Chapter 11 Common Legal Issues

• Library: Chapter 13 Bankruptcy (Nolo) (2020 Ed.)

CHAPTER 11: Common Legal Issues

Filing Motions

Ex Parte Motions

Noticed Motions

Dealing With Creditors' Motions

Objections to Your Eligibility to Use Chapter 13

Motion for Adequate Protection

Motion for Relief From the Automatic Stay

Motions to Dismiss by the Trustee and Others

If an Unsecured Creditor Objects to Your Plan

The Plan Is Not Submitted in Good Faith

The Plan Is Not Feasible

The Plan Is Not in the Best Interests of the Creditors

The Plan Unfairly Discriminates

Handling Creditor Claims

Objecting to a Creditor's Claim

Asking the Court to Eliminate Liens

Which Liens Can Be Avoided

Hopefully, your bankruptcy case will go smoothly without any challenges or unexpected complications. In some situations, however, your attorney might have to make an extra court appearance or two. This might happen if you need to ask the court to rule in your favor on an issue—for example, to eliminate a lien from your property. You might also have to defend against a creditor's objection to your plan or object to a creditor's claim for repayment. This chapter explains these types of contingencies in more detail.

Filing Motions

While your bankruptcy case is pending, you may learn that you need the judge to rule on a particular point. For example, you might have to modify your repayment plan (see Ch. 10). Or have your debts discharged based on hardship because you can't complete your plan (see Ch. 13). Requests for the court to intervene in your case—to make a decision or take some action, for example—are called motions.

In this section, we briefly review the general requirements that apply to all motions brought in bankruptcy court.

There are two basic types of motions:

• ex parte motions, which are typically decided by the judge on the application of one party, without a hearing, and
• noticed motions, which give the other side enough time to come into court and oppose your request.

Ex Parte Motions

Ex parte motions are typically used when you are clearly entitled to the action you are asking the court to take. For example, let's say you want to file a noticed motion to modify your repayment plan. However you can only give the creditor 20 days' notice, rather than the 25 days generally required for a noticed motion. In this situation, your attorney could file an ex parte motion seeking an "order shortening time." With the motion, the attorney includes an order for the judge to sign and a declaration—a statement signed under penalty of perjury—that the attorney contacted or tried to contact the other side about the motion. The attorney also certifies that the that the requested order will not have an adverse effect on any creditor.

Ex parte motions can also be used to dismiss your Chapter 13 bankruptcy case, because you have an absolute right to do so.

Noticed Motions

Noticed motions are much more common. Your attorney will prepare the motion, which explains what you want the court to do and why, along with other required documents, such as declarations (signed statements of fact) and a memorandum of law (this part sets out the law and explains why the court should grant the motion). In addition to filing the motion and accompanying documents and serving a copy on your creditors, your attorney must send notice to the affected parties.

There are two types of notice:

• Notice of the date and time of the hearing. Your attorney will schedule a hearing and the opposing side will have an opportunity to respond in writing.
• Notice that the other side must schedule a hearing if it wants to contest the motion. In this situation, if the opposing party doesn't respond within the 25-day notice period, your attorney can ask the court for a default (which means you automatically win the motion).

At the hearing on the motion, your attorney and the opposing side will have an opportunity to argue their points.

Then, the judge will either announce a decision or take the matter under advisement or submission (think about it for a while). The judge may or may not include a written memorandum in the order. The judge may also ask the party that won the motion to prepare a formal order.

Dealing With Creditors' Motions

In most Chapter 13 cases, you'll be able to work out any minor glitches as they arise. On rare occasions, however, a creditor throws a monkey wrench into the works by filing a motion that, if successful, could mean a significant disruption or even a dismissal of your case. If you receive a motion from a creditor, your attorney will have a period of time to file a written response or appear at a hearing to oppose the motion. Procedures vary.

If you are faced with a creditor's motion, take heart: Even when creditors file motions challenging your bankruptcy or a discharge of a particular debt, it's often possible to work things out without a hearing.

Here are a few common types of motions a creditor might file.

Objections to Your Eligibility to Use Chapter 13

A creditor (or the trustee) might file a motion claiming that your debts exceed the Chapter 13 bankruptcy limits; as explained in Ch. 3, these limits are $419,275 for unsecured debts and $1,257,850 for secured debts. The U.S. Trustee will likely object to your filing as a matter of course if your debt exceeds these amounts. A creditor might raise this kind of objection if the creditor is afraid you'll wipe out its debt in bankruptcy. If you're prevented from using Chapter 13, the creditor's chances of getting paid will increase.

EXAMPLE: A few years ago, you and a partner started a business. It failed and you both lost a lot of money. Your former partner blames you for the whole mess and has been threatening to sue you for the money he claims you caused him to lose. Also, during your business's lean times, you missed several house payments, didn't pay your personal income taxes, and charged up your credit cards. You file for Chapter 13 bankruptcy to clean up your finances, but your ex-partner objects, claiming that you owe him at least $400,000, which puts you over the limit for unsecured debts.

Motion for Adequate Protection

Your secured creditors will probably insist that you agree to protect the property securing their debts against loss, damage, or general depreciation. This is called providing adequate protection. (See Ch. 10 for more information.) The protection you provide could take the form of money, additional liens, or proof of insurance. If you refuse to provide adequate protection, the creditor might file a motion asking the court to order you to do so or to grant the creditor relief from the stay.

Motion for Relief From the Automatic Stay

When you file for bankruptcy, the automatic stay prohibits most creditors from taking any action to collect the debts you owe them, unless and until the court says otherwise. If you have had two or more dismissals entered in bankruptcy cases within the past year, you are not protected by the automatic stay. You'll need a court order to protect you against actions by a specific creditor. If you have one dismissal entered in the past year, the automatic stay only lasts for 30 days, absent a court order. (For more on the automatic stay, see Ch. 2.)

In a Chapter 13 bankruptcy, the automatic stay bars creditors from going after the property and wages you acquire after you file your petition and before your confirmation hearing. If the confirmation...