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AFTER A BANKRUPTCY FILING – HOW TO CONTINUE THE COLLECTION EFFORT Dominique M. Varner Hughes Watters Askanase, L.L.P. Partner.

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Presentation on theme: "AFTER A BANKRUPTCY FILING – HOW TO CONTINUE THE COLLECTION EFFORT Dominique M. Varner Hughes Watters Askanase, L.L.P. Partner."— Presentation transcript:

1 AFTER A BANKRUPTCY FILING – HOW TO CONTINUE THE COLLECTION EFFORT Dominique M. Varner Hughes Watters Askanase, L.L.P. Partner

2 Notice of Bankruptcy? STOP EVERYTHING! Evaluate your options. Evaluate your options. Automatic stay prohibits collection efforts Automatic stay prohibits collection efforts enforced with punitive damages. enforced with punitive damages. Stay terminates in certain cases Stay terminates in certain cases secured creditors can exercise rights secured creditors can exercise rights

3 The Automatic Stay: Not So Automatic Termination of automatic stay allows repossession of collateral without costs. Termination of automatic stay allows repossession of collateral without costs. Second bankruptcy filing in the past year? Second bankruptcy filing in the past year? Automatic stay terminates on the 30 th day. Automatic stay terminates on the 30 th day. Debtor can extend the stay. Debtor can extend the stay.

4 “PLEEEASE....” Debtor can extend stay if: Debtor can extend stay if: motion is filed; motion is filed; notice and hearing; notice and hearing; notice and hearing within 30-day stay; and notice and hearing within 30-day stay; and Debtor proves new filing is in good faith as to creditors to be stayed. [1] 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). 11 U.S.C. § 362(c)(3)(B).

5 Good Faith: “Really?” Presumption of not filing in good faith if Presumption of not filing in good faith if more than one case filed within prior year; more than one case filed within prior year; case dismissed within prior year for failure to case dismissed within prior year for failure to amend as required by court/statute amend as required by court/statute provide adequate protection or provide adequate protection or perform a confirmed plan; OR perform a confirmed plan; OR No substantial change in financial/personal situation. [1] 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). 11 U.S.C. § 362(c)(3)(B).

6 Good Faith: “Yes, really.” If presumption of not filing in good faith arises, debtor may rebut by clear and convincing evidence. 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.

7 Factors of Good Faith: Extension sought as to all or single creditor; Extension sought as to all or single creditor; Timing of cases; Timing of cases; Reasons giving rise to presumption; Reasons giving rise to presumption; Change in financial or personal affairs; Change in financial or personal affairs;

8 More Factors of Good Faith: Creditors position opposing extension; Creditors position opposing extension; Nature of debt Nature of debt Nature of collateral Nature of collateral Even of bankruptcy purchases; Even of bankruptcy purchases; debtor’s: debtor’s: Conduct in new case Conduct in new case Reasons for seeking extension; AND Reasons for seeking extension; AND Unique facts or circumstances to case. [2] 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).

9 “ Charles II” Analysis Creditors agree case filed in good faith Creditors agree case filed in good faith Creditors disagree  good faith exists? Creditors disagree  good faith exists? Objective: is a discharge likely? Objective: is a discharge likely? Subjective: “totality of the circumstances” Subjective: “totality of the circumstances” Debtor’s motives Debtor’s motives Relationship with creditors Relationship with creditors

10 Totality of the Circumstances Factors: Nature of debts; Nature of debts; Nature of collateral; Nature of collateral; Eve of bankruptcy purchases; Eve of bankruptcy purchases; Debtor’s conduct in present case; Debtor’s conduct in present case; Effort to obtain discharge Effort to obtain discharge Why debtors wants to extend stay; and Why debtors wants to extend stay; and other circumstances. other circumstances. Negotiate with home lender Negotiate with home lender

11 Even if Good Faith, Discretion to Consider Equitable Factors No creditors oppose No creditors oppose Best interests test met Best interests test met

12 Does Stay Terminate as to Property of Estate? Case filed within prior year  automatic stay as to debtor terminates on 30 th day after new filing Case filed within prior year  automatic stay as to debtor terminates on 30 th day after new filing Split of authority: statutory language Split of authority: statutory language “with respect to the debtor” “with respect to the debtor” Include property of estate? Include property of estate? Majority: not include property of estate Majority: not include property of estate Comparison of other provisions Comparison of other provisions Minority: includes property of estate Minority: includes property of estate Congress’ intent and purpose in BAPCPA Congress’ intent and purpose in BAPCPA Prevent repeat filers Prevent repeat filers

13 Dismissed Automatically? Section 521 requires filing the following within 45 days from filing date: Section 521 requires filing the following within 45 days from filing date: creditors creditors assets and liabilities assets and liabilities current income and expenses current income and expenses financial affairs [SOFA] financial affairs [SOFA] itemized monthly net income itemized monthly net income reasonably anticipated increase in income/expenses over one year following filing date reasonably anticipated increase in income/expenses over one year following filing date certificate of consumer counseling AND certificate of consumer counseling AND payment advices received within 60 days payment advices received within 60 days

14 Automatic Dismissal, unless party in interest requests dismissal party in interest requests dismissal order must be entered within 5 days (7 days after 12/1/09) order must be entered within 5 days (7 days after 12/1/09) debtor timely requests extension within 45 days after filing date debtor timely requests extension within 45 days after filing date no to exceed 45 days no to exceed 45 days trustee objects: not in best interest of creditors trustee objects: not in best interest of creditors split of authority: discretion to extend deadline split of authority: discretion to extend deadline

15 To Extend or Not to Extend ? Not: Not: In re Wilkinson: inadvertent duplicate payment advice In re Wilkinson: inadvertent duplicate payment advice sua sponte sua sponte Trustee did not seek dismissal Trustee did not seek dismissal No party in interest objected to confirmation No party in interest objected to confirmation In re Hall: missing monthly net income and anticipated financial changes statements In re Hall: missing monthly net income and anticipated financial changes statements Debtor did not request extension Debtor did not request extension Trustee did oppose dismissal Trustee did oppose dismissal In re Parker: debtor’s motion to dismiss denied In re Parker: debtor’s motion to dismiss denied In re Bonner: missing stub filed on 46 th day In re Bonner: missing stub filed on 46 th day

16 Trustee Saves the Case Trustee timely requests case not be dismissed Trustee timely requests case not be dismissed Within applicable period Within applicable period Notice and hearing Notice and hearing Good faith to file required documents, and Good faith to file required documents, and Best interests of creditors served Best interests of creditors served

17 Credit Counseling 101 Credit counseling course and Credit counseling course and Within 180 days before filing date Within 180 days before filing date Otherwise, dismissal in most cases Debtor moves for temporary relief Debtor moves for temporary relief File certification File certification Exigent circumstances merit waiver, Exigent circumstances merit waiver, Debtor requested but was unable to receive counseling within 5 days of request; and Debtor requested but was unable to receive counseling within 5 days of request; and Court satisfied with certification. Court satisfied with certification.

18 To Extend or Not to Extend? Extend Extend In re Bricksin: credit counseling outside 180-day period. Trustee’s motion to dismiss denied. 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, Very best efforts to comply with requirement and substantial compliance, Extensive pre-petition counseling and made substantial payments, Extensive pre-petition counseling and made substantial payments, Need to file not obviated by additional counseling and debtors knew of bankruptcy filing implications, Need to file not obviated by additional counseling and debtors knew of bankruptcy filing implications, Costs by taking counseling, and Costs by taking counseling, and Equitable considerations: start over, filing fees, limitations of automatic stay. Equitable considerations: start over, filing fees, limitations of automatic stay.

19 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 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. In re Henderson: Pro Se debtors get a break. Urgent situation render debtor unable to comply? Urgent situation render debtor unable to comply? Legal advice: prepetition or postpetition Legal advice: prepetition or postpetition

20 Exigent Circumstances? Foreclosure Foreclosure Notice Notice Other Other Resources Resources Language barriers Language barriers Incapacity Incapacity Disability Disability Active duty Active duty

21 Dismiss v. Strike Automatic stay Automatic stay Debtors prefer case be stricken. Debtors prefer case be stricken. Uncertainty Uncertainty Return of filing fees Return of filing fees Trustee compensation Trustee compensation No consensus: No consensus: Congress did not intend for counseling requirement to limit relief Congress did not intend for counseling requirement to limit relief Encourage debtors to do it right the first time Encourage debtors to do it right the first time

22 Commencement of Case Automatic Stay Automatic Stay In re Rios: no commencement if debtor fails to obtain counseling. In re Rios: no commencement if debtor fails to obtain counseling. In re Tomco: commencement when petition is filed. In re Tomco: commencement when petition is filed. Depends on whether all requirements are met. Depends on whether all requirements are met. Problem: uncertainty among creditors. Problem: uncertainty among creditors. Stay violations Stay violations

23 Tax Returns Section 521(j): taxing authority may move for conversion or dismissal if not filed or no extension. 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 If not filed within 90 days, court must convert or dismiss Best interest of creditors and estate Best interest of creditors and estate

24 Diamond Necklace: $10, Section 523: Section 523: Credit card companies may except: Credit card companies may except: Cash advances Cash advances $ $ Consumer open end credit plan Consumer open end credit plan On or within 70 days prior to order for relief On or within 70 days prior to order for relief Luxury goods or services Luxury goods or services Consumer debt Consumer debt $ $ On or within 30 days prior to order for relief On or within 30 days prior to order for relief Presumed nondischargeable Presumed nondischargeable

25 Fraud, Actual Fraud Presumption Presumption Rebuttable Rebuttable Shifts burden of going forward Shifts burden of going forward Burden on proof on plaintiff Burden on proof on plaintiff Circumstantial evidence Circumstantial evidence Intent to repay Intent to repay Mere inability to pay not sufficient Mere inability to pay not sufficient

26 Is it a Luxury? Reasonably acquired for support or maintenance of debtor Reasonably acquired for support or maintenance of debtor Extravagant, indulgent, or nonessential Extravagant, indulgent, or nonessential In re Paesano: Citibank moves for SJ for: In re Paesano: Citibank moves for SJ for: $ Four Seasons Enterprise $ Four Seasons Enterprise $ Value City $ Value City $ Priceless Kids $ Priceless Kids $10, Tiffany & Co., would meet MSJ standards $10, Tiffany & Co., would meet MSJ standards

27 Luxury Purchases? Think Twice Zeman: Judicial notice: Zeman: Judicial notice: La Fogata, USPS, HEB Grocery, Target, Exxon, PetsMart, Walgreens, Hertz, Whataburger 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] “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).

28 Maybe a Luxury, But Discharged In re LaBovick: In re LaBovick: Within 60 days of filing date: Within 60 days of filing date: 6 gift cards: $3, gift cards: $3, Gold chain: $ Gold chain: $ Watch: $ Watch: $ Bed, cookware, small electrical items, clothing, bedding, and a rug: $7, Bed, cookware, small electrical items, clothing, bedding, and a rug: $7, All discharged. Extreme facts: 30 year account, no late payments, move due to son’s house arrest for manslaughter Extreme facts: 30 year account, no late payments, move due to son’s house arrest for manslaughter

29 Suits for Nondischargeability 60 days after 341 meeting 60 days after 341 meeting Fraud Fraud Fraud in fiduciary capacity, embezzlement, or larceny Fraud in fiduciary capacity, embezzlement, or larceny Willful and malicious injury Willful and malicious injury Debts incurred to pay I.R.S. or other governmental units, federal election fines or penalties 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 Debts owed to spouse, former spouse or child incurred in connection a divorce or seperation

30 Home Sweet Home Section 522(p) Homestead Exemption Section 522(p) Homestead Exemption 1,215 days 1,215 days Exceeds $125, Exceeds $125, In re Rogers: In re Rogers: title acquired outside period, but homestead not claim title acquired outside period, but homestead not claim Interest: vested economic interest Interest: vested economic interest Title and equity Title and equity Can be ascertained when debtor acquires it Can be ascertained when debtor acquires it

31 California or Florida? State exemptions State exemptions Reside for 730 days prior to filing Reside for 730 days prior to filing Otherwise, longest period during 180 days prior to 730-day period Otherwise, longest period during 180 days prior to 730-day period

32 Proof of Claim: Just in Case Most Chapter 7 cases: no-asset notice Most Chapter 7 cases: no-asset notice If assets  re-notice If assets  re-notice 90 days to file from notice 90 days to file from notice Otherwise, 90 days from first 341 meeting Otherwise, 90 days from first 341 meeting Attach documents supporting claim Attach documents supporting claim Chapter 11: no need to file Chapter 11: no need to file Chapter 13: must file even if on schedules Chapter 13: must file even if on schedules

33 Let’s Negotiate Unsecured creditor’s failure to negotiate pre- petition  reduce claim by up to 20% Unsecured creditor’s failure to negotiate pre- petition  reduce claim by up to 20% Nonprofit budget and credit counseling agency Nonprofit budget and credit counseling agency Repayment offer of 60% or more of debt Repayment offer of 60% or more of debt Within 60 days of filing date, and Within 60 days of filing date, and Unsecured creditor refuses to negotiate Unsecured creditor refuses to negotiate

34 Contacting the Debtor: Do You Dare? Secured debts Secured debts Reason to communicate: collateral Reason to communicate: collateral Automatic stay or discharge injunction Automatic stay or discharge injunction

35 “Ride-Through” Debtor must declare intentions as to collateral Debtor must declare intentions as to collateral 45 days from notice of intentions 45 days from notice of intentions Otherwise, termination of automatic stay as to that collateral Otherwise, termination of automatic stay as to that collateral redeem, surrender, or reaffirm redeem, surrender, or reaffirm “ride-through:” “ride-through:” comply with contract, keep collateral comply with contract, keep collateral bankruptcy clause defaults bankruptcy clause defaults Creditor’s neglect Creditor’s neglect Creditor’s desire to keep payment stream payments Creditor’s desire to keep payment stream payments If after discharge  estopped from foreclosing (waiver) If after discharge  estopped from foreclosing (waiver)

36 What or Who is Discharged? Only personal liability of debtor Only personal liability of debtor Collateral is still liable Collateral is still liable Creditor can repossess, foreclose or contact debtor: Creditor can repossess, foreclose or contact debtor: Mortgage on principal residence Mortgage on principal residence Security interest Security interest Act or communication Act or communication ordinary course of business ordinary course of business Limited to seeking or obtaining periodic payment in lie of pursuit of in rem relief. Section 524(j). Limited to seeking or obtaining periodic payment in lie of pursuit of in rem relief. Section 524(j). No coercion (9th Cir.) No coercion (9th Cir.) Written or oral? Written or oral?

37 Collection Script In rem communications In rem communications Options of curing default or foreclosure Options of curing default or foreclosure Acknowledge discharge of personal liability in all communications Acknowledge discharge of personal liability in all communications Disclaimers Disclaimers No coercion and not seeking personal liability No coercion and not seeking personal liability Evidence? Evidence?


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