Priceless Kids
 $10,000.00 Tiffany & Co., would meet MSJ
standards
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Luxury Purchases?
Think Twice
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Zeman: Judicial notice:
La Fogata, USPS, HEB Grocery, Target, Exxon,
PetsMart, Walgreens, Hertz, Whataburger
 “The court can only shake its head in bemusement
at plaintiff ’s suggestion that these merchants would
be described as ‘high end luxury retailers.’” [3]
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[3] In re Zeman, 347 B.R. 28, 30 at n.1 (Bankr. W.D. Tex. 2006).
Maybe a Luxury,
But Discharged
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In re LaBovick:
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Within 60 days of filing date:
6 gift cards: $3,500.00
 Gold chain: $285.05
 Watch: $171.71
 Bed, cookware, small electrical items, clothing, bedding,
and a rug: $7,608.67
All discharged.
 Extreme facts: 30 year account, no late payments, move
due to son’s house arrest for manslaughter
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Suits for Nondischargeability
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60 days after 341 meeting
Fraud
 Fraud in fiduciary capacity, embezzlement, or larceny
 Willful and malicious injury
 Debts incurred to pay I.R.S. or other governmental
units, federal election fines or penalties
 Debts owed to spouse, former spouse or child
incurred in connection a divorce or seperation
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Home Sweet Home
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Section 522(p) Homestead Exemption
1,215 days
Exceeds $125,000.00
In re Rogers:
title acquired outside period, but homestead not
claim
 Interest: vested economic interest
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Title and equity
 Can be ascertained when debtor acquires it
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California or Florida?
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State exemptions
Reside for 730 days prior to filing
Otherwise, longest period during 180 days prior
to 730-day period
Proof of Claim:
Just in Case
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Most Chapter 7 cases: no-asset notice
If assets  re-notice
90 days to file from notice
Otherwise, 90 days from first 341 meeting
Attach documents supporting claim
Chapter 11: no need to file
Chapter 13: must file even if on schedules
Let’s Negotiate
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Unsecured creditor’s failure to negotiate prepetition  reduce claim by up to 20%
Nonprofit budget and credit counseling agency
 Repayment offer of 60% or more of debt
 Within 60 days of filing date, and
 Unsecured creditor refuses to negotiate
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Contacting the Debtor:
Do You Dare?
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Secured debts
Reason to communicate: collateral
Automatic stay or discharge injunction
“Ride-Through”
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Debtor must declare intentions as to collateral
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45 days from notice of intentions
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Otherwise, termination of automatic stay as to that collateral
redeem, surrender, or reaffirm
“ride-through:”
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comply with contract, keep collateral
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bankruptcy clause defaults
Creditor’s neglect
Creditor’s desire to keep payment stream payments
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If after discharge  estopped from foreclosing (waiver)
What or Who is Discharged?
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Only personal liability of debtor
Collateral is still liable
Creditor can repossess, foreclose or contact debtor:
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Mortgage on principal residence
Security interest
Act or communication
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ordinary course of business
Limited to seeking or obtaining periodic payment in lie of pursuit of
in rem relief. Section 524(j).
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No coercion (9th Cir.)
Written or oral?
Collection Script
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In rem communications
Options of curing default or foreclosure
 Acknowledge discharge of personal liability in all
communications
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Disclaimers
No coercion and not seeking personal liability
 Evidence?
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