Monthly Archives: January 2012

Duties of the Debtor and Federal Rule of Bankruptcy Procedure 4002

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There are a number of duties a debtor must comply with when filing bankruptcy.  Federal Rule of Bankruptcy Procedure (FRBP) 4002 provides in detail some of the duties of a debtor once a bankruptcy petition for relief is filed.

The first thing listed is that the debtor shall attend and submit to an examination at the times ordered by the court.  Examination of the person filing bankruptcy is required by Section 341 of the Bankruptcy Code.  The 341 meeting of the creditors is required in every bankruptcy case.  The meeting of creditors is usually held 30 – 45 days after the date the bankruptcy case was filed.  A debtor may also be examined pursuant to FRBP 2004.  A Rule 2004 examination is somewhat rare in consumer bankruptcy cases, but not unheard of.

At the 341 meeting of the creditors FRBP 4002 requires a debtor to provide a picture identification issued by a governmental unit or other personal identifying information that establishes the debtor’s identity and evidence of social-security number, or a written statement that such documentation does not exist.  A driver’s license and social security card are the common forms of identification used.  A W-2 or social security correspondence listing your social security number could also be used to verify your social security number.  You must provide the trustee assigned to your case proof of income by providing your pay stubs for the prior 60 days.  Some courts will require that your last 60 days of pay stubs be filed with the bankruptcy petition.  Unless the trustee or the United States trustee instructs otherwise, a debtor must provide statements for each of the debtor’s depository and investment accounts, checking, savings, and money accounts, mutual funds and brokerage accounts for the time period that includes the date of the filing of the petition.  Depending upon the jurisdiction, the trustee may require copies of bank account statements or other depository accounts prior to the 341 meeting of the creditors.  You must also provide the trustee a copy of your federal tax return for the most recent tax year ending immediately before the commencement of the case for which a return was filed, including any attachments, or a transcript of the tax return, or provide a written statement that the documentation does not exist.  In most jurisdictions your attorney will make sure the trustee has all of the required documents prior to the 341 meeting of the creditors.

One of the most important duties is the requirement of a debtor to always keep their mailing address with the court current and accurate.  It is very important that all court notices are received timely.

A debtor must provide their tax return to a creditor if a creditor requests at least 14 days prior to the first date set for the 341 meeting of the creditors a copy of the debtor’s tax return that is to be provided to the trustee including any attachments, or a transcript of the tax return, or provide a written statement that the documentation does not exist.  If the debtor does not provide the tax return to the creditor the creditor can request the dismissal of the bankruptcy case.

To discuss your circumstances with one of our experienced bankruptcy attorneys in Oakland or schedule a free consultation with our bankruptcy attorney to find out how bankruptcy can help you get rid of your debts, call us toll free at 1-877-963-9543.

What are the Different Chapters of the Bankruptcy Code?

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The Bankruptcy Code is found in Title 11 of the United States Code.  There are nine chapters of the Bankruptcy Code (Chapter 1 General Provisions; Chapter 3 Case Administration; Chapter 5 Creditors, the Debtor, and the Estate; Chapter 7 Liquidation; Chapter 9 Adjustment of Debts of a Municipality; Chapter 11 Reorganization; Chapter 12 Adjustment of Debts of a Family Farmer or Fisherman with Regular Annual Income; Chapter 13 Adjustment of Debts of Individual with Regular Income and Chapter 15 Ancillary and Other Cross-Border Cases.

The first Chapter, General Provisions, consists of twelve sections.  Chapter 1 provides for definitions of the key terms used in the Bankruptcy Code, rules of construction, who may be a debtor and other general guidelines for the administration of bankruptcy cases.  Two of the more important sections are Section 105, Power of Court and Section 109, Who May Be a Debtor.  Section 105 says the court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title   . . . . . .  no provision of this  title . . . preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.  Section 105 can be used as a powerful tool to obtain relief from the Bankruptcy Court.  Some have argued that Section 105 has been used to expand the Bankruptcy Court’s power.

The next chapter, Chapter 3 Case Administration, includes sections governing types of bankruptcy cases such as voluntary, joint or involuntary bankruptcy cases.  One of the most important sections is Section 362.  Section 362 provides for the automatic stay.  The automatic stay takes effect as soon as a bankruptcy case is filed.  The automatic stay stops any and all collection actions like repossession, foreclosure and lawsuits.  Section 362 defines the effect of the stay and how it applies to different property and creditors.

Chapter 5, Creditors, the Debtor and the Estate, defines creditor rights, the debtor’s duties and what is the bankruptcy estate and property of the estate.  One of the most important sections in this chapter is Section 523, Exceptions to Discharge.  Section 523 lists the types of debts that are not discharged.  There are a number of debts that have been deemed not dischargeable for public policy reasons or because of how the debt was incurred.  The best example of a debt that is not dischargeable pursuant to Section 523 is debt incurred for willful and malicious injury by the debtor to another entity or to the property of another entity.

Chapter 7, Liquidation, provides for the appointment of a trustee, collection, liquidation and distribution of assets to creditors.  The most common bankruptcy case filed is a no asset Chapter 7 bankruptcy case.  In these cases available exemptions protect all of the bankruptcy filer’s property so there are no assets to be administered in the bankruptcy case.  The trustee assigned to the case still administers the bankruptcy estate; there are just no assets to distribute to creditors.

Chapter 9 of the Bankruptcy Code provides for the Adjustment of Debts of a Municipality.  In the last few years a number of municipalities have made headlines by filing for bankruptcy protection under Chapter 9.  Orange County California, Vallejo California, Harrisburg Pennsylvania and Jefferson County are the most recent and high profile municipalities to file bankruptcy.  States are not allowed to file bankruptcy, but municipalities within a state can be a debtor and seek the reorganization of their debts.

Chapter 11 of the Bankruptcy Code provides for the reorganization of debts for individuals and businesses that have over $360,475 in unsecured debts or $1,081,400 in secured debts.  A Chapter 11 plan of reorganization is proposed and voted on by creditors.

Chapter 12 of the Bankruptcy Code provides for the Adjustment of Debts of a Family Farmer or Fisherman with Regular Income.  Yes, farmers and fisherman have their own section of the Bankruptcy Code.

Chapter 13 provides for the Adjustment of Debts of an Individual with Regular Income.  Chapter 13 allows an individual or small business to reorganize their debts if their unsecured debts are less than $360,475 and less than $1,081,400 in secured debts.  In California these debt limitations are especially harsh.  If you own two or more homes in the Bay Area you can easily have more than $1,081,400 in secured debt.  In Texas you could own 10 houses and still be eligible to be a debtor under Chapter 13 given that home values there are so much less.  One of the main distinctions between reorganizing under Chapter 11 versus Chapter 13 is that the Chapter 13 Plan of reorganization is confirmed or approved by the Bankruptcy Court and not voted on by creditors.

Chapter 15 of the Bankruptcy Code is a little known chapter.  This chapter was created in 2005 by the Bankruptcy Abuse Prevention and Consumer Protection Act to address the need for more rules regarding the filing of bankruptcy for international companies and foreign courts.  Chapter 15 repeals or replaces Section 304 of the Bankruptcy Code.

For more information about your particular circumstances please contact our experienced bankruptcy attorneys in San Jose or bankruptcy lawyers to find out if bankruptcy is right for you.

What is a Bankruptcy Preference and How Can I Defend Against a Preference Claim?

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A preference is basically a payment made by a debtor to a creditor prior to the debtor filing for bankruptcy protection.  Yes, even though you are owed the money the debtor or trustee in the bankruptcy case can request and sue you for the return of the payment you received from the debtor during the 90 days prior to the case being filed.  The theory is that you were preferred over another creditor given that you were paid and they were not.  To make things fair you should have to return the payment and all creditors then share the money instead of you receiving it entirely.

A preference is defined by Section 547 of the Bankruptcy Code.  Any transfer by the debtor to or for the benefit of a creditor, for or on account of an antecedent debt owed by the debtor before such transfer was made, transfer was made while the debtor was insolvent, on or within 90 days before the date of the filing of the bankruptcy petition or between 90 days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider, that enables the creditor to receive more than the creditor would receive if the case were a case under Chapter 7, the transfer had not been made, and the creditor receiving the payment of such debt to the extent provided by the provisions of this title.

Ordinary Course of Business Defense

The ordinary course of business defense, pursuant to Section 547(c)(2) of the Bankruptcy Code, is the most common defense.  If the payment was made under terms that were ordinary between the debtor and creditor prior to the bankruptcy case being filed you may have a defense.  This defense can be complicated depending upon how long the relationship was prior to bankruptcy and the payment history of the parties.  How payment is made in the industry is also a factor to be looked at by the Court.  The creditor as the defendant has the burden of proving the payment was made in the ordinary course of business.

Contemporaneous Exchange For New Value

This defense, pursuant to Section 547(c)(1), provides if the payment was intended by both the creditor and the debtor to be a contemporaneous exchange for new value the payment is not a preference.  Basically you provided a good or service to the debtor on a cash on delivery basis.  Given that, the payment made cannot be on a antecedent debt, it was a payment for the exchange of a good or service for immediate payment.

Subsequent New Value Defense

Section 547(c)(4) of the Bankruptcy Code provides a defense to a preference claim if you continued to provide a good or service to the debtor after the date of the payments in question.  If you were paid $20,000 on December 10, 2011, and then provided the debtor $20,000 in new goods or services, the $20,000 payment you previously received would be protected to the extent of the new value you gave the debtor since the payment.  In this example you gave the debtor an additional $20,000 in new value.  You should be able to use the subsequent new value defense to keep the $20,000 payment.

For more information from one of our experienced bankruptcy lawyers or from our bankruptcy lawyers in San Jose, please call us toll free at 1-877-963-9543 today.