Monthly Archives: December 2010

What is the Meeting of Creditors When Filing for Bankruptcy Protection?

By Kitty J. Lin, Attorney at Law

One of the most frequently asked questions from our clients deal with the “meeting of creditors.”  Most clients want to know what it is and what to expect from this meeting.  Every person or business that files for bankruptcy relief is required to attend a meeting of creditors.  The meeting of creditors is sometimes called the “341” meeting because it is required under Section 341 of the Bankruptcy Code.  This meeting is presided over by the bankruptcy trustee assigned to administer the bankruptcy estate.  In a Chapter 7 bankruptcy case in the Bay Area the meeting of the creditors will usually be scheduled 30-45 days after the petition for bankruptcy protection is filed by your bankruptcy lawyer with the Court.  In a Chapter 13 bankruptcy it depends upon which jurisdiction the case is filed in, but the meeting of creditors is usually scheduled around 45-60 days after the case is filed.

The meeting of the creditors is the first opportunity for a creditor and the trustee to ask questions of the bankruptcy filer under oath and penalty of perjury.  Contrary to its name, creditors rarely attend the meeting of the creditors to ask questions.  In most bankruptcy cases there are no issues for creditors to investigate, so why take the time and expense to pay a bankruptcy lawyer to ask questions?  Creditors or their attorneys usually only show up at the meeting of creditors if they believe there are grounds to object to the discharge of the money they are owed.  There are various grounds under which a creditor can object to the discharge of their debt, but most involve some sort of fraud or improper conduct by the bankruptcy filer prior to filing their petition for bankruptcy protection.  A creditor is limited in the time they have to ask questions.  The trustee will usually give a creditor around ten minutes to ask questions.

The meeting of the creditors is not held in a courtroom or before the Bankruptcy Judge assigned to the case.  The meeting of creditors is administered by the trustee assigned to the case.  In a Chapter 7 bankruptcy case there is a Bankruptcy Information Sheet that each bankruptcy filer must read and understand prior to the meeting.  It is recommended that you arrive early so that your attorney can discuss your case with you and basically touch on many of the items discussed in this article.

The trustee will call out the case number and the name of the bankruptcy filer.  It is now time to step forward and complete the meeting of the creditors.  The trustee will ask for your valid identification and proof of your social security number.  If you do not have your social security card, a W-2 or 1099 will be acceptable.  If you do not have these two things with you, the trustee will continue your meeting to another date until and give you another chance to have both forms of identification.

Most people are nervous prior to the meeting of creditors, but there usually is no need to be.  YOU ALREADY KNOW ALL OF THE ANSWERS.  Just tell the truth.  Also, the only people in the room are other bankruptcy filers and their attorneys doing exactly the same thing you are doing.  After you show your identification to the trustee, the trustee will then ask you 2 to 5 minutes worth of “yes” or “no” questions with some specific questions about your case.  Some of the more general questions they ask are, “Did you review the petition before signing it? Did you personally sign the petition?  Is everything true and correct? Did you list all of your assets and all of your debts? Are there any errors or omissions on the petition?  Are you aware that if you receive an inheritance within 180 days of filing your bankruptcy petition, you are obligated to tell your attorney? Have you ever filed bankruptcy before?” After the trustee finishes asking questions, the trustee will then ask if there are any creditors present, if not, the meeting is concluded and you are done. 

What is the Backbone of Bankruptcy? The Answer is the Automatic Stay 11 U.S.C. Section 362

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The backbone and largest grant of authority to the Bankruptcy Court is the automatic stay.  As soon as a voluntary petition for bankruptcy protection is filed with the Bankruptcy Court the automatic stay is in effect.  The automatic stay stops any and all collection actions against the person or business that files bankruptcy.  The automatic stay is the single most important concept when filing for bankruptcy.

The automatic stay is a temporary injunction that stops lawsuits, foreclosure, repossessions, set-off of debt, any act to perfect a security interest, obtain possession of property, the commencement or continuation of a proceeding before the United States Tax Court and all types of actions taken to enforce a debt against a person or business that files for bankruptcy protection.  The automatic stay becomes permanent by order of the Bankruptcy Court when the bankruptcy case completed successfully. If a creditor violates the automatic stay most bankruptcy lawyers will file a motion for sanctions with the Bankruptcy Court against the creditor.

The automatic stay gives a person or business seeking protection from the Bankruptcy Court breathing room from their creditors to reorganize, actually start picking up the phone again, and in most Chapter 7 no assets cases just make all the annoying harassment and debt go away forever upon discharge.

So why is the automatic stay so powerful?  As soon as the automatic stay is in place all creditors must seek the Bankruptcy Court’s approval to continue to pursue assets owned or held by the person or business filing for bankruptcy protection.  This means if a creditor has a merit less claim or is doing something that is not allowed by applicable state or federal law, in theory the Bankruptcy Court will not allow the creditor to proceed.  A creditor will have to seek relief from the automatic stay or approval from the Bankruptcy Court to continue their state court lawsuit, foreclosure or repossession of your real or personal property.  Your bankruptcy lawyer at West Coast Bankruptcy Attorneys will represent your interests and make sure that a creditor is not violating the automatic stay and protect your property from unscrupulous creditors.

Also, if the automatic stay is violated by a creditor West Coast Bankruptcy Attorneys can seek sanctions against the creditor.  The automatic stay is violated when a creditor continues to seek collection of a debt by levying on a bank account, foreclosure of real property, or repossession of personal property.  A creditor may even sue a person or business after the automatic stay is in effect.  All of these actions are potentially sanctionable by the Bankruptcy Court.  Unfortunately, a motion for the violation of the automatic stay must be filed with the Bankruptcy Court and sanctions requested.

What Happens if I Pay a Creditor a Large Payment Prior to Filing Bankruptcy? Preferential Payments Defined

By Kitty J. Lin, Attorney at Law

If you borrowed money from a relative or business and you pay them back within one year of filing your bankruptcy petition, then you may have done them a great disservice.  Instead of thanking you for paying them back they may potentially be sued by your bankruptcy trustee to put the money back into the bankruptcy estate.  If you make a large payment to a credit card company or other unsecured debt 90 days prior to the filing of your bankruptcy petition the trustee assigned to your case may seek to have that money brought back into the bankruptcy estate to pay all of your creditors also.

If you have any questions regarding any preferential payments you made to creditors or relatives/insiders it is a good idea to consult with an experienced bankruptcy lawyer to determine the best course of action. Many bankruptcy lawyers in the Bay Area have no experience dealing with preferential payments. That is not true of The Law Offices of Lin and Wood. My partner, Ryan Wood, has both defended and assisted in lawsuits to recovery preferential payments in bankruptcy cases.

Under 11 U.S.C. §547(b), the bankruptcy trustee may avoid any transfer of an interest of the debtor in property to or for the benefit of a creditor for a debt that was owed by the debtor while the debtor was insolvent made within 90 days prior to filing the bankruptcy petition to a creditor (think credit card lenders and banks) or 1 year if the transfer is to an “insider.”  The trustee may avoid the transfer if it allows the creditor to receive more than they would receive if the debtor filed a Chapter 7 case, if the transfer was not made, and the creditor received the payment of the debt.

According to 11 U.S.C. §101(31)(A), if the debtor is an individual, the term “insider” includes–

(i) relative of the debtor or of a general partner of the debtor;

(ii) partnership in which the debtor is a general partner;

(iii) general partner of the debtor; or

(iv) corporation of which the debtor is a director, officer, or person in control.

The reason the bankruptcy trustee may avoid any preferential payments to creditors or an insider is based on the concept of equality.  All of your creditors should be treated equally, whether the creditor is your mother or a huge national bank.  Essentially, you cannot pay one creditor to the detriment of another creditor.

For example, if your relative lent you money, let’s say $20,000, and you paid them back $1,000 per month for 8 months ($8,000 total) prior to filing your bankruptcy petition, the trustee won’t be going after you to repay that money – they will go directly to the creditor that has received the funds – in this case, your relative.  They will sue your relative to get the $8,000 back into the bankruptcy estate so that all your creditors can be paid equally.  Your relative will be included in the list of creditors, and be allotted whatever percentage creditors are entitled to receive in your bankruptcy case.

You may contact us at 1-877-9NEW-LIFE for a bankruptcy attorney in our office for a free consultation. We have offices in Redwood City, Oakland, San Francisco, and San Jose for your convenience.

What Happens if I Receive an Inheritance After Filing for Bankruptcy?

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Well, first, sorry for your loss.  The issues are: 1) when did you become entitled to the inheritance; and 2) what chapter of the Bankruptcy Code did you file under, Chapter 7 or Chapter 13?

If you are having financial trouble and have a sick relative you will inherit money from, it is an issue that needs to be discussed with your bankruptcy lawyer before filing for bankruptcy protection or after you already filed your petition for relief. If the amount of inheritance is very small, in most cases, your bankruptcy lawyer can protect the inheritance from your creditors that are owed money by applying your state’s exemptions to protect the inheritance.

Section 541(a)(5)(A) of the Bankruptcy Code provides: Any interest in property that would have been an interest of the debtor on the date of the filing of the petition, and that the debtor acquires or becomes entitled to acquire within 180 days after such date – by bequest, devise, or inheritance.

So, if your loved one passes away within 180 days, or six months, of the date your bankruptcy petition was filed, the inheritance will become property of the bankruptcy estate and you must notify your attorney and the trustee assigned to your case.  If your loved one passes away 181 days from the date the petition is filed you will keep each and every penny inherited.  Why 180 days or six months after the case is filed?  The idea is to try and prevent people from anticipating the death of a loved one and filing bankruptcy to discharge their debt right before their loved one passes away.

Chapter 7 Bankruptcy and Inheritance

In a Chapter 7 bankruptcy any inheritance is property of the bankruptcy estate if the property was received within 180 days of the date the bankruptcy petition was filed.  If you filed a Chapter 7 bankruptcy and then received a significant inheritance, the inheritance will become property of the bankruptcy estate and used to pay the creditors listed in your petition.

Once the Chapter 7 Trustee is notified of the inheritance the trustee will then send out notice to all the creditors listed in your bankruptcy petition that a distribution of funds will be made in the bankruptcy case due to the receipt of the inheritance.  Creditors have a limited period of time to file a proof of claim detailing how much the creditor is owed and why the creditor is owed money.  Sometimes creditors inflate the amount of money that is actually owed to them to receive a higher payment from the bankruptcy estate.  The Chapter 7 Trustee may object to a claims, basically saying your claim is not supported by the documentation you have provided or there is a procedural deficiency with the claim.  A creditor may amend the claim to fix the problem, but ultimately the Court may have to hold a hearing regarding the validity of the claim and whether the creditor should be paid.  Once the Chapter 7 Trustee collects their fee for administering the bankruptcy estate and all of the creditors have been paid in full, if there is any of the inheritance left, you will receive it.

Chapter 13 Bankruptcy and Inheritance

In a Chapter 13 bankruptcy any inheritance is property of the bankruptcy estate and the 180 day rule does not apply.  The difference in a Chapter 13 bankruptcy case is a Chapter 13 Plan of reorganization is filed to pay creditors back a certain percentage of what they are owed.  Generally, if a significant inheritance is received during the Chapter 13 bankruptcy case, then the Chapter 13 Plan payment will increase accordingly.  For example, if prior to receiving the inheritance your Chapter 13 Plan required you to pay back 10% of your unsecured debt, after receiving the inheritance your ability to repay your creditors in the Chapter 13 Plan has increased.  You may now be required to pay back 50% of your unsecured debt in the Chapter 13 Plan rather than only 10%.