Posts Tagged With: adversary proceedings

Can I Get Sued in a Bankruptcy?

Most people think of filing for bankruptcy to stop lawsuits, but it is possible to get sued in a bankruptcy – or to do the suing. I’ve written recently about people who have been sued in the GMX Resources bankruptcy for fraudulent transfers for receiving dividends on preferred stock and people who have been sued for the recovery of what are called preferential transfers; but there is a lot more litigation than just this going on at the bankruptcy court.

For most people who file for bankruptcy the process looks a lot more administrative than it does judicial. Most people who file never see their Judge, for instance. No, the person who presides over the First Meeting of Creditors is NOT a Judge. Some standard rules of thumb – if there is no court room, no black robe and no standing when the person enters and leaves the room – you are probably not dealing with a Federal Bankruptcy Judge.

Just because most debtors never see them, doesn’t mean that the Judges aren’t staying busy. Bankruptcy litigation comes in two flavors: Adversary Proceedings and Contested Matters. An Adversary Proceeding is essentially a full-scale lawsuit filed within the context of a Bankruptcy case. It begins with a Complaint and a Summons, followed by an Answer, discovery, motions, evidentiary hearings and finally concludes with a trial.

Adversary Proceedings are required to determine the nature or extent of a lien, revoke a discharge or plan confirmation, object to a discharge, recover property of the estate, provide injunctive relief, declaratory relief or subrogation; and certain sales of property must be approved by an Adversary. Essentially anything else in the Bankruptcy Court where two people are arguing or disagreeing qualifies as a Contested Matter, which is quite useful; because in a contested matter you have full access to discovery and other litigation tools that are generally considered part of a lawsuit rather than just a motion hearing.

Some things can be the subject of either an Adversary Proceeding or a Contested Matter. A violation of the automatic stay, for instance, may be brought by either procedure. A violation of the discharge, however, generally is brought by a Contempt Citation, which is a Contested Matter.

So, what is the difference? Adversary Proceedings have greater procedural and due process protections built into them. They must be served like a lawsuit. They have a longer answer time. They have more structure to them which helps to manage greater complexity, a larger number of parties, more witnesses, more complicated issues. Contested Matters are procedurally more flexible. A Contested Matter may be a simple motion – motion with brief filed, fourteen days later a response with brief is filed, hearing set and heard generally in an hour or less. Of course, a Contested Matter may also have a long period of discovery, with related motions filed and culminate in a day or multi-day trial with lots of witnesses and exhibits. So, Contested Matters are inherently more flexible. The Court is expected to adapt procedures to fit the matter at hand. Adversaries are expected to be complex issues and so are treated that way automatically.

For something like a violation of the automatic stay, which may be brought in either form, I consider the following in making my choice: has the defendant appeared in the case, otherwise, the formal service procedures of the Adversary Proceeding will afford greater due process protections. How many facts will be in dispute? What is the nature of my client’s damages? How much post petition discovery will I want? How much time will I want to prepare the case? Even after considering all of these things, I may still file a case and have the Judge adapt the procedures for it as if it were the other. Judges can do that, and they will if they think it is necessary either for due process considerations, to protect the rights of a party or to make the case easier to manage.

So, there you have it. Bankruptcy lawyers may not empanel a jury too often (or ever), but they are still litigators.

Elaine

Categories: Bankruptcy, Business Bankruptcy, Litigation | Tags: , , , , , , , , , , , , , , , , | Leave a comment

Bankruptcy Attorneys Fees – What is it that I am Paying For?

So, when a bankruptcy attorney quotes you a fee, what is it, exactly, that you are paying for? What is included, what is not included, at some point will you have to come up with more money or be left abandoned in the midst of a Federal Court proceeding that strikes even a lot of lawyers as confusing and arcane?

The answer to that question is (drum roll, please) – that depends.

I know, and lawyers wonder why it is that people seem to think you can’t get a straight answer out of us. Sigh.

Here is the interpretation. When you hire a Bankruptcy lawyer (or anyone else for that matter) you do need to find out what it is that you are hiring him to do for you. Your attorney should give you some kind of agreement, that might be a letter, that outlines what he will do for you, what he won’t do for you and what he reserves the right to charge extra for.

Here are some things that go into a basic, consumer chapter 7 Bankruptcy:

  • Interview;
  • Explanation of Bankruptcy, the terminology, the players, what it will do for you, what it won’t do for you, assets, expenses, Means Test qualifications, explanation of different chapters;
  • Research into your facts and circumstances;
  • Advising you of any potential problems in your case and options for dealing with them;
  • Preparation of Petition, Schedules and Means test;
  • Filing the case;
  • Providing documents to the Trustee;
  • Attendance at First Meeting of Creditors;
  • Dealing with secured creditors as specified in the Statement of Intention;
  • Dealing with other creditors;
  • Responding to any requests for information from the U.S. Trustee or the Panel Trustee
  • Filing the post petition debtor education certificate.

Please, understand, that list is not intended to be all-inclusive.  That would take far too much time to put together for a blog post.  It is intended to be illustrative of the kinds of things that go into a Bankruptcy case.

Now, here are some things that aren’t included in that list, because they happen, but they don’t necessarily happen in most basic, consumer cases:

  • Pre-Bankruptcy exemption planning, i.e., converting a non-exempt asset (i.e., an asset you would lose when you file) into an exempt asset (an asset you get to keep even though you file for bankruptcy);
  • Dealing with creditors before the case is filed;
  • Adding creditors or correcting addresses after the case is filed;
  • Disclosing additional assets after the case is filed;
  • Defending a motion to dismiss or convert based on the Means Test figures;
  • Defending a Motion to dismiss for bad faith;
  • Appearing at a 2004 examination (basically, a deposition);
  • Defending other motions brought by creditors, most commonly a motion for relief from stay brought by a secured creditor who would rather have the collateral than the payments you may or may not be making timely;
  • Defending an adversary proceeding, which is basically a separate lawsuit filed within the scope of the bankruptcy;
  • Filing an adversary proceeding got for any reason including to determine if a certain debt, like some taxes, is dischargeable;
  • Determining value of assets if scheduled value challenged.

There will be considerable variance between what different attorneys do and don’t include in a flat fee, and there will be wide variance if you compare attorneys from different parts of the Country.

I don’t know anyone who includes an Adversary Proceeding in a flat fee. However, the nature of Adversary Proceedings is such that your Attorney should at least suspect one might be filed before the Bankruptcy is filed – unless there is something really important he doesn’t know about. So, that should be discussed specifically at the time the attorney quotes a fee.

I generally quote a fee that I expect will be sufficient to cover the things that I expect to come up in the case. What my fee specifically does not include, other than Adversary Proceedings, is anything that the client got wrong or should have told me about and didn’t.

The easy part of that is fixing addresses and listing additional creditors. I give my clients multiple opportunities to get their list of creditors complete, and I tell them to include all addresses that might be current or correct. So, if someone is left off and needs to be added; well, I will charge extra for that.

If a client is being sued locally odds are pretty good I will find out about it before the case is filed. If the client is being sued under a name he didn’t mention or in another jurisdiction, I might not find out about it – unless the client tells me – when I ask about other names, about lawsuits, about people who might think that the client owes them money – even if the client disagrees. If the client still doesn’t think to mention it and it becomes an issue in the Bankruptcy (and it almost certainly will), then, the client shouldn’t be surprised that I will expect additional compensation for dealing with it.

Sure, mistakes happen and omissions happen; and most of them are simple mistakes. If I make the mistake, I fix it. If the client makes the mistake, then I am going to expect the client to pay me to fix it. Sure, some mistakes and omissions can be expensive to fix (some can’t be fixed at all), but most of them can be fixed for a relatively small amount of money.

However, my fee is pretty all encompassing. Not everyone’s is, but it should be spelled out in the engagement agreement what will and won’t be covered. If it isn’t, ask. If it is, but you do’t understand it, then ask. It is your job to provide the lawyer with the information he needs. It is his job to make sure that you understand what is going on, and that includes the fee agreement.

Elaine

Categories: Bankruptcy, Litigation, Taxes | Tags: , , , , , , | Leave a comment

When Creditors Don’t Go Away — Part 1

In most cases someone files for bankruptcy, he lists all of his creditors with their addresses, account numbers and at least an approximate amount owed; the creditors receive notice of the Bankruptcy, then they receive the discharge; and they go away.  The general rule is that the Debtor will not hear from any of his creditors again once the Bankruptcy is filed.  (This post only pertains to debts that may or may not be included in the discharge.  It does not apply to creditors who don’t comply with the Automatic Stay.)

There are exceptions.  First of all, there are certain debts that are automatically not included in a discharge.  That means that once the Bankruptcy is over the Debtor is still liable for the debt.  The most common examples are recent taxes, child support or alimony and student loans.  These, the debtor can expect to have to deal with once the discharge is entered and are not generally a surprise.

Then there are the others.  There are lots of reasons why a debt will be excepted from the discharge, and some of them aren’t as predictable as recent taxes.  The complete list included in the Bankruptcy Code (and there are a few other provisions elsewhere in Federal Statutes, but they are really rare) is found at 11 U.S.C. Section 523.

If you file for Bankruptcy and a creditor thinks that you have defrauded them, obtained money by embezzlement or false pretenses, or otherwise come within the scope of a Section 523 objection to discharge, then the creditor may decide to ask the Court to exclude this debt from your discharge.  The vehicle for doing this is what is called an Adversary Proceeding, which is essentially a separate lawsuit filed within the scope of the Bankruptcy filing.  Adversary Proceedings are actually quite rare, but they do happen.

This is what can happen when a creditor isn’t willing to go away and wants to try to establish that his debt should be excepted from the discharge.  First, the creditor may appear at your First Meeting of Creditors.  This is not required, but if the creditor is local or has local counsel, it is an easy way to start to feel out the case.  The First Meeting of Creditors exists for creditors and the Trustee to ask questions, and a creditor looking to build a case for an objection to discharge may use this as an opportunity to ask a few, basic questions.  If they want to ask very many questions, the Trustee will tell them to set a 2004 Examination.

A 2004 Exam is the next step, and again it is not mandatory.  A 2004 Examination is basically a deposition.  It is a meeting in a conference room that will be recorded one way or another, it will be under oath, and the creditor who requests the exam asks the Debtor (or other party) questions.  The debtor can be required to bring documents to the meeting, and it can generate a great deal of facts that the Creditor can use to build his case against the debtor.  A 2004 Exam must be authorized by the Court, and the Court has the authority to limit it in scope or duration.

Finally, the creditor must file an Adversary Proceeding (unless his debt is automatically excepted from discharge like child support or student loans).  An Adversary Proceeding is really just a lawsuit, but it is filed inside the Bankruptcy.  Once it is filed it will proceed like any other civil case, with discovery, motions, and it will finally culminate in a trial with witnesses and exhibits but no jury.  One of the important things to remember about an Adversary Proceeding is that it must be filed by a deadline that is set when the Bankruptcy is first filed.  That deadline can be extended, but it cannot be missed – unless the creditor didn’t get notice of the filing.  Yet one more reason why you must give your lawyer a complete list of everybody you owe money to with their addresses!

I cannot repeat strongly enough how rare most of these things really are.  Creditors are not going to spend good money to send someone to a First Meeting of Creditors just because they can.  Likewise, filing an Adversary Proceeding is a significant investment in time and money; and creditors don’t do that without good reason.  There are certain flags that your attorney will be watching for when he prepares your case that indicate an Adversary Proceeding may be likely.  If that is the case, he should go over that with you.  It is incredibly rare for an Adversary Proceeding to be filed that is a real surprise to the debtor and debtor’s counsel – assuming that the Debtor has been fully above board with his lawyer.  So talk openly and honestly with your lawyer, ask if there is a debt you are concerned about.  A big part of your attorney’s role is helping you to evaluate risk and putting you at ease when you are worrying about things that aren’t likely to be an issue.

Elaine

Categories: Bankruptcy | Tags: , , , , , , , , | Leave a comment

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