Bankruptcy & Creditors’ Rights Outline

BANKRUPTCY OUTLINE
 
I. INTRODUCTION
 
A) Purpose of Bankruptcy
 
            1) For commercial certainty and finality
 
            2) To protect the creditors from themselves
 
            3) As a sort of mercy on a debtor so he can have a fresh start
 
o       It comes from the bible, based on the biblical fresh start every seven years
 
4) For the orderly payment of creditors because they will never actually get all the money they are owed
 
5) The primary goal is a discharge and the secondary goal is the distribution of assets
 
6) The 4 goals of bankruptcy are:
 
1.      Secure equitable division of the debtor’s non-exempt property
2.      So the debtor’s conduct should not be inequitable to the creditors
3.      Protect an honest debtor from his creditors
4.      Protect the creditors from each other
 
7) LoPucki explains the objectives of the code for business reorganization:
 
1.      Preserve debtor’s economic productivity
2.      Means to liquidate assets for the best value
3.      Preserve the going concern value
4.      Control over insolvent debtors
5.      Coordinate collection efforts of many creditors of the same debtor
 
B) Criminal Law
 
1) There can be no threat of criminal action because a creditor does not have the right to breach the peace
 
            2) Threatening to file a criminal complaint for non-payment is illegal
 
            3) You can file a complaint for theft of services or criminal fraud etc.
 
o       You cannot demand payment of the debt in a criminal complaint, only restitution
 
4) Under the CL, it was a creditor’s device to force liquidation of assets
 
C) Mental Distress
 
            1) Can be a cause for action, see George v. Jordan Marsh Company
 
            2) In NJ, must be severe mental distress
 
o       The 2 prong test is 1) severe 2) outrageous
 
            3) Creditors should be aware of this law
 
D) FCRA
 
1) Fair Credit Reporting Act- regulates collection, dissemination, and use of consumer credit information
 
2) Consumer reporting agencies (CRAs) are entities that collect and disseminate information about consumers to be used for credit evaluation and certain other purposes. Credit bureaus, a type of consumer reporting agency, hold a consumer’s credit report in their databases. CRAs have a number of responsibilities under FCRA, including the following:
 
1.      Provide a consumer with information about him or her in the agency’s files and to take steps to verify the accuracy of information disputed by a consumer. Under the Fair and Accurate Credit Transactions Act (FACTA), an amendment to the FCRA passed in 2003, consumers are able to receive one free credit report a year. The free report can be requested by telephone, mail, or through the government-authorized website, annualcreditreport.com.
 
2.      If negative information is removed as a result of a consumer’s dispute, it may not be reinserted without notifying the consumer within five days, in writing.
 
3.      CRAs may not retain negative information for an excessive period. The FCRA describes how long negative information, such as late payments, bankruptcies, tax liens or judgments may stay on a consumer’s credit report — typically seven years from the date of the delinquency. The exceptions: bankruptcies (10 years) and tax liens (seven years from the time they are paid).
 
4) There are 2 purposes of FCRA:
 
1.      Give the debtor access to information about himself
 
2.      Assure accuracy of information
 
E) F.D.C.P.A.
 
            1) Fair Debt Collections Practices Act 1978
 
2) Restricts the actions of debt collectors, which is defined as any person whose principal business is to collect debts or any person that regularly collects for another
 
3) It prohibits contact with people other than the debtor except to determine the location of the debtor or to enforce a judicial ruling
 
4) disallows false and misleading representations
 
5) Heintz v. Jenkins- a lawyer that regularly litigates is a debt collector under the F.D.C.P.A.
 
o       This ruling was more defined in:
o       Catherman- lawyers were not debt collectors when:
1.      Less than 5 of 750 cases concerned consumer debts
2.      10-15 consumer loan cases over 5 years
3.      Lawyer spent less than ½ of 1% collecting consumer debts
4.      Sent less than 5 letters concerning consumer debt over 5 years
5.      Typically spent no time on consumer collection for months
o       However, there is a good faith defense if the debt collector shows:
1.      By a preponderance of the evidence that the violation was
2.      Not intentional
3.      Resulted from a bona-fide error
4.      Notwithstanding maintenance of procedures reasonable adapted to avoid such error
o       But in Stojanovski- a law firm collection 4% of the time was a debt collector
 
6) There are also exceptions to the rule 15 U.S.C.1692(a)
 
            7) Threatening legal action is also prohibited for a debt collector
 
F) Demand Letters
 
            1) Information that must be furnished when collecting debts FDCPA 1692g(a):
 
1.      Amount of debt
2.      Name of creditor
3.      Statement that unless the debtor disputes the claim within 30