Guam Chamber of Commerce

Transcription

1 UNITED STATES TRUSTEE PROGRAM* Guam Chamber of Commerce Bankruptcy Abuse, Creditor Remedies, and the Automatic Stay September 5, 2014 *Cases cited reflect court rulings and do not necessarily reflect the views of the United States Trustee

2 CHAPTER 7 BASICS Chapter 7 General Background Timeline Some Important Deadlines Chapter 7 Debtor Duties Chapter 7 Trustee Duties Bankruptcy Abuse Creditor Remedies Automatic Stay Violations and Consequences

3 Chapter 7 General Background Two goals Fresh start (if appropriate). Equitable distribution of assets (if any). No requirement of insolvency.

4 Chapter 7 Deadlines and Timeline Pre-petition Credit Counseling Petition Trustee Appointment Meeting of Creditors days after commencement of case. FRBP Rule 2003(a). Debtor Education statement. FRBP Rule 1007(b)(7)

5 Chapter 7 Deadlines and Timeline Deadline to file complaint challenging discharge. 60 days after date meeting of creditors is first set. Many require adversary proceeding. 523 Exception to discharge. 727 Denial of discharge. Objection to Debtor s Claim of Exemptions. 30 days from close of meeting of creditors. FRBP Rule 4003.

6 Chapter 7 Deadlines and Timeline Debtor s attorney s fee disclosure. 14 days after order for relief. FRBP Rule 2016 (b). Reaffirmation agreements Before discharge. 524(c). Objections to Claims No deadline.

7 Chapter 7 Deadlines and Timeline Discharge Issued after deadline to file complaint to deny discharge passes with no complaint (or resolved in debtor s favor). Case Closing After resolution of discharge issues and Trustee filing either Report of No Distribution or Trustee Distribution Report.

8 Chapter 7 Debtor s Duties Section 521 File list of creditors. File schedule of assets File schedule of liabilities File schedule of current income and expenditures. File statement of financial affairs File copies of last 60 days pay advices

9 Chapter 7 Debtor s Duties File Means Test File statement showing any reasonably anticipated income or expense changes in the coming 12 months. File statement of intention regarding retention or surrender of secured property and intention to redeem or reaffirm the underlying debts. Debtor should perform on this intention within 30 days after date first meeting of creditors is set.

10 Chapter 7 Debtor s Duties Cooperate with trustee so that trustee can perform his/her duties. Surrender to trustee all property of the estate and any recorded information, i.e., books and records relating to property of the estate. File pre-petition credit counseling certificate. Provide to the trustee most recently filed income tax return (or tax transcript).

11 Chapter 7 Debtor s Duties Attend and testify under oath at the meeting of creditors. Comply with reasonable requests of U.S. Trustee s Office. Provide at the meeting of creditors, if requested, proof of identification and social security number.

12 Chapter 7 Trustee s Duties Section 704 Collect and reduce to money the property of the estate and close the estate as expeditiously as is compatible with the best interests of creditors. Be accountable for all property received. Investigate the financial affairs of the debtor. If a purpose would be served, examine proofs of claim and object to any improper claim.

13 Chapter 7 Trustee s Duties If advisable, oppose the discharge of the debtor. Unless the Court orders otherwise, furnish such information concerning the estate and the estate s administration as is requested. Make a final report and file a final account of the administration of the estate with the court and with the U.S. Trustee.

14 Dismissal For Cause sec. 707(a) Cause determined on a case by case basis. Unreasonable delay, prejudicial to creditors. Non-payment of fees. Failure to file schedules. Previous chapter 7 discharge within 8 years. Failure to cooperate with trustee.

15 Section 707(b): Presumed Abuse After notice and a hearing, the court, on its own motion or on a motion by the United States trustee, trustee, or any party in interest, may dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts, or, with the debtor s consent, convert such a case to a case under chapter 11 or 13 of this title if it finds that the granting of relief would be an abuse of the provisions of this chapter.

16 Section 707(b) - Abuse Primarily Consumer Debt Primarily = more than 50%. Consumer debt = incurred primarily for personal, family, or household purpose. 11 USC 101(8).

17 Section 707(b) - Abuse Two types of 707(b) abuse 707(b)(2) presumed abuse 707(b)(3) abuse which is not presumed, based on:» Bad faith. 707(b)(3)(A)» Totality of circumstances of the debtor s financial situation. 707(b) (3)(B).

18 Section 707(b)(2): Presumed Abuse Means Test leads to Presumption of Abuse (or not) 707(b)(2) Generally involves debtor with above median income.

19 Section 707(b)(2): Presumed Abuse The presumption arises if the debtor shows: $ in monthly disposable income OR $ in monthly disposable income AND which over 60 months would pay at least 25% of general unsecured claims

20 Section 707(b)(3) Non- Presumed Abuse Section 707(b)(3)(A) whether the debtor filed the petition in bad faith OR Section 707(b)(3)(B) [whether] the totality of circumstances of the debtor s financial situation demonstrates abuse.

21 Section 707(b)(3) (B) Totality of Circumstances Totality considerations: likelihood of sufficient future income to repay substantial portion of unsecured claims. petition filed due to illness, disability, unemployment, or some calamity. debtor obtained cash advances or consumer goods on credit exceeding ability to repay.

22 Section 707(b)(3) (B) Totality of Circumstances The primary ground for dismissal under the totality of circumstances standard is the debtor s ability to repay unsecured debt. In re Livernoche, 2007 WL (Bankr. D. Hawaii 2007). Ability to pay analysis is not pre-empted by the Means Test. E.g., In re Reed, 422 B.R. 214 (C.D. Cal. 2009).

23 Section 707(b)(3) (B) Totality of Circumstances Totality considerations - In re Price, 353 F.3d 1135, 1139 (9 th Cir. 2004): is there a likelihood of sufficient future income to pay a substantial portion of unsecured claims. was filing due to illness, disability, unemployment or other calamity. did debtor obtain cash advances and consumer goods on credit exceeding his ability to repay. is proposed family budget is excessive or extravagant. are there misrepresentations of income and expenses. are there eve of bankruptcy purchases.

24 Section 707(b)(3) (B) Totality of Circumstances Income: Debtors cannot choose to be unemployed. In re Richie, 353 B.R. 569 (Bankr. E.D. Wis. 2006). Non-filing spouse s income must be considered. In re Kulakowski, 2011 WL (Bankr. M.D. Fla. 2011) Common error: understating income in Schedule I, B22A, and SOFA No. 1.

25 Section 707(b)(3) (B) Totality of Circumstances Income: use current income, not CMI and note expected future income. expected annual bonus amortized annually. exempt income can be considered. E.g., child support. Be careful about how you calculate income: do not merely double bi-weekly income. If debtor receives sizable income tax refunds, it is likely that he/she is overwithholding. Business income line should disclose gross receipts.

26 Expenses Section 707(b)(3) (B) Totality of Circumstances Expenses must be actual, not hypothetical, e.g., housing, charitable contributions. 401k and 401k loans not allowed. In re Ng, 2011 WL (Bankr. D. Haw. 2011).» But they are allowed as an expense in Chapter 13. High mortgage loan that is being reaffirmed. Depends on circumstances. Case law is mixed. Expensive car payment incurred 5 months pre-petition indicated abuse under totality. In re Escano, 2008 WL (Bankr. N.D. Cal. 2008)

27 Section 707(b)(3) (B) Totality of Circumstances Expenses: Surrender of real property. In re Lamug, 403 B.R. 47 (Bankr. N.D. Cal. 2009) (debtor s surrender of property reduced housing payments from $8,000/ month to $2,000/month and resulted in ability to repay under 707(b)(3)(B). Expiration of payment obligations e.g., child support, auto payments set to expire soon.

28 Section 707(b)(3) (B) Totality of Circumstances Williams 2012 WL (Bankr. D. Or. 2012) manipulation to evade ability to pay test constitutes bad faith. Also, payment for housing would be reduced by $670 in two years thus providing for ability to repay.

29 Section 707(b)(3)(A): Bad Faith In re Groscost, 2011 WL (Bankr. N.D. Ohio 2011) case dismissed for bad faith where debtor quit 32 year employment, did not look for alternative work, played lotto, ran up credit card debt. In re Boyce, 446 B.R. 447 (D. Or. 2011) case dismissed for bad faith where debtor misrepresented income, incurred large debt in 1 year prior to filing, and purchased unnecessary vehicle.

30 Section 707(b)(3)(A): Bad Faith In re Hageney, 422 B.R. 254 (Bankr. E.D. Wash. 2009) debtor s purchase 10 weeks pre-petition of $20,000 motorcycle (and after consultation with bankruptcy attorney), and his ability to repay creditors constituted bad faith filing. In re Mitchell, 357 B.R. 142 (Bankr. C.D. Cal. 2006) debtor filed case in bad faith for credit card abuse.

31 Section 707(b)(3)(A): Bad Faith In re Hilmes, 438 B.R. 897 (N.D. Tex. 2010) (extravagant expenses and lifestyle, e.g., luxury home, frequent vacations, cosmetic surgery, two leased BMWs, demonstrated bad faith) In re Ballard, 2003 WL (Bankr. D. Haw. 2003) (large number of errors and omissions warranted dismissal with prejudice; amendments after errors are uncovered are insufficient.)

32 CREDITOR REMEDIES Reaffirmation Motion to Dismiss. Complaint for Exception to Discharge (Non- Dischargeability). Complaint to Deny Discharge

33 Reaffirmation Must be made before discharge and filed with Court. Use Official Form. Must have debtor s counsel s declaration. Pro Se debtor must have a hearing. For secured debts, debtors must either reaffirm, surrender, or redeem. Debtor s attorneys still trying to avoid this. If lender does not oppose, they may be able to get away with it.

34 Exceptions To Discharge section 523(a) May require adversary proceeding. Deadline 60 days after first meeting of creditors is set. Debtor does get a discharge. Exceptions for the following debts: Incurred by false representations or fraud. Fraud or defalcation while acting in fiduciary capacity. Willful and malicious injury.

35 Exceptions to Discharge section 523(a) (cont d) Student loans. Personal injury resulting from drunk driving. Criminal restitution. Domestic support obligation or other debt resulting from divorce or separation agreement.

36 Denial of Discharge section 727(a) Requires adversary proceeding. Deadline: 60 days after the first meeting of creditors is set. If successful, debtor would not receive discharge in this or future Chapter 7 case.

37 Denial of Discharge section 727(a) (cont d) Grounds for Denial of Discharge: Debtor transferred, destroyed, or concealed his property within one year prior to filing or some time after the filing with the intent to hinder, delay, or defraud. Debtor concealed, destroyed, or failed to keep recorded information from which his financial condition could be ascertained, unless debtor s actions were justified.

38 Denial of Discharge section 727(a) (cont d) Debtor knowingly and fraudulently made a false oath in the case or withheld from trustee recorded information relating to his financial affairs. Debtor failed to explain satisfactorily any loss of assets or deficiency of assets to meet his liabilities. Debtor failed to comply with an order from the Bankruptcy Court

39 Denial of Discharge section 727(a) (cont d) Debtor received chapter 7 discharge in a case filed within 8 years prior to current filing. Debtor received chapter 12 or 13 discharge in a case filed within 6 years of current filing, unless 1) previous case paid 100% to unsecured creditors; or 2) previous case paid at least 70% and plan was proposed in good faith and was the debtor s best effort. Debtor waives discharge.

40 Revocation of Discharge section 727(d) Adversary Proceeding. Deadline: generally one year after discharge is granted. Grounds: If discharge was obtained through fraud and requesting party did not know of such fraud. Debtor failed to explain a material misstatement in an audit, or failed to cooperate with audit.

41 Section 362(a) Automatic Stay Section 362(a) Except as provided in subsection (b) of this section, a [bankruptcy] petition operates as a stay, applicable to all entities, of (1) the commencement or continuation of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case or to recover a claim against the debtor that arose before the commencement of the case.

42 Section 362(a) Automatic Stay (2) the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case. (3) any act to obtain possession of property of the estate or to exercise control over property of the estate. (4) any act to create, perfect, or enforce any lien against property of the estate. (5) any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case.

43 Section 362(a) Automatic Stay (6) any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case. (7) the setoff of any debt owing to the debtor that arose before the commencement of the case.

44 Section 362(b) Some Exceptions to the Stay Section 362(b) the following are not subject to the automatic stay. Criminal proceedings. Civil actions relating to domestic support obligations, paternity, child custody, divorce, domestic violence, or collection of DSO from property that is not property of the estate.

45 Section 362(b) Some Exceptions to the Stay Tax audits or notices of tax deficiency or a demand for tax returns For a non-residential lease which expired by the stated term of the lease pre-petition or postpetition, any act by the lessor to obtain possession of the property. Automatic withholdings to repay loans from 401k accounts.

46 Section 362(b) Some Exceptions to the Stay For a residential lease in which the lessor before the filing has obtained a judgment for possession, the continuation of eviction proceedings against the debtor. (But see 362(l)). For a governmental unit exercising a setoff on a tax refund.

47 Section 362(k) Stay Violation Section 362(k) individual injured by willful violation of automatic stay shall recover actual damages, including costs and attorney s fees. Individual may also recover punitive damages unless entity believed in good faith that 362(h) applies, i.e., no stay on personal property for which no statement of intention timely filed.

48 Section 362(d) Stay Violation In re Grisham, 2013 WL (Bankr. D. Haw. 2013) AOAO sanctioned $8,940 for stay violation cutting off electrical service to condo for failure to pay common area expenses.

49 Section 362(d) Stay Violation In re Grand, 2009 WL (Bankr. D. Haw. 2009) Creditor violated stay by changing locks on property after commencement of case. Debtor awarded attorney s fees of $3,789 but only $1 in compensatory damages because Debtor provided no evidence of loss. Testimony about being scared and upset was not sufficient to prove damages.

50 Section 362(d) Stay Violation In re Coleman, 2011 WL (Bankr. D. Haw. 2011). Creditor violated stay by attempting to evict debtor after filing, but no proof that it was willful because notice of the bankruptcy filing may not have been effective. Also, no compensable damages proven and no substantiation for dollar amounts claimed.

51 Section 362(d) Stay Violation In re Niutupuivaha (Bankr. D. Haw. 2014) Oral ruling. Series of bankruptcies. Prior to filing, creditor scheduled eviction. Last-minute filing.» Filed in blank.» No signature of debtors. Motion for sanctions for violation of stay denied. But creditor was lucky.

52 Thank you