AFTER A BANKRUPTCY FILING – HOW TO CONTINUE THE COLLECTION EFFORT Dominique M. Varner Hughes Watters Askanase, L.L.P. Partner Notice of Bankruptcy? STOP EVERYTHING! Evaluate your options. Automatic stay prohibits collection efforts enforced with punitive damages. Stay terminates in certain cases secured creditors can exercise rights The Automatic Stay: Not So Automatic Termination of automatic stay allows repossession of collateral without costs. Second bankruptcy filing in the past year? Automatic stay terminates on the 30th day. Debtor can extend the stay. “PLEEEASE....” Debtor can extend stay if: motion is filed; notice and hearing; notice and hearing within 30-day stay; and Debtor proves new filing is in good faith as to creditors to be stayed.   In re Collins, 335 B.R. 646, 650 (Bankr. S.D. Tex. 2005); 11 U.S.C. § 362(c)(3)(B). Good Faith: “Really?” Presumption of not filing in good faith if more than one case filed within prior year; case dismissed within prior year for failure to amend as required by court/statute provide adequate protection or perform a confirmed plan; OR No substantial change in financial/personal situation.   In re Collins, 335 B.R. 646, 650 (Bankr. S.D. Tex. 2005); 11 U.S.C. § 362(c)(3)(B). Good Faith: “Yes, really.” If presumption of not filing in good faith arises, debtor may rebut by clear and convincing evidence. Factors of good faith. Factors of Good Faith: Extension sought as to all or single creditor; Timing of cases; Reasons giving rise to presumption; Change in financial or personal affairs; More Factors of Good Faith: Creditors position opposing extension; Nature of debt Nature of collateral Even of bankruptcy purchases; debtor‟s: Conduct in new case Reasons for seeking extension; AND Unique facts or circumstances to case.   In re Collins, 335 B.R. at 652; In re Wilson, 2005 Bankr. LEXIS 2388, * 24 (Bankr. E.D. Tenn. Dec. 5, 2005). “ Charles II” Analysis Creditors agree case filed in good faith Creditors disagree good faith exists? Objective: is a discharge likely? Subjective: “totality of the circumstances” Debtor‟s motives Relationship with creditors Totality of the Circumstances Factors: Nature of debts; Nature of collateral; Eve of bankruptcy purchases; Debtor‟s conduct in present case; Effort to obtain discharge Why debtors wants to extend stay; and other circumstances. Negotiate with home lender Even if Good Faith, Discretion to Consider Equitable Factors No creditors oppose Best interests test met Does Stay Terminate as to Property of Estate? Case filed within prior year automatic stay as to debtor terminates on 30th day after new filing Split of authority: statutory language “with respect to the debtor” Include property of estate? Majority: not include property of estate Comparison of other provisions Minority: includes property of estate Congress‟ intent and purpose in BAPCPA Prevent repeat filers Dismissed Automatically? Section 521 requires filing the following within 45 days from filing date: creditors assets and liabilities current income and expenses financial affairs [SOFA] itemized monthly net income reasonably anticipated increase in income/expenses over one year following filing date certificate of consumer counseling AND payment advices received within 60 days Automatic Dismissal, unless party in interest requests dismissal order must be entered within 5 days (7 days after 12/1/09) debtor timely requests extension within 45 days after filing date no to exceed 45 days trustee objects: not in best interest of creditors split of authority: discretion to extend deadline To Extend or Not to Extend ? Not: In re Wilkinson: inadvertent duplicate payment advice sua sponte Trustee did not seek dismissal No party in interest objected to confirmation In re Hall: missing monthly net income and anticipated financial changes statements Debtor did not request extension Trustee did oppose dismissal In re Parker: debtor‟s motion to dismiss denied In re Bonner: missing stub filed on 46th day Trustee Saves the Case Trustee timely requests case not be dismissed Within applicable period Notice and hearing Good faith to file required documents, and Best interests of creditors served Credit Counseling 101 Credit counseling course and Within 180 days before filing date Otherwise, dismissal in most cases Debtor moves for temporary relief File certification Exigent circumstances merit waiver, Debtor requested but was unable to receive counseling within 5 days of request; and Court satisfied with certification. To Extend or Not to Extend? Extend In re Bricksin: credit counseling outside 180-day period. Trustee‟s motion to dismiss denied. Very best efforts to comply with requirement and substantial compliance, Extensive pre-petition counseling and made substantial payments, Need to file not obviated by additional counseling and debtors knew of bankruptcy filing implications, Costs by taking counseling, and Equitable considerations: start over, filing fees, limitations of automatic stay. Exigent Circumstances? In re Davenport: creditor actively seeks to repossess debtor‟s only car, but because counseling taken 2 days after filing, dismissed. In re Henderson: Pro Se debtors get a break. Urgent situation render debtor unable to comply? Legal advice: prepetition or postpetition Exigent Circumstances? Foreclosure Notice Other Resources Language barriers Incapacity Disability Active duty Dismiss v. Strike Automatic stay Debtors prefer case be stricken. Uncertainty Return of filing fees Trustee compensation No consensus: Congress did not intend for counseling requirement to limit relief Encourage debtors to do it right the first time Commencement of Case Automatic Stay In re Rios: no commencement if debtor fails to obtain counseling. In re Tomco: commencement when petition is filed. Depends on whether all requirements are met. Problem: uncertainty among creditors. Stay violations Tax Returns Section 521(j): taxing authority may move for conversion or dismissal if not filed or no extension. If not filed within 90 days, court must convert or dismiss Best interest of creditors and estate Diamond Necklace: $10,000.00 Section 523: Credit card companies may except: Cash advances $825.00 Consumer open end credit plan On or within 70 days prior to order for relief Luxury goods or services Consumer debt $550.00 On or within 30 days prior to order for relief Presumed nondischargeable Fraud, Actual Fraud Presumption Rebuttable Shifts burden of going forward Burden on proof on plaintiff Circumstantial evidence Intent to repay Mere inability to pay not sufficient Is it a Luxury? Reasonably acquired for support or maintenance of debtor Extravagant, indulgent, or nonessential In re Paesano: Citibank moves for SJ for: $208.80 Four Seasons Enterprise $716.54 Value City $475.90 Priceless Kids $10,000.00 Tiffany & Co., would meet MSJ standards Luxury Purchases? Think Twice Zeman: Judicial notice: La Fogata, USPS, HEB Grocery, Target, Exxon, PetsMart, Walgreens, Hertz, Whataburger “The court can only shake its head in bemusement at plaintiff‟s suggestion that these merchants would be described as „high end luxury retailers.‟”   In re Zeman, 347 B.R. 28, 30 at n.1 (Bankr. W.D. Tex. 2006). Maybe a Luxury, But Discharged In re LaBovick: Within 60 days of filing date: 6 gift cards: $3,500.00 Gold chain: $285.05 Watch: $171.71 Bed, cookware, small electrical items, clothing, bedding, and a rug: $7,608.67 All discharged. Extreme facts: 30 year account, no late payments, move due to son‟s house arrest for manslaughter Suits for Nondischargeability 60 days after 341 meeting Fraud Fraud in fiduciary capacity, embezzlement, or larceny Willful and malicious injury Debts incurred to pay I.R.S. or other governmental units, federal election fines or penalties Debts owed to spouse, former spouse or child incurred in connection a divorce or seperation Home Sweet Home Section 522(p) Homestead Exemption 1,215 days Exceeds $125,000.00 In re Rogers: title acquired outside period, but homestead not claim Interest: vested economic interest Title and equity Can be ascertained when debtor acquires it California or Florida? State exemptions Reside for 730 days prior to filing Otherwise, longest period during 180 days prior to 730-day period Proof of Claim: Just in Case Most Chapter 7 cases: no-asset notice If assets re-notice 90 days to file from notice Otherwise, 90 days from first 341 meeting Attach documents supporting claim Chapter 11: no need to file Chapter 13: must file even if on schedules Let’s Negotiate Unsecured creditor‟s failure to negotiate pre- petition reduce claim by up to 20% Nonprofit budget and credit counseling agency Repayment offer of 60% or more of debt Within 60 days of filing date, and Unsecured creditor refuses to negotiate Contacting the Debtor: Do You Dare? Secured debts Reason to communicate: collateral Automatic stay or discharge injunction “Ride-Through” Debtor must declare intentions as to collateral 45 days from notice of intentions Otherwise, termination of automatic stay as to that collateral redeem, surrender, or reaffirm “ride-through:” comply with contract, keep collateral bankruptcy clause defaults Creditor‟s neglect Creditor‟s desire to keep payment stream payments If after discharge estopped from foreclosing (waiver) What or Who is Discharged? Only personal liability of debtor Collateral is still liable Creditor can repossess, foreclose or contact debtor: Mortgage on principal residence Security interest Act or communication ordinary course of business Limited to seeking or obtaining periodic payment in lie of pursuit of in rem relief. Section 524(j). No coercion (9th Cir.) Written or oral? Collection Script In rem communications Options of curing default or foreclosure Acknowledge discharge of personal liability in all communications Disclaimers No coercion and not seeking personal liability Evidence?