09F – BANKRUPTCY OUTLINE – LUBBEN
PART I: INDIVIDUAL DEBT COLLECTION
COLLECTION OUTSIDE THE COURTS
I. Leverage
a. Cost-Benefit Analysis in exercising your legal rights
i. Ex → if CR owed 5k, but will cost 6k to get it → no leverage
ii. Considerations:
1. Litigation Costs, Complexity of Proving Your Rights, Lack of Property to Satisfy Debt, Is DR on verge of filing bankruptcy?, Necessity of service(goods)? [i.e. DR will pay for food and electricity before credit card debts]
2. Restrictions on Non-Judicial Collections
a. Fair Debt Collection Practices Act
b. Fair Credit Reporting Act
c. State Law
b. How can unsecured CR seek to improve its position or collect?
i. Threats → to litigate on debt or “publicize” the debt
1. Be careful not to push too far (i..e keep DR out of bankruptcy)
2. Be sure you don’t violate Fair Debt Collection Act (or state laws)
a. Must have actual intent to follow through on threats
b. Can’t threaten criminal action to obtain advantage in civil action
ii. Notify other CR’s
iii. Restructure the Debt (or try to get a lien)
II. Fair Credit Reporting Act
a. Consumer Rights → consumers can sue, but remedies not great.
i. If consumer disputes information in credit report, Agency must (1) reinvestigate and record current information, (2) allow consumer to file statement of dispute (100 word limit – not very helpful), and (3) upon request, notify CR’s who received report
b. Creditor Duties
i. CR who takes adverse action based on Credit Report must provide consumer with (1) notice of action and (2) notice of DR’s right to obtain report and dispute information
c. Damages for Non-Compliance
i. (1) actual damages, (2) costs & fees, & (3) punitive for willful noncompliance
1. Note: damages capped at $1000 → so not a great option. Few atty’s would take a case.
III. Fair Debt Collection Practices Act→ regulates “Debt Collectors”
a. Debt Collector → a person who either
i. (1) is affiliated with a business whose principal purpose is to collect debts, or
ii. (2) regularly attempts to collect the debts of others
1. NOTE: if you collect for yourself, but misrepresent yourself, you are subject to the “debt collector” definition.
iii. Attorneys’ can be debt collectors
1. Matters what your firm does, not what you do individually
b. Prohibited Acts under FDCPA:
i. Harass, oppress, or abuse person for purpose of collecting debts
ii. Use deceptive practices to collect debt
iii. Communicate with a consumer who is represented by an attorney
iv. Communicate with a 3rd person other than to obtain location information
1. (i.e. call their employer and disclose the debt in a leverage play)
v. Tack on additional fees to the original debt, unless expressly authorized in the original agreement creating the debt (or as permitted by law)
IV. TRUTH IN LENDING ACT
a. Really only applies to small consumer transactions – credit cards and such
b. A “natural person” excludes corporations
c. See Review slides and notes for more info.
STATE LAW DEBT COLLECTION
I. State Law Liens
a. Voluntary → governed by Article 9 or state real property law
b. Involuntary → unsecured CR becomes secured through some state collection/judgment/execution process
i. Mechanics liens → some may be avoidable in bankruptcy, depending on when they occurred
II. Collection Remedies
a. Writ of Fi Fa (writ of attachment) → personal property
b. Writ of Execution → seizure by sheriff or marshal of real or personal property
i. Writ is first “delivered” to the proper sheriff/marshal
ii. Then it must be “executed”
iii. Proceeds then Sold at Auction.
c. Turnover Orders → intangible property (ex. Letters of Credit)
d. Judgment Liens by Recordation → real property
e. Pre-Judgment Creditors
i. Due process concerns → must show chance of irreversible harm (i..e DR hiding or wasting assets) for pre-judgment seizure, attachment, etc.
ii. Bond requirement → CR must post bond twice amount of debt to cover potential wrongful seizures
f. Garnishment
i. Judgment against employer (or other 3rd party) to pay wages owed to the DR directly to the CR → 3rd party can be held directly liable for debts.
ii. Limits:
1. Employer cannot fire you for having “a” garnishment
2. Limited to 25% of disposable earnings OR 15% of gross pay OR amount that your disposable earnings are 30x more than the federal minimum wage.
a. N/A to support payments (up to 65%)
g. Self-Help → NO.
III.Priorities
a. First in Time, First in Right
i. First CR to perfect its lien on DR property is entitled to satisfaction from that property before any other CR is paid anything.
b. “delivery first” v. “execution first” (Majority Rule)
c. “Levy” v. Actual Seizure
i. Majority rule is that you need to actually seize the asset (levy amounts to a secret lien)
d. Newly Acquired Property → all liens attach simultaneously and equally
e. IRS Tax Liens → attach personal & real property.
i. Lien is valid as of the date of assessment
1. But not versus BFP or subsequent lienholders until filed.
ii. Beats p
hall not counsel an assisted person to incur more debt in contemplation of filing, or make any statement in a document filed with court that reasonably should have been known by attorney to be untrue or misleading.
iii. Filing Requirements
1. Petition, Schedules, Counseling Certification, Notifications to DR
b. The Estate – §541(a)(1)
i. → all legal and equitable interests of DR in property, wherever located, at the moment of filing.
1. 3 main areas of dispute:
a. Sharp v. Dery → legal interests that are not enforceable on the date of filing, but may be enforceable at future time.
i. Are they sufficiently matured and certain to be included in the Estate?
ii. Look to State Laws
b. Non-Transferable Permits, Licenses, or other Entitlements
i. Drivers License → Not included
ii. Liquor License → Included
c. Property with limits on transferability imposed by Contract
i. §541(c)(1) makes most of these contracts unenforceable in bankruptcy → Include in the Estate!
ii. §541(c)(2) Spendthrift Trusts → Not Included
1. Includes tax deferred annuities, IRA’s grandchildren education accounts, & health insurance policies
2. 180 day time limit for the estate “reaching into future proceeds”
a. Ex → your mother is very sick, and on death you will inherit 250k trust. File immediately, hope she outlives 180 days!
ii. Exceptions to Estate – §541(b)
1. “services performed by an individual DR after commencement of case
a. Includes wages, commissions, etc earned after filing
c. Trustee Duties – §704
i. Gather all DR’s property, protect and maintain it, sell at highest price, and distribute to CR’s according to priority.
ii. Special Duty to Unsecured CRs
1. Trustee must Challenge Security Interests, Preferences, and Priority Claims → try to enlarge the estate!
d. The Automatic Stay – §362
i. Extremely broad and worldwide → no actions at all to collect, without court approval to lift the stay
ii. Exceptions to the Stay – §362(b) → courts read these narrowly!!
1. Criminal actions
