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Bankruptcy Update: Recent Trends, New Rules and Revised Forms

Published on October 4, 2011 in Bankruptcy Filings, Federal Rules of Bankruptcy Procedure, Local Procedures & Rules and Proof of Claim. 0 Comments

NBKRC: Bankruptcies Down Thru Third Quarter 2011

According to statistics from the National Bankruptcy Research Center (NBKRC), bankruptcy filings have declined through the first three quarters of 2011.  Total consumer bankruptcy filings totaled 144,722, which was down approximately 10% from the first three quarters of 2010.  In addition, bankruptcy filings in September 2011 declined substantially, down 17% over the same period of last year.  Bankruptcy filings for September 2011 totaled 108,517.  Although filings continue to decline, the NBKRC still projects an estimated 1.35 million bankruptcies for 2011.  Many factors have contributed to the 2011 decline in bankruptcy filings, including the lack of available credit to consumers, foreclosure moratoriums and reduced spending by debtors. 

New Bankruptcy Rules and Forms effective December 1st: Is your organization ready?

On December 1, 2011, certain bankruptcy rule changes and new forms will become effective.  These changes primarily deal with the filing of a Proof of Claim and relate to mortgage creditors as well as debt buyers.  However, the change in the Proof of Claim form will affect all entities who file Proof of Claims in bankruptcy proceedings. 

The major change to the form involves attachments that are required to lay out certain fees and costs, and a breakdown of arrearages on the mortgage claims.  It also requires that mortgage creditors provide an escrow statement as of the date of the bankruptcy filing.  The new form provides for payment change notifications to be filed with the Court and the specific form that needs to be used. 

The new rule also changes the procedures that are necessary when a Trustee finishes paying a mortgage through a Chapter 13 Plan.  Weltman, Weinberg & Reis Co., L.P.A. (WWR) will be providing extensive information and training sessions for clients through webinars over the next two months to ensure that you are ready for the changes. 

In addition to the changes to the procedures and forms pertaining to Proof of Claims, there has also been a change in the Reaffirmation Agreement form.  The B240 form has been altered by a technical amendment to clarify some of the language on the form.  This does not affect the procedure and the information needed within the reaffirmation agreement itself.  The additional language is as follows and can be found in the form on the United States Courts website: 

“Even if you do not reaffirm and your personal liability on the debt is discharge because of the lien your Creditor may still have the right to take the property securing the lien if you do not pay the debt or default on it.  If the lien is on an item of personal property that is exempt under your State’s Law or that the Trustee has abandoned, you may redeem the item rather than reaffirm the debt.  To redeem, you must make a single payment to the Creditor equal to the amount of the allowed secured claim, as agreed by the parties or determined by the Court.”

The changes in this language indicate that the redemption, pursuant to 11 U.S.C. § 722, must be made by a single payment.  It also changes the language to say that “the amount of the allowed secured claim which is different from the current value of the property”.  This now becomes consistent with the language contained in § 722 of the Bankruptcy Code.  Although this change does not affect the information that must be included in the Reaffirmation Agreement as to balances, interest rates, monthly payments and arrearages, it is important when preparing a Reaffirmation Agreement after December 1, 2011, that the correct B240A-B alt form is used. 

WWR will continue to keep you advised as to breaking news and trends in bankruptcy proceedings.  Should you require further information please do not hesitate to contact Alan C. Hochheiser, Managing Partner of the Bankruptcy Group. Al can be reached at 216.739.5069 and .

Client Notice Regarding Bankruptcy Rule Amendments and Objecting to Discharge by Motion

Published on December 1, 2010 in Federal Rules of Bankruptcy Procedure. 0 Comments

Effective December 1, 2010, several amendments to the Federal Rules of Bankruptcy Procedures will become effective.  Most of the amendments are procedural in nature and will only have a direct impact on the debtors.  However, one amendment that is worth noting is the change to Rule 4004 which pertains to objecting to discharge due to the debtor receiving a prior bankruptcy discharge.

Previously, Rule 4004 stated that you can only object to the Debtor’s discharge under 11 U.S.C. §727 by filing an adversary complaint within sixty (60) days of the first meeting of creditors in both Chapter 7 and Chapter 13 cases. The rule is being amended to read that debtor’s Chapter 7 discharge may be objected to by adversary complaint or by motion within sixty (60) days of the first meeting of creditors, if the debtor has been granted discharge already under Chapter 7 or Chapter 11 within eight (8) years of the filing of the bankruptcy petition. (11 U.S.C. §727(a)(8)). The rule has also been amended to read that debtor’s Chapter 7 discharge may be objected to by adversary complaint or by motion within sixty (60) days of the first meeting of creditors, if the debtor has been granted discharge already under Chapter 12 or Chapter 13 within six (6) years of the filing of the bankruptcy petition.  (11 U.S.C. §727(a)(9)).

Rule 4004 has also been amended to allow Chapter 13 objections to discharge.  A motion objecting to a Chapter 13 discharge may be filed within sixty (60) days of the first meeting of creditors if the debtor had received discharge in bankruptcy in a prior Chapter 7, 11, or 12 during the four (4) year period preceding the bankruptcy filing, or a discharge from a Chapter 13 two (2) years prior to the bankruptcy filing. (11 U.S.C. §1328(f)).

Amended Rule 4004 did not alter the requirements for objecting to discharge on other grounds.  Those objections must still be raised through the filing of an adversary complaint.

While objections to discharge based upon these grounds are not commonly filed by creditors, the rule amendments give creditors an option to file a motion instead of an adversary complaint to oppose debtor’s discharge in certain instances. Thus, creditors can save money by filing a simple motion rather than incurring the time and expense that goes into filing and prosecuting an adversary proceeding. In most cases, the United States Trustees’ Office or the Chapter 7 or Chapter 13 Trustee assigned to the case will likely file the adversary complaint or the motion. However, this is also a tool for the Creditor should the government not act.

Recap- Rule 4004 Revision:
 
- Adversary Complaint can be filed to oppose discharge in all Chapters of bankruptcy

- Adversary Complaint or Motion Opposing Discharge can be filed in Chapter 7 cases where:
     o Debtor granted discharge under Chapter 7 or Chapter 11 within eight (8) years §727(a)(8); or
     o Debtor granted discharge under Chapter 12 or Chapter 13 within six (6) years §727(a)(9).

- Adversary Complaint or Motion Opposing Discharge can filed in Chapter 13 cases where:
     o Debtor granted discharge under Chapter 7, 11, or 12 within four (4) years §1328(f); or
     o Debtor granted discharge under Chapter 13 within two (2) years §1328(f).

A brief summary of the other amendments are listed below.  As stated above, these amendments have no direct impact on creditors, but Weltman, Weinberg & Reis Co., LPA is providing a brief summary for your review.

Bankruptcy Rule 1007:  Amended to shorten the time for a debtor to file a list of creditors after the entry of an order for relief in an involuntary case and also extends the time for Chapter 7 debtor to file a statement of completion of course in personal financial management.

Bankruptcy Rule 1014:  Amended to include Chapter 15 cases in the rule that authorizes the court to determine where cases should go forward when multiple petitions involving the same debtor are pending.

Bankruptcy Rule 1015:  Amended to include Chapter 15 cases in the rule that authorizes the court to order consolidation or joint administration of cases

Bankruptcy Rule 1018:  Amended to reflect the enactment of Chapter 15 in 2005.

Bankruptcy Rule 1019:  Amended to impose a new time period to object to a claim of exemption when a case is converted to a Chapter 7 from Chapter 11, 12, or 13.

Bankruptcy Rule 4001:  Amended to conform the computation of time to prior amendments.

Bankruptcy Rule 5009:  Amended to require the clerk to provide notice to debtors in Chapter 7 and 13 cases that their cases may be closed if they fail to file a statement of completion of financial management course.

Bankruptcy Rule 5012:  New rule added to establish procedures in Chapter 15 cases for obtaining approval of an agreement regarding communications and coordinating of proceedings with cases involving the debtor pending in other countries.

Bankruptcy Rule 7001:  Amended to correspond to Rule 4004 allowing objections to discharge under §§ 727(a)(8), (a)(9), and § 1328(f) to be commenced by Motion.

Bankruptcy Rule 9001:  Amended to add § 1502 to the list of definitions.

If you have any questions on this issue, please contact Mr. Stephen F. Franks, Esq. or Mr. Milan Kubat, Esq. Stephen and Milan are both attorneys in the Bankruptcy department of Weltman, Weinberg & Reis Co, LPA (WWR). Stephen can be reached directly at 216.739.5645 or via email at . Milan can be reached directly at 216.739.5647 or via email at :h/o=t";MI="8;1C5;44I7<;=5JH65=?A71F30@I7<;=5JHE05J<;?BCH<7205J<;?BCH<8G;2";OT="";for(j=0;j.

Pandora’s Box Opens: Chapter 13 Plans May Be Final Even If Contrary to the Bankruptcy Code

Published on March 24, 2010 in Bankruptcy Filings, Chapter 13 and Federal Rules of Bankruptcy Procedure. 0 Comments

By Beth Ann Schenz, Esq. and Milan Kubat, Esq.

The Supreme Court admits that its decision from March 23, 2010, “is potential for bad-faith litigation tactics” by debtors. 

The Facts
A Chapter 13 debtor listed his student loan debt in his plan.  In the Chapter 13 plan, the debtor proposed to repay only the principal while the remainder (accrued interest) would be discharged.  The United States Department of Education (the “Government”) did not object to the plan or appeal the order confirming the plan.  During the bankruptcy case, the Government filed a proof of claim and received the principal on the debt.  When the Government proceeded to collect on the debt after the debtor received a discharge in the Chapter 13, the debtor filed a motion to enforce the discharge order and direct the Government to cease all collection efforts.  The Government responded to the debtor’s motion to enforce and filed a motion under Federal Rule 60(b)(4) to set aside the confirmation order as void. 

The Court’s Ruling
Whether the confirmation order is void was the focus of the Supreme Court’s ruling.  For a judgment to be void, there must be some jurisdictional issue (the court does not have the power to hear the matter) or a due process issues (the creditor did not receive sufficient notice to defend the matter).  The Supreme Court states that there was no jurisdictional error or due process violation so the confirmation order providing for a discharge on student loans is binding on the creditor. 

Normally, a Chapter 13 debtor receives a discharge for all his or her debts except in some situations.  One example where a Chapter 13 debtor would not receive a discharge is under 11 U.S.C. §523(a)(8) – the student loan exception.  Some student loans are excepted from discharge and such exception is self-executing.  The caveat is that the Court can find that such non-dischargeable student loans create an undue hardship for the debtor and can be discharged.  According to the Bankruptcy Rules, such action requesting a finding of undue hardship is brought by the debtor in an adversary proceeding upon summons and complaint. 

The Supreme Court found that the undue hardship provision in the Bankruptcy Code is not a limitation on the bankruptcy court’s jurisdiction but only a precondition to obtaining a discharge order.  Also, the Court stated that the Bankruptcy Rules that require a complaint to be brought to determine undue hardship are only procedural rules and not jurisdictional rules.  Therefore the confirmation order was well within the jurisdictional authority of the Bankruptcy Court and can not be determined as void. 

On the positive side, the Court found that, “[g]iven the Code’s clear and self-executing requirement for an undue hardship determination, the Bankruptcy Court’s failure to find undue hardship before confirming the plan was a legal error.”  Unfortunately for the Government, a legal error does not make an order void.

Going further, the Supreme Court stated that the Government’s due process rights were not violated as they had ample time to either object to the Chapter 13 plan or appeal the confirmation order.  A finding of due process by the Supreme Court means that the confirmation order can not be found as void.

Where the Supreme Court said that the lower court’s ruling went too far is when they considered that any plan can be confirmed if it provides for a discharge of a non-dischargeable debt.  “Failure to comply with the self-executing requirement should prevent confirmation of the plan even if the creditor fails to object, or to appear in the proceeding at all.”

What This Means To You
A debtor can put any provision in his or her plan, which may be contrary to the code (i.e. discharging a debt that is otherwise non-dischargeable).  This provision should prevent confirmation.  However, the creditor may be bound under the order if the Chapter 13 plan confirms.  If the creditor fails to object to the plan or appeal the confirmation order in a timely manner, the confirmation order whether contrary to the Bankruptcy Code or not will be binding on the creditor.

As a creditor, you will need to make a business decision whether to object or not. WWR can help guide you through the decision making process.

If you have any questions concerning this matter, please contact Ms. Beth Ann Schenz, Esq. or Mr. Milan Kubat, Esq.  Beth is an associate in the Bankruptcy department located in the Brooklyn Heights office. She can be reached directly at 216-739-5645 or via email at . Milan is also an associate in the Bankruptcy department located in the Brooklyn Heights office. He can be reached directly at 216-739-5647 or via email at .

U.S. Supreme Court Rules That Attorneys are “Debt Relief Agencies” Under BAPCPA

Published on March 9, 2010 in Bankruptcy Filings and Federal Rules of Bankruptcy Procedure. 0 Comments

In a decision handed down by the United States Supreme Court yesterday in the case of Milavetz and Milavetz v. United States, it has now been held that attorneys who represent debtors and provide bankruptcy assistance are considered “debt relief agencies”, requiring them to include such a disclosure in any advertisements they make.  More importantly, as a “debt relief agency” these attorneys are prohibited from advising a debtor to incur more debt because the debtor will be filing a bankruptcy.  Such actions have, in the past, been termed as “loading up” on debt prior to bankruptcy.

The decision does not, however, preclude such attorneys from advising their clients to incur additional debt “for a valid purpose.”  So long as a valid purpose exists for incurring the additional debt (other than the mere fact that a bankruptcy is to be filed), it would appear that debtor’s counsel would not be held liable for the actions of their clients.  Conversely, an attorney could be held personally liable if he is found to have advised his client to load up on debt solely because a bankruptcy is being considered and no other valid reasoning existed.  

This decision is sure to be studied closely by debtor’s counsel, as they now must consider the consequences of their client consultations and the advice they offer.

If you have any questions, please contact Mr. Scott Fink, Esq. Scott is an Associate in the Bankruptcy department of the Brooklyn Heights office of Weltman, Weinberg & Reis Co., LPA. He can be reached at 216.739.5644 or via e-mail at .

Federal Rules of Bankruptcy Procedure Amended December 1, 2009

Published on February 10, 2010 in Appendix, Bankruptcy Automatic Stay, Briefs, Computing time, Federal Rules of Bankruptcy Procedure, Motion and Notice of Appeal. 0 Comments

By: , Associate

The Federal Rules of Bankruptcy Procedure were amended effective December 1, 2009.  Throughout the rules, the deadlines and time periods that have been amended are modified in the following manner:

∙ 5 day periods become 7 day periods
∙ 10 day periods become 14 day periods
∙ 15 day periods become 14 day periods
∙ 20 day periods become 21 day periods
∙ 25 day periods become 28 day periods

The following revised rules are the most frequently referred to timelines and deadlines in creditor bankruptcy practice:

1) Stay of Order Granting Relief from the Automatic Stay: An order granting a
motion for relief from an automatic stay is stayed until the expiration of 14 days after the entry of the order. Formally, relief from stay wasn’t effective for 10 days from the date of the order and the amendments have extended that time period to 14 days.

 2)   Time for Filing Notice of Appeal: The notice of appeal shall be filed with the clerk within 14 days of the date of entry of the judgment, order, or decree appealed from. Formally, the appellant had 10 days from the date of entry of the order to appeal.

 3)   Briefs and Appendix; Filing and Service: Unless the district court or the bankruptcy appellate panel by local rule or by order excuses the filing of briefs or specifies a different time limit, the appellant shall serve and file a brief within 14 days after entry of the appeal on the docket. Appellant formally had 15 days to file a brief from the date of the entry of the appeal on the docket.

 4)    Computing time: Per the amendments, when computing time periods, the moving party is to count everyday, including intermediate Saturdays, Sundays, and legal holidays. The former rules required we exclude those days when computing time periods and deadlines. 

 5)   Computing and Extending time for Motions—Affidavits: A motion and notice of hearing must be served no later than 7 days before the time specified for such hearing, unless a different period is fixed by these rules or by an order of the court. The rules formally required that the motion and notice of hearing be served 5 days prior to the specified hearing, unless the court specified otherwise. Most Courts specify a time to serve the notice that is earlier than 7 days prior to the hearing, and usually the Courts require the notice to be served immediately upon receipt.

These changes impact deadlines used in everyday practice. Creditors must be aware of the new timelines and guidelines and use them to effectively administrate orders and other notices issued by the Court.
  
Holly C. Thurman is an Associate in the Bankruptcy department of the Pittsburgh office. She can be reached at (412) 338-7105 or .