Category: For Attorneys

If You Forget to List a Creditor in Chapter 7 Bankruptcy

In Chapter 7, Forgetting a Creditor Is Not the End of World.

Under the right circumstances, missing a creditor in a San Leandro bankruptcy case is not a problem.
Forgetting to list a creditor in bankruptcy is usually not as a serious as the detonation of an atomic bomb–usually.

Every once in a while, I get a frantic phone call from a former client who has just realized that she forgot to list a particular creditor when we filed a chapter 7 bankruptcy case several years before. “Is it too late to add the creditor?” she’ll ask.

There are two parts to the answer–at least in most chapter 7 bankruptcy cases filed in the Oakland bankruptcy court. The first is that, no, you can’t add the creditor; the second is that even though you can’t add the creditor, it most likely doesn’t matter and the debt has still been wiped out.

How can this be, you ask. It’s one of the wonders of the bankruptcy law as they have been interpreted by the Ninth Circuit, the court of appeals that interprets law for the West Coast states including California.

The simple version is that bankruptcy is intended to help people start over financially. The order at the end of the case called a discharge order indicates that all debts owed to creditors that can be wiped out have been wiped out. It doesn’t say anything about whether the creditors received any kind of notice of the bankruptcy because a discharge doesn’t necessarily require that the creditors receive notice.

Notice to the creditors is necessary for two big reasons. First, so the creditor can have time to object to its claim being wiped out through discharge. Second, so the creditor can have time to file a proof of claim in the case and get paid if there’s any money available to be paid out to creditors. When there is money to be paid out, there will be a deadline for creditors to make their claims. If they miss the deadline, they don’t get paid.

No Deadline in Bankruptcy Case Means No Deadline to Miss

For most regular people in most regular bankruptcy cases in the Oakland and San Leandro area, however, there are simply no assets to be paid out to creditors. What this means is that there is never a deadline for creditors to file their claims. If there’s no deadline to miss, they don’t get hurt if they don’t know about the deadline. That’s the second issue I mentioned above.

If They Can’t Object for Fraud They Likely Can’t Object

On the first issue, creditors are supposed to be notified of a bankruptcy case so they have time to object. The thing about objecting is that they can only object for certain specific reasons. One of the biggest is if they feel the debtor incurred the debt fraudulently. (For instance, they lied on their credit applications and said they were brain surgeons making $500,000 a year–and they really weren’t.) Obviously, most debt is not fraudulent debt so most creditors would have no reason and therefore no ability to object. Again, without a reason to object for fraud, the creditor really hasn’t been harmed by not being told about the bankruptcy case.

Now, lest anyone should get any funny ideas, you need to keep in mind that you are required by bankruptcy law to list all of your creditors in your bankruptcy case. You don’t get to pick and choose. You list all of them and then you sign at the bottom under penalty of perjury that you have listed all of them.

I would not want to be a debtor standing in front of a bankruptcy judge in Oakland (the location of the court for San Leandro and San Lorenzo bankruptcy cases) and explaining why I intentionally didn’t list a creditor. I really would not want to do that. This little tidbit is only for honest debtors who honestly forgot to list a creditor.

Lie in Bankruptcy Case and Go to Prison

Dishonest debtors who deliberately leave out creditors when they file their bankruptcy cases may find themselves wearing bright orange jumpsuits, eating three square meals a day on a tiny tray and learning to get along with a burly roommate named Bubba. None of my clients have been to prison yet and I intend to keep it that way. We disclose all creditors in bankruptcy cases filed by my office!

Always talk to an experienced bankruptcy attorney before you do anything in preparation for a bankruptcy case. I am confident that you won’t regret it.

Allowed Attorney Fees in a Chapter 13 Case in Oakland Bankruptcy Court

San Leandro bankruptcy attorney James Pixton explains no-look attorney fees
Oakland Bankruptcy Court’s no-look attorney fees are clarified.

Like many bankruptcy courts, the judges in Oakland Bankruptcy Court have opted for what they call the “no-look” fee model for paying bankruptcy lawyers their fees during a chapter 13 case. The idea is that most chapter 13 bankruptcy cases require the performance of the same minimum legal services. If done correctly, the qualified bankruptcy attorney in Oakland will achieve a confirmed plan for the client and, once all the plan payments have been made over the next several years, most if not all of the client’s debts will be discharged or wiped out.

Ordinarily, the Bankruptcy Code requires that an attorney file an application for compensation in which the attorney set forth all the time spend on work for the debtor in the bankruptcy case. Apparently this can be time consuming both for the attorney and for the judge who has to review the application. With a “no-look” fee system, the judge allows the attorney to charge a maximum amount and will assume that that fee is reasonable unless someone gripes and claims otherwise. If the attorney successfully gets a confirmed plan for the client, the judge will automatically approve the “no-look” fee.

In Oakland, the maximum “no-look” fee is $4,800 for a consumer chapter 13 case and $6,000 for a business case. In both types of the cases, the attorney will incur the wrath of Oakland’s chapter 13 trustee as well as the Office of the U.S. Trustee if he or she accepts more than $2,000 up front. The balance of the fee is paid by disbursements from the chapter 13 trustee office using the monthly plan payments made by the debtor.

These attorney fees are actually paid pro rata along with secured claims in the case before all other creditors get paid. (Pro rata is latin and just means in proportion to the whole.) This means that the attorney fees are often paid within the first several months after the chapter 13 plan is confirmed or approved by the bankruptcy judge.

An important caveat is that the judges of the Oakland Bankruptcy Court also allow additional $1,500 in fees in cases where the attorney successfully obtains an order from the bankruptcy court stripping off a second lien from real property. This additional fee, however, is not “no-look”; the attorney has to get an order from the judge allowing the additional fee and the chapter 13 trustee has to sign off on the application and order.

The guidelines for chapter 13 attorney fees are found in the Rights and Responsibilities of Chapter 13 Debtors and Their Attorneys, Guidelines for Payments of Attorney Fees in Chapter 13 Cases – Oakland Division, Distribution of Fund in Chapter 13 Cases

Photo courtesy of Ji-Elle (Own work) [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons

Oakland Bankruptcy Judge William Lafferty Has a Sense of Humor with Good Lawyers

Across the street from the Ronald Dellums federal building at 1301 Clay Street
The Oakland Bankruptcy Court at 1300 Clay Street

Last week I was at the Oakland Bankruptcy Court for a plan confirmation hearing calendar. Unlike a confirmation calendar I’d attended in another judge’s courtroom a few weeks before, nearly all of the attorneys appearing before Judge Lafferty knew what they were doing and had actually done what was needed to be done to get their clients’ cases confirmed. It is noteworthy that I knew nearly all of them and so I knew them generally to be intelligent, capable and in fact fine attorneys. They did a great job for their clients.

What that means is that most of the chapter 13 plans were confirmed or the hearings on them were continued for a short period of time to address rather minor issues. Maybe the fact that the attorneys were actually doing their jobs was a big reason for Judge Lafferty’s rather jovial mood. He cracked a few jokes and good-naturedly poked fun at a couple attorneys.

I couldn’t help contrasting this with the weird mood in Judge Elaine Hammond’s courtroom two weeks ago. During another plan confirmation calendar, Judge Hammond, also a bankruptcy judge in Oakland, exhibited an enormous amount of patience and restraint as, in case after case, attorneys that I’d never seen before hemmed and hawed, stuttered and stammered, and tried to come up with cogent reasons why they hadn’t accomplished some of the most basic tasks required of bankruptcy attorneys filing chapter 13 cases in Oakland Bankruptcy Court. It was clear that many of them were new to the bankruptcy court–I’d never seen them and I’ve been practicing in Oakland since since 1999. Maybe they’d been practicing in other areas of the law before, but they were now in bankruptcy court and out of their element.

In the past I would have criticized them heavily and suggested that they leave the practice of bankruptcy law to those who know what they’re doing. Instead, I find myself thinking of San Francisco Peninsula bankruptcy attorney Cathy Moran, one of the best bankruptcy attorneys in the Bay Area, who had a pretty charitable response to the recent influx of inexperienced bankruptcy lawyers wreaking havoc in bankruptcy court and committing malpractice for their clients: She started a website to train new bankruptcy lawyers. Instead of running them out of town, she figured there were enough cases to go around and decided that she could make the bankruptcy world better by raising the level of bankruptcy practice not only in the Bay Area, but also throughout California and the entire United States. She also has a great consumer bankruptcy site loaded with information to help regular people figure out how the bankruptcy system works.

To a great extent, I think she’s succeeded. I like to read her frequent posts on important or practical bankruptcy practice topics and on more than one occasion the fear of ending up as an example of stupid lawyering on her blog has caused me to take a second and more careful look at some of my proposed bankruptcy strategies.

Judge Efremsky Has a Handy Order Extending Time to File Documents in Oakland Bankruptcy Court

Judge Efremsky gives us tips on requesting more time.
Judge Efremsky gives us tips on requesting more time.

Today as I was reviewing the rules and regulations that govern the filing of bankruptcy cases in Oakland Bankruptcy Court, I ran across a form I hadn’t noticed before. Judge Efremsky, relatively new to Oakland Bankruptcy Court but a bankruptcy judge in the Northern District of California since 2006, has posted a form of order on requests for additional time to file missing documents. The order gives us an idea of what requests he’s willing to grant.

For instance, Judge Efremsky will grant up to an additional 45 days to file missing schedules and other basic documents such as the means test and statement of financial affairs. I can’t imagine needing that much time, but it’s nice to know that it’s an option.

There is also a check box on the order allowing for an extension of time to file a chapter 13 plan. This could be handy in the case of a complicated small-business case or one where there is a lot of real estate at issue. I’ve had a couple of those lately and could have used some extra time to formulate and propose a plan. Instead we ended up filing some plans that had to be quickly amended and re-served to creditors.

Judge Efremsky anticipates granting an extension of time to file a credit counseling certificate but I don’t get that one at all. Either you have it or your don’t. If you don’t, the odds are pretty good your case is going to be dismissed especially if it’s a chapter 13.

As a final note, Judge Efremsky also indicates a willingness to grant an extension to file a statement regarding the completion of a personal financial management course. Again, however, I have a hard time seeing where this would actually play out in reality. You file and you get around three months in a chapter 7 case to finish your financial management course. Seems like you’d have a hard time showing cause for your failure to complete a one-hour course at some point during that three-month period. I wouldn’t want to go in front of Judge Efremsky and explain that one.

No 30-Day Stay Termination in Chapter 20 Cases

The Automatic Stay in bankruptcy
STAY!

The automatic stay in bankruptcy is a bit more complicated than I realized–even after all these years. Oakland bankruptcy judge Roger Efremsky just taught me something new about it a moment ago. I had filed a chapter 7 case for a client who didn’t qualify for chapter 13. She received her discharge and in the meantime some positive financial changes occurred so that she was actually in a position to catch up on the mortgage on her home which was now in foreclosure.

I filed the second case for her, a chapter 13, and dutifully filed a motion to extend the automatic stay beyond 30 days as required by 11 U.S.C. § 362(c)(3)(B)–or so I thought! When I requested the default after 14 days and no creditor opposition, Judge Efremsky denied my motion as moot. The automatic stay already remained in effect beyond 30 days even without the motion.

It turns out that the 30-day stay termination provision only kicks in when a previous case was pending within the year before the filing of the second case and the first case was dismissed. If the debtor received a discharge in the first case, there was no dismissal and so § 362(c)(3) doesn’t apply.

Here’s the applicable language from the Bankruptcy Code:

(c) [I]f a single or joint case is filed by…a debtor who is an individual in a case under chapter 7, 11, or 13, and if a single or joint case of the debtor was pending within the preceding 1-year period but was dismissed, other than a case refiled under a chapter other than chapter 7 after dismissal under section 707 (b)—

(A) the stay under subsection (a) with respect to any action taken with respect to a debt or property securing such debt or with respect to any lease shall terminate with respect to the debtor on the 30th day after the filing of the later case;

(B) on the motion of a party in interest for continuation of the automatic stay and upon notice and a hearing, the court may extend the stay in particular cases as to any or all creditors (subject to such conditions or limitations as the court may then impose) after notice and a hearing completed before the expiration of the 30-day period only if the party in interest demonstrates that the filing of the later case is in good faith as to the creditors to be stayed…

There you have it. No dismissal of the first case means no termination of the automatic stay after 30 days in a second case. I have learned something new about the Bankruptcy Code. It’s time for me to go home and enjoy Thanksgiving with my family.

Dog photo courtesy of Luis García [GFDL or CC-BY-SA-3.0], via Wikimedia Commons