What to Do? What to Avoid?
- §341: within a “reasonable period” after the Debtor files (usually 20-40 days), a Meeting of Creditors is held outside the presence of the Judge.
- Meeting permits the Trustee to review the Petition and Schedules with the Debtor face-to-face.
- Debtor is required to answer questions under oath as to conduct, property, liabilities, financial condition and any matter affecting administration of the Bankruptcy Estate or the right to a discharge.
- Creditors may ask questions, but the Trustee will keep them on a short leash, permitting only limited questions bearing on a particular debt, etc.
Rule 2004 Exams: What are They & How to Use Them
- Rule 2004: On motion Court may order examination of the Debtor relating to conduct, property, liabilities and financial condition affecting administration of the Estate or the right to a discharge.
- In re Samuelson, 174 F. 911 (W.D.N.Y. 1909): Any person who has a provable debt and can show that he is an actual creditor is entitled to an order for examination even though he has not formally proved his claim.
- If the Creditor is careful in questioning the Debtor, this is a good opportunity to learn about the Debtor’s banking activities and available funds disbursed, including the Debtor’s knowledge of invalid or NSF checks.
Proofs of Claim: When in Doubt, File
- Rule 3001(a): Proof of Claim = a written statement setting forth the Creditor’s claim.
- Rule 3002(a): Creditor must file a Proof of Claim for the claim to be allowed (secured, unsecured, disputed, whatever).
- While a Secured Creditor under Chapter 7 and 13 is not required to file a Proof of Claim, they should because: Rule 3001(f) makes a Proof of Claim prima facie evidence of the amount and validity of a claim and Rule 3003(4) provides that the Proof of Claim supersedes the sum scheduled by the Debtor.
- §726(a)(2): Proof of Claim is a prerequisite to making distributions to Unsecured Creditors in the event money later comes into the Estate.
- §506(b): Should the Trustee sell the collateral free and clear of the Creditor’s lien, the Creditor may bid the amount of its claim only if and to the extent that the Proof of Claim has been filed.
§506(b): Creditor should be aggressive in filing its Proof of Claim, seeking the maximum amount for which the Debtor may be liable: including pre-and post-petition Attorneys’ Fees and interest.
Rule 3002(c): Creditor in Chapters 7 or 13 must file not more 90 days after the first date set for Meeting of Creditors unless:
(1) Creditor = a governmental unit; (2) Creditor = infant, incompetent or their representative; (3) Claim arises from a judgment; (4) Claim arises from rejection of an executory contract; (5) Notice of insufficient assets to pay a dividend.
The form for Proof of Claim can be found online at Court Website: http://www.ilnb.uscourts.gov/index.html
Relief from Stay: Tricky but Possible
- §362(a): Once a Petition is filed an Automatic Stay goes into effect immediately -- all collection activity must cease until further order of the Court.
- Laguna Assoc. Limited Partnership v. Aetna Casualty and Surety Co., 30 F.3d 734, 737 (6th App. Cir. 1994): Automatic Stay gives the honest Debtor the opportunity to protect assets so that resources can be marshaled and distributed equitably.
- In other words: seek grounds for relief from the Stay.
- §362(d): Court will only grant relief from the Stay if (1) there is cause; or (2) Debtor his no equity in the property and it is not necessary for reorganization.
Laguna Associates: Debtor’s lack of good faith in filing Bankruptcy may be grounds for lifting the Stay. In assessing “good faith” Courts look at a multitude of factors:
- Debtor only has one asset;
- Debtor’s pre-petition conduct is improper:
- Few unsecured creditors;
- Property posted for foreclosure and Debtor has been unsuccessful;
- Debtor and Creditor in litigation and Debtor required to post bond;
- Filing the Petition allows the Debtor to evade Court Orders;
- Debtor has no ongoing business or employees;
- No possibility of reorganization.
Dismissal of the Case: The Zen Moment
- §523: Vigilance and aggressive representation can pay off (but don’t hold your breath): find bad faith or fraud and expose it to the Trustee and the Court.
- But beware: Chapter 13 is practically fraud proof.
- Unsecured Creditors: dismissal levels the playing field.
- Secured Creditors are less enthusiastic because they are more likely to be able to modify the Automatic Stay.