Bankruptcy Outline
Kilborn
Spring 2015
Intro; Debt Collection; FDCPA
Major goal of BK = Preserve Value and eliminate/mitigate the fact that forced sales destroy value
– reorganization BK preserves the continuing business value = people are worth more alive than death
Collecting from Consumer Debtors
A. Leverage – balancing decisions about costs/benefits of paying each bill
– – Positive leverage = give consumer lower interest rate, extend payment terms to help consumer get back on their feet
– negative = foreclosure, jail, judgments, liens etc
Informal Remedies for nonpayment of debt
1. Rules of the game – fair debt collection practices
a. usury laws – regulate the debt itself and are at the core of debtor-creditor law cant collect more than certain amount of interest.
i. If creditor does, interest and sometimes principal are uncollectable, creditor conduct sometimes criminal
b. FDCPA – Fair Debt Collection Practices Act
i. provides federal remedy for debt collection cases – makes debt collecting fair for debtors
1. only applies within narrow circumstances – debts owed by relatively narrow range of people collected by narrow range of people
ii. 1692(a)
1. (5) – debt = consumer debt – NOT business debt
a. obligation or alleged obligation of consumer to pay money arising out of a transaction in which the money, property, insurance or services which are the subject of transaction are primarily used for personal, family or household purposes
2. (6) – debt collector
a. people who regularly collect against debtors (i.e. lawyers) = more than 5% of cases at firm are debt
i. less than 5% = FDCPA doesn’t apply
b. creditors can collect against debtors unless creditor has several departments and collection dept operates under a different name
c. leverage of law = function of how bad would it be for violator. Gives rise to actual damages. Damages = small. Most people won’t suffer emotional distress enough to qualify
i. statutory damages = $1,000 and atty fees
iii. 1692d – Harassment/Abuse
1. creditors not immune from tort law i.e. IIED
2. use of/threat of violence
3. obscene or profane, or abusive language
4. cannot publish list of names who won’t pay unless it’s to consumer reporting agency or people meeting requirements of section 603(f) or 604(a)(3) of this act
iv. 1692e – false or misleading representation
v. 1692f – unfair practices
.
the estate and automatic stay
automatic stay – 362
– 362(a) – once a bk petition has been filed, any action by anyone or anything to have any effect on anything w/I estate is stayed by law.
o – with the exceptions of 362(b) – POLICE POWER and ALIMONY
– Creditors must stop collection actions or they violate stay and will be subject to damages (362(k)(1) – can get actual damages, fees and costs, and punitive damages if appropriate
– Post Pet NOT part of estate
– auto generated notices are actions against debtor are actions for debtor or attempt to control the estate –
Functions of automatic stay
1. protect property of estate from ANYONE (Debtor and creditor)
2. Debtor and post-petition property (gets fresh start right away) are protected from people pursuing pre-petition claims
BAPCPA – 2005 law
362©(3) –can only file unwarranted BK once i.e. to get automatic stay enacted to get creditors to leave you alone. If case has been dismissed by/against you for abuse w/I one year of filing new case, then the automatic stay expires 30 days automatically after filing new case unless motion is granted to have automatic stay extended
section 542 requires anyone who is in possession of property of the estate to turn it over to the trustee as soon as you find out that bk case has been filed
– even if you don’t do ANYTHING, by holding onto that certain property, you violate the automatic stay
– secured creditor – don’t necessarily have to turn it over – i.e. creditor (carmax) can hold onto car during the bk- do NOT sell the car or do anything to it
– Elements of 542: 1. Entity has possession, custody or control of property, 2. debtor may use property pursuant to 363(d), 3. property has value or benefit to the estate
BK – main practical consequence is to discharge a consumer from collecting on their debts
– in rem proceeding (Against the property)
– proceeding starts w/ bk estate
BK Trustee – usually a lawyer
– administers debtor’s estate, gathers all the estate assets
o Ch 7 – trustee sells the assets, ch 13, the trustee administers the BK case
– trustee has a special obligation to unsecured, general creditors and is charged w/ scrutinizing the debtor’s reports to locate any concealed property or to discover any wrongdoing that might result in a failure to get a discharge
o in ch 7 case, BK case closes w/ no asset report
– trustee = appointed by US Trustee, generally local lawyer, sometimes accountant (aka TIB), job is looking at papers, property, seeing if any asset value is to be distributed, then they file no asset report
o in cases when there is something to fight about, trustee may be able to find more $, can take cut of how much $ is given out
o trustee has statutory obligation to enhance value distribution to creditors and personal motivation, for every $ collected, they get cut
– Trustee = US Trustee, gov’t regulator/supervisor. Created in mid 1980s to try to bring some integrity to process, to put watchdog in place to oversee trustees, monitor cases, make sure cases move along
PROPERTY of the Estate IN BK – Section 541
o some policy exceptions for employee contributions to retirement accounts set forth in 541 of the code
o Trustee determines value under 541
1. Property you own and possess when you file. If you own something and it’s in your possession, it’s part of your bankruptcy
es, commissions, etc earned after the petition is filed will not become property of the estate and do not have to be surrendered to creditors
– courts struggle w/ issues that relate back
o i.e. present from friend after filing BK = new property
o i.e. friend pays back i.o.u. 3 days after BK = old file because i.o.u. existed prior to BK
Common exceptions to discharge
1. child support
2. income taxes less than 3 years old
3. property taxes
4. student loans
5. fines and restitution imposed by court for any crimes committed by debtor
541(a) – property of estate includes “all legal/equitable interests of debtor in the property and as of the commencement of the estate”
– a debtor in BK who denies owning an asset including commission from a sale after BK filed cannot get that esp when concealed after BK ends
– 541(a) – includes property in which debtor has an equity interest and all property in which a debtor has only interest
– 541©(1) – anti alienation restrictions use of state law from excluding the funds from becoming property of the estate
willfulness does not refer to the intent to violate the automatic stay, it refers to the intent to commit the act which violates the automatic stay
– if you don’t mention it, will lose exemption. If there is any possibility that debtor has an interest, debtor must list property of estate
– 541© – purpose of BK is to maximize value of debtor’s assets, transfer restriction makes it valueless.
Things that are not part of the estate:
1. If trustee for bank account for someone else who is the beneficiary of the acct 541(d)(1)
2. Retirement account – Corpus is exempt, but distributions are property of the estate 541©(2) (Spendthrift trust)
-if EMPLOYER puts $$ in your account for retirement it is OUT. 541(b)(7) and (c)(2)
– File for BK after tax return is back and spend on food and reasonable things and THEN file. Refund is prorated – trustee and creditors work this out.
if married, take cut of person who filed
– 2 year COA for SOL for trustee finding things. Creditors get notice of BK filed. Debtor lists creditors, they then get notice
Debtors’ duties – 521(a)(2) – file statement of intention w/ respect to retention of property, debtor intends to redeem property (car)
file w/I 30 days of petition on or before date of meeting of creditors
