Bankruptcy: Effects on Medically Indigent Applicants Ammon Taylor 2019 IACC/Social Services Conference June 12, 2019

Where Are We Headed? Bankruptcy Basics Idaho Medically Indigent Statutes Nuts & Bolts Questions

Bankruptcy Basics Debtor/Applicant files a petition requesting relief under the U.S. Bankruptcy Code – 11 U.S.C. §§ 101 et seq. Can file under one of a number of chapters: 7, 11, 12, and 13 Chapters 7 and 13 applicable for our purposes

Bankruptcy Basics Bankruptcy Filing- Immediately triggers “automatic stay” (11 U.S.C. § 362) Creates a “bankruptcy estate” comprised of Debtor’s property Debtor files schedules disclosing assets and debts (liabilities) Lists property (both real and personal) List of debts should include any reimbursement obligation to County Debtor files a statement of financial affairs Notice of Bankruptcy sent to creditors listed in schedules

Automatic Stay 11 U.S.C. § 362 Bankruptcy Basics Stays: Commencement or continuation of judicial or administrative proceeding Any act to create, prefect or enforce lien against estate property Any act to collect or recover a claim against the Debtor or estate property

Automatic Stay … Cont’d. Bankruptcy Basics Must request permission from Bankruptcy Judge to take action (relief from stay – 11 U.S.C. § 362(d)) Requires filing a motion and a hearing Stay continues as to Debtor until the earliest of: Case is closed Case is dismissed or Discharge is granted or denied Stay continues as to estate property until such property is no longer part of the bankruptcy estate Property vests in Debtor (Ch. 13) Case is dismissed Action taken in violation of the automatic stay is VOID Actions taken in violation of automatic stay may also result in damages awarded against the violator

Bankruptcy Basics Chapter 7 Cases (Liquidation Cases) Chapter 7 trustee oversees case No Asset Cases – nothing for creditors; no Proofs of Claim Asset Cases – chapter 7 trustee liquidates/sells property and distributes proceeds to creditors; Proofs of Claim filed Distribution based on priority – secured, priority unsecured, non-priority unsecured Pro rata distribution within in each class Discharge entered for Debtor (11 U.S.C. § 524) – typically within 4 months (unless discharge denied or revoked) Final Report (Asset) or Report of No Distribution (No Asset) Bankruptcy Judge Closes Case

Bankruptcy Basics Chapter 13 Cases (Repayment Plan) Chapter 13 trustee oversees case Usually involve real property (Debtor retains property) Debtor proposes plan to pay debts; Court confirms plan 3-5 years depending on circumstances Creditors file Proofs of Claim Plan payments completed = discharge entered Plan payments not completed = case dismissed; do discharge Bankruptcy Judge closes case

Bankruptcy Basics Discharge Injunction 11 U.S.C. § 524 Releases Debtor from personal liability for certain debts Permanent injunction as to debts that have been discharged “Fresh Start” In some cases, Debtor may be not eligible (e.g., serial filer)

Bankruptcy Basics Dismissal of Case May occur for any number of reasons Failure to properly file required documents in case Failure to meet counseling requirements Ch. 13 – failure to get plan confirmed; nonpayment under plan Etc. Upon dismissal, automatic stay is terminated and Debtor does not receive a discharge Creditors may proceed to collect or enforce their claims; any proceedings may resume

Idaho Medically Indigent Statutes Idaho Code: Title 31, Chapter 35 Patient or third party files application for financial assistance Automatic lien attaches to personal property and real property of the applicant Lien may be perfected (within 30 days of receiving application)— As to real property by recording Notice of Lien in county property records As to personal property by filing with the Secretary of State Idaho Code § 31-3504(4)

Idaho Medically Indigent Statutes Obligations— County’s obligation to make payment, Idaho Code § 31-3508A Applicant’s reimbursement obligation to County, Idaho Code § 31-3510A (order of reimbursement, payment plan, promissory note, etc.) Automatic lien securing applicant’s reimbursement obligation, Idaho Code § 31-3504(4) Any consensual lien executed by applicant, Idaho Code § 31-3510A

Idaho Medically Indigent Statutes Recovery Same right of recovery as provided to state of Idaho under Idaho Code §§ 56-218 and 56-218A (Idaho Code § 31-3510A(5)) Payment of lien from probate estate Payment of lien upon sale of property subject to lien State law rights for breach of any signed repayment agreement Enforcement of rights under any consensual lien (Idaho Code § 31-3510A(4))

Idaho Medically Indigent Statutes Effect of Bankruptcy Discharge Personal Obligation to reimburse County is wiped out No order of reimbursement No promissory note No communications (letters, calls, emails) demanding payment Lien on property survives Lien is a charge against or interest in property to secure payment of a debt or performance of an obligation “Valid, perfected liens that have not been disallowed or avoided survive the bankruptcy discharge of the underlying debt.” In re Handy However, lien is limited to applicant’s real and personal property in existence as of the bankruptcy petition filing date. In re Mechling Check bankruptcy schedules filed by Debtor for property

Idaho Medically Indigent Statutes Effect of Bankruptcy Discharge cont’d Still must process application, In re Sarty; Johnson v. Minidoka County Commissioners Determines the lien obligation amount for any lien that arose prior to bankruptcy filing Determines whether County is obligated to provider (even if no property exists for lien to attach to) Not to determine Debtor’s personal liability to reimburse (should make this clear to Debtor/Applicant during the investigation and determination process)

Nuts & Bolts Notice of Bankruptcy Sent to Creditors – County Occasionally ends up with other County Department or Office Cross department/office searches Information Debtor’s information Case number and date of filing Where to file documents in bankruptcy case Whether to file a Proof of Claim (No Asset = No Proof of Claim) Deadline for filing Proof of Claim

Nuts & Bolts (Notice of Bankruptcy)

Nuts & Bolts Flag File/Account (Stop Everything) Protects against violations of the automatic stay Application approved prior to bankruptcy filing – stay applies to collection activities (requesting payment on any order of reimbursement or promissory note, enforcing lien, etc.) Application pending at time of bankruptcy filing – stay applies to any action or decision on the application, including investigation and initial determination While automatic stay in place, relief from stay needed to either (1) proceed on application or (2) file application – 3rd party applicant (provider) may ask Court for relief from the stay to proceed

Nuts & Bolts Proof of Claim If there are assets (Ch. 7 notice provides for submitting Proofs of Claim, or if bankruptcy was filed as a Ch. 13) Consult with your attorney Proof of Claim forms: www.uscourts.gov https://www.id.uscourts.gov/bankruptcy/forms_fees_rules/Forms.cfm (U.S. Bankruptcy Court, District of Idaho website)

Nuts & Bolts (Proof of Claim)

Nuts & Bolts Monitor Case Sale of Property (to ensure payment on lien out of proceeds) Confirmation of Plan (Ch. 13) Payment (if Proof of Claim filed) Discharge Dismissal of Case Trustee’s Accounting & Distribution Report Closing of Case

Nuts & Bolts Post-Bankruptcy Efforts Complete processing application (if necessary) Consult your attorney on timing (especially Ch. 13 cases) Did Debtor have property to which lien remains attached? Check Bankruptcy Property Schedule A/B Even in No Asset case (“No Asset” ≠ no property) www.pacer.gov (PACER - $0.10 per page; see cost info.) If meaningful property exists, further recovery efforts can be explored as against property Voluntary payment plan to pay off lien obligation Recovery from probate estate Recovery from sale of property Foreclosure (certain, limited circumstances)

Nuts & Bolts (Schedule of Property)

Nuts & Bolts (Summary) Notice of Bankruptcy Stop all Activity – Processing Application/Collecting on Reimbursement Obligation File Proof of Claim (if appropriate) Monitor Case After Dismissal or Closing of Case: Complete processing of application (if necessary)* Review bankruptcy schedules to see if lien attached to property If there was property for lien to attach to, consider additional efforts to recover against property *May occur sooner if stay relief obtained from Bankruptcy Court

Questions ?