Bankruptcy

• Author: David J. Cook
• Pages: 49-86

Bankruptcy

The Short Story

Synopsis

The U.S. Constitution authorized the creation of the United States Bankruptcy

Court, which is an adjunct to the United States District Court. Bankruptcy is

a body of federal law. Bankruptcy Courts are in each state, presided over by

bankruptcy judges, who have core jurisdiction over bankruptcy and related

matters. In some cases, the judges apply state law.

Consumers typically file Chapter 7 (liquidation), Chapter 11 (small busi-

ness), and Chapter 13 (wage earner or small business). Farmers file Chapter

12. Governments file Chapter 9. The overarching theme of bankruptcy is that

the debtor surrenders him or herself to the jurisdiction of the court, pledges

fidelity and honesty in all disclosures, turns over non exempt property, and

obtains a discharge from debts.

Bankruptcy is a specialized legal process that requires research, knowl-

edge of the rules of procedure, and great attentiveness to detail. Attorneys

must read every piece of paper that comes from the parties or the court.

Common errors are too common.

Legal Basis

Title 11 of the United States Code, the Bankruptcy Rules of Procedure, the

Federal Rules of Civil Procedure, and 28 U.S.C 157 seq.

Bankruptcy has created a very large body of law. The bankruptcy bibli-

ography offers an endless buffet of case reporters, treatises, practice guides,

academic articles, and magazines.

When Do I File a Claim?

90 days from the date of the First Meeting of Creditors, or the date specific

in the FMC notice or notice to file proofs of claims.

Objections to claims of exemption are due 30 days after the first meet-

ing. Actions to bar the discharge or exempt the debt from the discharge is

60 days from the date of the first meeting. Deadlines to oppose motions are

set by statute, rule, or local rules, or they are specified in the moving papers.

These are dates certain. Errors are fatal.

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INSOLVENCY EXPLAINED

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What Does It Mean to File a Claim?

If you are an authorized Electronic Case Filing (ECF) user, file through ECF.

Always get confirmation of the filing in the right case. If you are not an

ECF filer, use personal delivery, overnight services, or USPS Express mail.

How Do I Locate the Filing?

Easy. The filing is available on PACER, or you can contact the local bank-

ruptcy court or search by other means, using Westlaw, Lexis Nexus, and

other commercial search services.

What Do I File?

The Proof of Claim form required by the court. The clerk might accept a non

conforming form, but this is a big risk. The court’s forms are readily avail-

able online. Always insure that you have filed in the right case given that

larger cases might encompass multiple case numbers and different estates.

Failing to file in the right case is a common and expensive error, but it is

avoidable with diligence.

Do I Get Accruing Interest?

Yes, for secured claims to the date of payment, if the secured creditor is over

secured. No, for unsecured creditors, unless it is a solvent estate.

Do I Need to Update the Claim?

Yes, if there is a change in circumstances or in the amount.

Who Gets the Claim?

The court, the court appointed claims depository, or many third parties.

Watch for instructions on mega cases and particularly for the filing of admin-

istrative claims under Bankruptcy Code Section 503(b)(9) (regarding goods

sold to the debtor, but unpaid, within 20 days prior to the filing).

What Should I Include?

Everything. Given that bankruptcy cases can span years, or even a decade,

make sure that the claim is very complete as records might be lost over the

years. Be thorough.

Are There Privacy Issues?

Redact social security numbers, driver’s licenses, bank account numbers, and

other clearly private information. This is a very big deal. Errors are very painful.

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What Should I Expect from the Court and Other Parties?

If you are electronically filing a claim, your receipt is the fact that the docket

shows your filing online and on time. If you are paper filing, you should get

a return copy that bears a filing stamp.

File a request for special notice. You will receive electronic or paper

copies of everything that is filed. Sometimes you are required to participate

in the plan, claim objections, responding to lien avoidance motions, etc.

Read the mail—bankruptcy traps the unwary or inattentive person. Plans

always offer booby traps.

Is There Judicial Supervision?

Extensive. These cases are very detail driven. The U.S. Trustee likewise

supervises the cases.

Is There a Risk of Side Deals?

Prior to filing, the debtor and relatives connive to hide or retitle property,

record false deeds of trust, or manufacture false notes. Prior to filing,

assets are sold at unjustifiably low stated prices, while additional proceeds

are paid to the buyer “under the table” and in cash. During the proceed-

ings, the risk of a side deal is substantially diminished given, for example,

the fact that sales are court approved and supervised in part by the U.S.

Trustee.

Are There Statutory Safeguards against Fraud?

The Bankruptcy Code at many levels seeks to eradicate fraud. The U.S.

Trustee is vigilant. However, many schedules and statements of affairs,

motion papers filed by the debtor, and other claims are skewed in favor of

the debtor; they contain omissions, half truths, and outright falsehoods.

Creditors bear the burden of reviewing the filings and reporting errors to the

trustee or the U.S. Trustee or initiating action themselves.

Can Another Party Object to My Claim?

The trustee, the debtor, and others might object to your claim. The trustee

or the debtor is the usual party.

If There Is an Objection, What Happens?

Respond timely to the claim objection, prove up your case, and appear at

all hearings.

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