AFTER A BANKRUPTCY FILING – HOW TO CONTINUE THE …
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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!
Evaluate your options.
Automatic stay prohibits collection efforts
enforced with punitive damages.
Stay terminates in certain cases
secured creditors can exercise rights
The Automatic Stay:
Not So Automatic
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.
“PLEEEASE....”
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]
[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?”
Presumption of not filing in good faith if
more than one case filed within prior year;
case dismissed within prior year for failure to
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.”
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:
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:
Creditors position opposing extension;
Even of bankruptcy purchases;
debtor’s:
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
Creditors agree case filed in good faith
Creditors disagree good faith exists?
Objective: is a discharge likely?
Subjective: “totality of the circumstances”
Debtor’s motives
Relationship with creditors
Totality of the Circumstances
Factors:
Nature of debts;
Nature of collateral;
Eve of bankruptcy purchases;
Debtor’s conduct in present case;
Effort to obtain discharge
Why debtors wants to extend stay; and
other circumstances.
Negotiate with home lender
Even if Good Faith,
Discretion to Consider
Equitable Factors
No creditors oppose
Best interests test met
Does Stay Terminate
as to Property of Estate?
Case filed within prior year automatic stay as
to debtor terminates on 30th day after new filing
Split of authority: statutory language
“with respect to the debtor”
Include property of estate?
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?
Section 521 requires filing the following within 45 days
from filing date:
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
party in interest requests dismissal
order must be entered within 5 days (7 days after
12/1/09)
debtor timely requests extension within 45 days
after filing date
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 ?
Not:
In re Wilkinson: inadvertent duplicate payment advice
In re Hall: missing monthly net income and anticipated
financial changes statements
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
Trustee timely requests case not be dismissed
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
Debtor moves for temporary relief
File certification
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?
Extend
In re Bricksin: credit counseling outside 180-day period.
Trustee’s motion to dismiss denied.
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?
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.
Urgent situation render debtor unable to comply?
Legal advice: prepetition or postpetition
Exigent Circumstances?
Foreclosure
Notice
Other
Resources
Language barriers
Incapacity
Disability
Active duty
Dismiss v. Strike
Automatic stay
Debtors prefer case be stricken.
Uncertainty
Return of filing fees
Trustee compensation
No consensus:
Congress did not intend for counseling requirement
to limit relief
Encourage debtors to do it right the first time
Commencement of Case
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.
Stay violations
Tax Returns
Section 521(j): taxing authority may move for
conversion or dismissal if not filed or no
extension.
If not filed within 90 days, court must convert or
dismiss
Best interest of creditors and estate
Diamond Necklace: $10,000.00
Section 523:
Credit card companies may except:
Cash advances
Luxury goods or services
$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
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?
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
Luxury Purchases?
Think Twice
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]
[3] In re Zeman, 347 B.R. 28, 30 at n.1 (Bankr. W.D. Tex. 2006).
Maybe a Luxury,
But Discharged
In re LaBovick:
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
Suits for Nondischargeability
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
Home Sweet Home
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
Title and equity
Can be ascertained when debtor acquires it
California or Florida?
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
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
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
Contacting the Debtor:
Do You Dare?
Secured debts
Reason to communicate: collateral
Automatic stay or discharge injunction
“Ride-Through”
Debtor must declare intentions as to collateral
45 days from notice of intentions
Otherwise, termination of automatic stay as to that collateral
redeem, surrender, or reaffirm
“ride-through:”
comply with contract, keep collateral
bankruptcy clause defaults
Creditor’s neglect
Creditor’s desire to keep payment stream payments
If after discharge estopped from foreclosing (waiver)
What or Who is Discharged?
Only personal liability of debtor
Collateral is still liable
Creditor can repossess, foreclose or contact debtor:
Mortgage on principal residence
Security interest
Act or communication
ordinary course of business
Limited to seeking or obtaining periodic payment in lie of pursuit of
in rem relief. Section 524(j).
No coercion (9th Cir.)
Written or oral?
Collection Script
In rem communications
Options of curing default or foreclosure
Acknowledge discharge of personal liability in all
communications
Disclaimers
No coercion and not seeking personal liability
Evidence?