Bankruptcy Forms Administrative Claims by syi86989

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									 Bankruptcy
Considerations


           June 15th, 2010
      What is Bankruptcy?

• “Fresh start” for honest debtors
   – discharge or elimination of many debts

• Legal process governed by federal
  law
   – extremely orderly
   – priority scheme
     Major Bankruptcy Chapters

– Chapter 7 – liquidation (business or individual)
– Chapter 9 – municipality (city, town, school
  district)
– Chapter 11 – reorganization (usually business)
– Chapter 12 – family farmer or fisherman
– Chapter 13 – reorganization (individual)
– Chapter 15 – ancillary and cross-border
                 Many Parties
• Bankruptcy cases often involve many
  parties with many different interests:
  –   debtor
  –   creditors
  –   court
  –   case trustee
  –   U.S. Trustee
  –   other parties in interest
           Key Concepts

•   Automatic Stay
•   Dismissal vs. Discharge
•   Proofs of Claim
•   Tight Deadlines
          Notice of Bankruptcy

• Designate an address for notices
• Notification from Bankruptcy Court or DOJ
• Bankruptcy notification service
• Publication notice
• Copy of court pleading
• Phone call or correspondence from debtor or
  debtor’s attorney
               Next Steps
• Confirm that a bankruptcy petition was
  actually filed.
• Obtain copy of petition & list of creditors
  – Ask debtor or debtor’s attorney to provide copy
  – Contact Bankruptcy Court (www.uscourts.gov)
  – PACER (pacer.uspci.uscourts.gov)
          Determine your Claim
• A “claim” in bankruptcy includes:
   – a right to payment, whether or not reduced to a
     judgment, liquidated/unliquidated, fixed/contingent,
     matured/unmatured, disputed/undisputed,
     legal/equitable, secured/unsecured
   – a right to an equitable remedy for breach of performance
     if such breach gives rise to a right to payment
• Determine whether you have a claim; basis for
  claim; what type of claim you have; amount or
  estimated amount of claim.
                  The Process
• Case begins when the bankruptcy petition is filed
   – by debtor (voluntary)
   – by creditors (involuntary)
• Notice to Creditors
   – bankruptcy petition includes a schedule which lists
     creditors
• Appointment of Bankruptcy Case Trustee
   – a trustee is generally not appointed in chapter 11 cases
   – investigation of assets
      • court hearings, debtor examinations, etc.
       The Automatic Stay

• Automatic Stay = STOP!
  – Automatically prohibits most collection actions
    against the debtor or the debtor’s property
  – Provides “breathing space”
  – Violations punishable as contempt
         The Automatic Stay
 no demand letters or phone calls
 stop foreclosures or other liquidation remedies
 stop all administrative wage garnishments &
  credit bureau reporting
 notify your billing and collection departments
 notify FMS if debt is in cross-servicing or TOP
 notify DOJ (if relevant)
        The Automatic Stay
• Stay applies even if:
  – debt is non-dischargeable
  – debt not listed on list of creditors and no notice
    was provided
  – a prepetition contract with debtor specifically
    allows for collection action
      Limited Exceptions to the Stay

• sending mere notices
• criminal proceedings
• revocation of licenses
• offset of tax refunds to collect tax debt
• certain acts to collect domestic support
  obligations and postpetition claims
• certain foreclosure actions
            Violations of the Stay

• What do you do if you realize that your
  agency has violated the automatic stay?
  – Must you return the funds?
     • Probably, but not necessarily.
     • Consult your legal department.
     • Determine whether to return funds to debtor or
       trustee.
  – Take steps to make sure violation does not
    happen again.
      Lawsuits, Adversary Proceedings . . .

• If your agency is being sued, immediately refer
  case to your legal department.
   – Deadlines in bankruptcy cases are extremely tight and
     missed deadlines may result in default judgments.
   – A “lawsuit” can come in various forms:
      • Adversary Proceeding
      • Motion for Contempt
      • Motion to Compel
      • Motion for Turnover of Funds
      • Preference Actions
  Determine if Active Role is Warranted

• How large is your claim? Is it secured? Does it get
  priority treatment?
• Does the debtor have any assets? Are they exempt
  or encumbered?
• How much debt does the debtor have?
• Is this a liquidation case or a plan case?
• Is your debt non-dischargeable?
• Do you suspect any fraud?
• Is there a non-debtor guarantor?
   Determine if Active Role is Warranted

• Attend the meeting of the creditors?
• Move to lift automatic stay?
   – Note: if the stay is lifted, agency can continue
     collection action only as allowed by court order
• Object to dischargeability of debtor or debt?
• Move to appoint a trustee?
• Get appropriate approvals from the court.
• Vote on a plan of reorganization.
             Proofs of Claim
• File a proof of claim (Form B10)
  – Without a proof of claim, you might not recover any
    money.
  – Subjects you to jurisdiction of the court and waives
    sovereign immunity.
  – Postpetition debts must file application.
  – Consult your legal department.
• Bar Date
  – Usually 180 days for the government.
            Secured Creditors
• Interest in property
  – liens, security interests, set-off rights, etc.
  – fully secured vs. undersecured

• Determine need to actively protect your
  property interest:
  – relief from stay?
  – adequate protection?
           Priority Scheme
• Secured claims
• “Priority” claims (see next slide)
• General unsecured claims
• Punitive damages and certain other fines
• Tardily filed claims
• Interest payments
            Priority Scheme
• Priority claims include:
  – certain domestic support obligations
  – expenses incurred during the bankruptcy case
  – certain wages and benefits owed to employees
  – taxes owed to the government
  – penalties owed to the government (to compensate for
    actual pecuniary loss)
  – damages resulting from DUIs
• Consult agency counsel to determine if
  your debt gets priority
        Non-dischargeable Debts
• Some debts cannot be discharged, including:
  – domestic support obligations
  – student loans
  – certain wages and benefits owed to employees
  – taxes and penalties owed to the government
  – criminal restitution debts; damages caused by willful
    injury to another person; damages caused by DUIs
  – debts not listed in the bankruptcy petition (possibly)
  – fraud and misrepresentation
  – debts assumed pursuant to a valid reaffirmation agreement
      Non-dischargeable Debts

• Consult agency counsel to determine if
  debt may be non-dischargeable.
• If debt should not be discharged, may
  need to file pleadings to protect your
  interest.
                  Exempt Assets
• Some assets are exempt from distribution:
  –   applies to individual bankruptcy filings only
  –   applies to unencumbered property only
  –   depends on state law
  –   common examples include:
       • car, up to a certain value
       • primary residence, up to a certain value
       • certain retirement benefits
       • personal items, including clothing, books, bedding,
         family pictures, food, up to a certain dollar
         threshold
      End of Bankruptcy Case

• Funds (if any) are distributed to creditors
  – funds are either distributed at end of the case
    or pursuant to court-approved plan
• Discharge
• Terminate collection
• Write-off debt
                      Discharge
• A “discharge” means that the debtor’s slate has
  been wiped clean.
• Has there been a discharge? What debts were
  discharged? Did debt arise before or after
  discharge order?
   – Some debts are automatically discharged.
   – Some debts are discharged only if requested by debtor.
   – Some debts will not be discharged if requested by
     creditor.
• Discharged debt cannot be collected against.
• A dismissal is not a discharge.
                    Dismissal
• Dismissal can occur at any time:
   – Debtor changes its mind and withdraws petition
   – Debtor fails to follow rules (e.g., failed to pay filing
     fees or file reports)
   – Debtor is abusing the bankruptcy process
• Dismissal means that the debtor was not
  discharged and collection may continue.
• Warning: If debtor re-files for bankruptcy, a
  new automatic stay is in effect.
           Review of Key Concepts
• Automatic Stay
   – Immediately stop collection activity, unless a specific exception
     applies.
• Dismissal vs. Discharge
   – Determine whether:
       • case is on-going
       • case was subsequently dismissed
       • debtor has been discharged
   – If there has been a discharge, determine whether:
       • debt was incurred before or after the discharge date
       • debt was actually discharged
• Tight Deadlines
   – Proof of claim and bar date.
   – Motions and complaints filed against your agency.
Bankruptcy
Terminology
                  Bankruptcy Terms
•   Adversary proceeding - A lawsuit         •   Bankruptcy Trustee - A private
    arising in or related to a bankruptcy        individual or corporation appointed in
    case.                                        all bankruptcy cases to represent the
                                                 interests of the bankruptcy estate and
•   Automatic stay - An injunction that
                                                 the creditors.
    automatically stops all collection
    activity against the debtor the          •   Creditor - A person to whom the
    moment the bankruptcy petition is            debtor owes money or that claims to
    filed.                                       be owed money by the debtor.
•   Bankruptcy Code - The informal           •   Debtor - A person who has filed a
    name for title 11 of the United States       petition for relief under the bankruptcy
    Code, the federal bankruptcy law.            laws.
•   Bankruptcy estate - All property in      •   Defendant - An person or entity
    which the debtor has an interest.            against which a lawsuit is filed.
•   Bankruptcy petition - A formal           •   Discharge - A release of the debtor
    request for protection under the             from personal liability for certain
    federal bankruptcy laws                      dischargeable debts.
                  Bankruptcy Terms
                                            •   Liquidated claim - A creditor’s claim
•   Dischargeable debt - A debt for
                                                for a fixed amount of money.
    which the Bankruptcy Code allows
    the debtor’s personal liability to be   •   No asset case - A chapter 7 case
    eliminated.                                 where there are no assets available to
                                                pay any portion of the creditors’
•   Dismissal - Court-ordered
                                                unsecured claims.
    termination of further bankruptcy
    proceedings in connection with a        •   Nondischargeable debt - A debt that
    debtor’s bankruptcy petition                cannot be eliminated in bankruptcy.
•   Exempt property - Property or           •   Secured creditor - A creditor with a
    value in property that a debtor is          claim against the debtor that is secured
    allowed to keep, free from the              by a lien on property of the estate or
    claims of creditors who do not have         that is subject to a right of setoff.
    liens.                                  •   Schedules - Lists submitted by the
•   Joint petition - One bankruptcy             debtor along with the petition showing
    petition filed by a husband and             the debtor’s assets, liabilities, and
    wife together.                              other financial information.
                 Bankruptcy Terms
•   Unliquidated claim - A claim
    for which a specific value has  •   Source: Bankruptcy Basics by
    not been determined.                Leonidas Ralph Mecham, Director,
•   Unscheduled debt - A debt           Administrative Office of the United
    that should have been listed by     States Courts, Washington, DC
    a debtor in the schedules filed •   A copy of the manual may be found at
    with the court, but was not.        www.uscourts.gov//bankruptcycourts
    Depending on the
    circumstances, an unscheduled
    debt may or may not be
    discharged.
•   Unsecured claim - A claim or
    debt for which a creditor does
    not have any special assurance
    of payment, such as a mortgage
    or lien.

								
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