Bankruptcy has been likened to a class action. In a typical class action, a class representative files suit against a defendant seeking relief on behalf of a class of plaintiff. If class certification is not granted, the suit continues as a conventional suit. In bankruptcy, a debtor files for relief against his or her creditors. However, as shown by Fed.R.Bankr.P. 7023, it is possible to have a traditional class action within the collective proceeding of a bankruptcy. Sometimes this is done through the vehicle of filing a class proof of claim. However, unless an actual class of claims is certified, a "class" proof of claim is just a regular proof of claim. Several recent cases illustrate the difficult relationship between class actions and bankruptcy. In Patterson v. Mahway Bergen Retail Group, Inc., 2022 U.S. Dist. LEXIS 7431 (E.D. Va. 2022), a plan contained an opt out feature for third-party releases. The lead plaintiff in a securities class action objected to the plan. This resulted in that plaintiff being deemed to have opted out of the release. The plaintiff then attempted to appeal on behalf of the class. The District Court found lack of standing to appeal. Because the class had not been certified, the plaintiff lacked the ability to represent the class on appeal. Because the plaintiff had objected to the opt out provision, they were not harmed by it. The Court stated:However, the Securities Litigation Lead Plaintiffs' capacity as putative representatives of a class in the District of New Jersey does not confer standing to appeal in this Court. The Securities Litigation Lead Plaintiffs claim that they have standing "because they are fiduciaries for the Class, have rights closely aligned with those of Class members, and are the court-appointed advocate for Class members' rights." (Appellants' Reply at 19.) However, this argument puts too much weight on their role as putative class representatives. As lead plaintiffs in a putative class action, the Securities Litigation Lead Plaintiffs have no special status; consequently, they must establish individualized harm. Opinion, at *32. In In re Mallinckrodt, PLC, 2022 Bankr. LEXIS 273 (Bankr. D. Del. 2022), a putative class rep filed a class proof of claim and attempted to object to a proposed settlement on behalf of the class. The Court found that the gambit failed on several grounds. First, the Court found that a certified class representative must still request permission to file a class proof of claim. Second, the putative class rep had not been certified. Finally, the debtor had objected to the class proof of claim and it had been expunged. Given these mis-steps, what should be done to file a class proof of claim? In In re Legendary Field Exhibitions, LLC, 2021 Bankr. LEXIS 2947 (Bankr. W.D. Tex. 2021), a class action by football players was filed pre-petition and removed to bankruptcy court. The Bankruptcy Court granted preliminary class certification. The class representative filed a class proof of claim. The trustee objected to the class proof of claim. However, the trustee ultimately filed a motion to compromise and settle with the class. In this instance, certification of a class in an adversary proceeding was combined with filing a class proof of claim. The trustee made a tactical decision that it was better for the estate to settle with the class. Judge Gargotta found that it was an open question in the Fifth Circuit whether class proofs of claim were permissible. However, he found that he certainly had authority to approve a compromise and settlement.In W. Wilmington Oil Field v. CJ Holding Co., 2021 U.S. Dist. LEXIS 149292 (S. D. Tex. 2021), the court found that most courts that had considered the issue had found class proofs of claim to be permissible. In W. Wilmington Oil Field, the Court looked through the bankruptcy rules. Rule 9014 allows certain rules applicable to adversary proceedings to be applied to contested matters. Rule 7023, which allows class actions is one of these. As Judge Rosenthal stated:The majority of federal courts hold that "a class proof of claim is permissible under the Bankruptcy Code and Federal Rules of Bankruptcy Procedure," and that "Bankruptcy Rule 9014 allows bankruptcy courts to apply Bankruptcy Rule 7023 and Rule 23 to any stage of a contested matter, including the filing of a proof of claim." (citations omitted). The Fifth Circuit has not addressed this question, but it has held that bankruptcy courts have discretion as to whether to apply Rule 23 to contested matters. Opinion, at *29. In the specific case, the class representatives had filed class proofs of claim on the last day for filing claims. The Bankruptcy Court ruled that the claims were late-filed as to the class because the class was not certified prior to the claims bar date. The District Court reversed and directed the Bankruptcy Court to grant the motion for late-filed claims.Several conclusions arise from these cases. The first is that class actions are permissible in bankruptcy but must follow the rules for class certification. It is possible to file a class proof of claim. However, without class certification, a class proof of claim is just a proof of claim. Where a class proof of claim is filed prior to the bar date but the class is not certified prior to this time, the claim runs the risk of being untimely as to the class. In this instance, the class representative should either file the claim well before the bar date and seek class certification or move to extend the bar date for filing claims to allow for the class to be certified. A class proof of claim is possible in bankruptcy but it requires navigating a difficult procedural landscape. 

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Can I File Bankruptcy In Arizona Without My Spouse? When It Might Be Advantageous To File Bankruptcy Without Your Spouse & How To Proceed When you take your wedding vows, you’re agreeing to take part in almost every part of your spouse’s life. Arizona is also a community property state, which means that all debts and assets acquired during the marriage belong equally to both spouses. So it seems like with everything that spouses are expected to share, filing bankruptcy would be among them. However, contrary to what many people assume, you do NOT have to file bankruptcy with your spouse. Our Arizona bankruptcy team is here to discuss when it may be advantageous to file bankruptcy without your spouse, and how to proceed. If you have any more questions about filing bankruptcy sans spouse, call our firm at 480-833-8000 for your free consultation.  Filing Chapter 7 Bankruptcy Without Your Spouse Filing Chapter 7 bankruptcy without your spouse is much simpler than filing Chapter 13 bankruptcy without your spouse. That is, in part, because it doesn’t last as long from start to finish. A Chapter 7 bankruptcy will typically be discharged within three to six months. It wipes away unsecured, non-priority debts like credit cards, medical bills, and personal loans. So when might it make sense to file Chapter 7 bankruptcy without your spouse? Let’s say that before you got married, you had $5,000 in a credit card which has ballooned out of control due to interest. That debt is your separate property, and any debts incurred after the wedding are community property debt. If the majority of your debts are separate property and unsecured, an individual Chapter 7 could help you clear that debt without negative repercussions for your spouse. One of the issues with filing Chapter 7 bankruptcy as an individual when you are married is that your spouse’s income and belongings will still be included in your bankruptcy calculations. To qualify for Chapter 7 bankruptcy, your household income must be less than Arizona’s state median income, or you must pass the Means Test. When you file an individual bankruptcy as a married person, your household income still includes your spouse’s. Your income will be combined and averaged over the previous 6 months before you file. Qualifying for Chapter 7 bankruptcy can be tricky in these types of situations, especially in a dual earner household. Another issue when you file Chapter 7 bankruptcy with your spouse is that their property might not be protected by bankruptcy exemptions. Many of Arizona’s bankruptcy exemptions, including the $150,000 homestead exemption, don’t increase just because the debtor is married. Other Arizona bankruptcy exemptions only increase moderately when the debtor is married. For example, in Arizona, the motor vehicle exemption is $6,000. This increases to $12,000 in one vehicle or $6,000 each in two vehicles when the debtor(s) is married. If you and your spouse have disproportionate separate property debts, it’s highly likely that your spouse has some possessions that wouldn’t be protected by Arizona’s bankruptcy exemptions. Filing Chapter 13 Bankruptcy Without Your Spouse Filing Chapter 13 bankruptcy without your spouse is much more complicated than filing Chapter 7 without your spouse. There are several reasons for this. One is because your payment plan will last either three or five years, depending on how your household income compares to the state median. This is a long time for your financial situation to be frozen by the automatic stay. Another fact of the matter is that three to five years is enough time for a couple to fall out of love and decide to get a divorce, which will be almost impossible to complete during a Chapter 13 bankruptcy. When you file Chapter 13 bankruptcy, your debts are reorganized into a payment plan that is based on your disposable monthly income. This is another reason that filing Chapter 13 without your spouse can be complicated. Even if you file as an individual, your payment plan will be formulated using your disposable monthly household income. It is unlikely that your spouse wants all of their spare income going towards your Chapter 13 payment plan without being included. You and your spouse may need to work out another way to deal with your debts if Chapter 7 bankruptcy isn’t an option. You can discuss alternatives for free with our Arizona bankruptcy team. Give our Phoenix Bankruptcy Lawyers a call, 480-833-8000, and let us know when is most convenient for your free consultation. What Happens To Community Property Debt In An Individual Bankruptcy? Even if the reason you want to file bankruptcy is because of insurmountable separate property unsecured debts, you may still have community property debts that can’t be excluded from your bankruptcy. For example, filing Chapter 7 bankruptcy won’t erase the mortgage on your community property home. The balance for smaller secured community property debts, like cars, can be paid off in a Chapter 13 bankruptcy payment plan. But it can be more complicated if you discharge unsecured community property debts in an individual Chapter 7 bankruptcy. If you file bankruptcy individually, community property debts will only be discharged in your name.  If your spouse declines to join you in the bankruptcy filing, their separate property debts will not be discharged, and community property debts won’t be discharged in their name. Because of the protections provided by the automatic stay, the creditors for community property debts may not pursue you or your spouse during your bankruptcy. However, the automatic stay will end when your case is discharged or dismissed, or even sooner under special circumstances. If you ever divorce in Phoenix, your community property creditors are likely to pursue your spouse for the debts discharged in your bankruptcy. Therefore, declaring bankruptcy in AZ can help you further understand how your individual bankruptcy will impact community debts. How Can I Protect Myself If My Spouse Files Bankruptcy Without Me? Even if you don’t join your spouse in their bankruptcy filing, it’s best that you pick up at least some basic bankruptcy knowledge. Filing bankruptcy will likely take up much of your spouse’s time and attention for at least a few months. You simply won’t be able to talk to your spouse about their bankruptcy if you don’t learn some bankruptcy basics. If you want to be extra supportive, you may want to attend consultations and other meetings with your spouse’s bankruptcy attorney, or help them gather the documents necessary to draft their bankruptcy petition. Your spouse may also want your emotional support at their bankruptcy hearing, also known as a 341 Meeting of Creditors. You should also understand bankruptcy so that you can comprehend what will happen to any debts you may have when your spouse files bankruptcy. You may see no impact at all, or even some slight protections. However, it’s important to still understand the long term effects, i.e., if you get divorced in AZ. You also need to understand the nuances if you are a cosigner on loans that your spouse discharges in their bankruptcy. Therefore, your spouse’s bankruptcy attorney should be able to walk you through all of these issues. Contact An Experienced Bankruptcy Attorney In Arizona If you or your spouse is looking for a bankruptcy attorney with experience in specialized issues like filing without a spouse, our Arizona law office has what you need. Plus, our dedicated Phoenix Bankruptcy Lawyers and Tucson bankruptcy staff and attorneys will work tirelessly to file your bankruptcy with as few drawbacks for you as possible. We will keep you apprised each step of the way, so that you and your spouse can feel confident in whatever decision you make regarding your bankruptcy. To get started with our low-cost bankruptcy attorneys, call 480-833-8000 or use our online form to request your free consultation today. Arizona Offices: Mesa Location: 1731 West Baseline Rd., Suite #100 Mesa, AZ 85202 Office: (480) 448-9800 Email: [email protected] Website: https://myazlawyers.com/ Phoenix Location: 343 West Roosevelt, Suite #100 Phoenix, AZ 85003 Office: (602) 609-7000 Glendale Location: 20325 N 51st Avenue Suite #134, Building 5 Glendale, AZ 85308 Office: (602) 509-0955 Tucson Location: 2 East Congress St., Suite #900-6A Tucson, AZ 85701 Office: (520) 441-1450 Avondale Location: 12725 W. Indian School Rd., Ste E, #101 Avondale, AZ 85392 Office: (623) 469-6603 The post Can I File Bankruptcy In Arizona Without My Spouse? appeared first on My AZ Lawyers.

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Black letter law says liens pass through bankruptcy unchanged. But the better statement adds a single word: unless. Liens survive bankruptcy intact unless….unless you take some action to void them. One tool to void liens lives in §522(f). Its location in Chapter 5 tells you that it’s available to any individual debtor who is entitled […] The post Lien Avoidance In Bankruptcy: The Questions You Need To Answer appeared first on Bankruptcy Mastery.

Who knew 20 years ago how apparently hard it is to account for money paid to you? Even if accounting for money was your business? Today’s raft of mortgage accounting issues were not ones I foresaw when I became a bankruptcy lawyer. Yet every day we encounter cases where the foreclosure notice follows the “all […] The post Lenders Can’t Hide From Misapplication of Mortgage Payments appeared first on Bankruptcy Mastery.

As many readers are aware, individuals whose income exceeds the median income in New York State are required to do "means testing" to determine if they qualify for chapter 7 personal bankruptcy.In New York State the median income for a family of 1, 2 or  3 is listed below and if a Debtor’s income exceeds the state’s median income they must do means testing. Household Size Monthly Income Annual Income1 $5,058.00 $60,696.002 $6,429.92 $77,159.003 $7,709.00 $92,508.00 If an individual wants to file for chapter 7 bankruptcy and they do not pass the means test, then there is a "presumption of abuse" and they are not allowed to file for chapter 7 bankruptcy.The means test is an 8-page test and it is the most complicated test or calculation in the law!Shenwick & Associates is often referred complex bankruptcy cases and we do means testing on a regular basis. We are often asked whether non-dischargeable student loan payments are an  allowed deduction for means-testing. Interestingly,  the test itself does not allow a  deduct for non dischargeable  student loan payments. However there is a deduction for " special circumstances"  and many bankruptcy attorneys believe that non-deductible student loan payments should be a special circumstance deduction. There is a case on point from the Western District of New York (it is not a case from the Southern or Eastern Districts), but it holds that non-deductible student loan debt can be deducted when doing means testing  and the logic of that case may be persuasive to judges in this District. The name of that case is in re Howell  477 B.R. 314 (2012).  In the Howell case, the United States Trustee has moved to dismiss this Chapter 7 case on grounds that the granting of a bankruptcy discharge would constitute an abuse. The central issue in the case was  whether the obligation to pay a non-dischargeable student loan can serve as a special circumstance that will overcome a statutory presumption of abuse under 11 U.S.C. § 707(b)(2). Section 707(b)(1) of the Bankruptcy Code establishes the general rule, that the Court may dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts if the filing would be an abuse. In the Howell case, the debtor had student loan payments of $658.00 per month and if this deduction  were treated as an allowable expense, their current monthly income would fall to a level that avoids a presumption of abuse.  Section 707(b)(2)(B)(i) of the Bankruptcy Code states that in any proceeding to dismiss a case for abuse, "the presumption of abuse may only be rebutted by demonstrating special circumstances.The Court found that there was no evidence that the Debtors lead an extravagant lifestyle. The Debtors had three outstanding student loans. In sworn affidavits, the Debtors stated that they were not eligible for any further extensions and that as presently constituted, the loans require monthly payments through dates that range between 16 and 24 years after the filing of their bankruptcy petition. The Judge held that the totality of evidence supports the absence of an abusive filing and that Section 707(b)(2)(B)(i) provides that special circumstances" may rebut the presumption of abuse. The Court stated that the non-dischargeable character of the debtors' student loans will necessitate expenses for which the debtors have no reasonable alternative. The Judge further found that the magnitude of the student loans will further compel substantial payments over an extended period of time, without hope for any deferral.The Judge held that based on the debtor’s student loans and non extravagant lifestyle the bankruptcy filing was  non-abusive and the Debtor’s were granted their chapter 7 discharge.We should note that the debtors were not attempting to discharge their student loans in their chapter 7 bankruptcy filing. Individuals that have questions about Personal Bankruptcy or the Means Test should contact Jim Shenwick 212 541 6224 or [email protected]      

 In a case involving multiple parties and proceedings, the Fifth Circuit has affirmed lower court rulings which prohibited one non-debtor from suing a second non-debtor and awarded sanctions against a party that told a state court to disregard the Bankruptcy Court's orders. In the Matter of PFO Global, Incorporated, Case No. 20-10885 (5th Cir. 2/9/22), which can be found here. While the result may sound extreme, it appears to be an unintended consequence of an agreed order entered years earlier.A Procedural Muddle Key to understanding the opinion is understanding the relationship between three groups of parties. Pro Fix Optical (PFO) had a contract with VSP Labs, Inc. (VSP). VSP sued PFO in state court in California and PFO counterclaimed. Before the case could make it to trial, PFO filed bankruptcy.  In the bankruptcy, Hillair Capital Investments, Inc. and Hillair Capital Management, LLC (Hillair)purchased the assets of the Debtor, including the counterclaims. Hillair was a major lender to the Debtor. At this point, VSP had claims against PFO, the Debtor, and Hillair had counter-claims against VSP. Hillair asked the California state court to sever its counterclaims from claims that were subject to the automatic stay. VSP then asked the bankruptcy court to lift the stay to allow it to offset its claims against the counterclaims. The parties submitted an agreed order. The agreed order said that VSP could liquidate its claims against PFO in state court. If VSP was to prevail, it had two rights. First, it could offset its claims against the Hillair counterclaims. To the extent that VSP's claims exceeded the Hillair claims, it could assert the excess by filing a proof of claim in the PFO bankruptcy case. The critical language in the order stated "no money damages or other amounts of any kind may be recovered from Hillair under any circumstances on account of any claims that have been or could have been asserted in the California Action."The order made sense in the context of a sale free and clear of liens where Hillair had acquired the counterclaims while PFO remained liable on the original VSP claims. Things became more complicated when VSP concluded during discovery that Hillair had directed PFO to breach its agreement with VSP. VSP asked the California state court for leave to amend its claims to assert new claims against both PFO and Hillair. Hillair then went to the Bankruptcy Court and asked for an order prohibiting VSP from asserting direct claims against it in the California State Court action. The Bankruptcy Court granted this relief and entered what was known as the Enforcement Order. The Enforcement Order found that the original agreed order lifting the stay prohibited VSP from asserting direct claims against Hillair.The California State Court then asked for briefing on the effect of the Enforcement Order. VSP filed a supplemental brief asserting that the Enforcement Order had no effect on its proposed claims. Hillair then moved for sanctions against VSP in Bankruptcy Court asserting that VSP had ignored the Bankruptcy Court's orders (which it clearly had). The Bankruptcy Court awarded sanctions.  VSP moved for reconsideration and lost. At that point, VSP appealed the Bankruptcy Court's orders interpreting the Lift Stay Order and awarding sanctions. The District Court affirmed and VSP appealed to the Fifth Circuit.Was There Jurisdiction?On appeal to the Fifth Circuit, VSP argued that the Bankruptcy Court lacked subject matter jurisdiction to preclude VSP, a non-debtor, from asserting claims against Hillair, a second non-debtor. On the surface, this argument had some appeal, since the Northern Pipeline case had found that the Bankruptcy Court lacked jurisdiction to determine certain claims between non-debtors. As a reminder, Bankruptcy Courts have three types of jurisdiction: claims arising under the Bankruptcy Code, claims arising in a case under the Bankruptcy Code and claims related to a case under the Bankruptcy Code. Related to jurisdiction extends to matters which could have a conceivable effect on the estate being administered in bankruptcy. The Fifth Circuit found that lifting the automatic stay fell within "arising under" jurisdiction because 11 U.S.C. 362(d), which authorizes lifting the stay, is part of the Code.  The Court then found that the Bankruptcy Court had "related to" jurisdiction over VSP's claims against Hillair. Its rationale was that if VSP prevailed in its claims against Hillair, this result would reduce the amount of claims that VSP would have against PFO, the Debtor.  The Fifth Circuit found that Under Stern v. Marshall, the Bankruptcy Court would have lacked authority to enter a final order on these related to claims absent consent. However, because the order was an agreed order, consent was clearly present.Did the Fifth Circuit Get It Right?The Fifth Circuit may or may not have reached the right result, but it appears that its reasoning was flawed.  Allowing VSP to pursue Hillair could certainly have a conceivable effect on the estate being administered in bankruptcy. However, the part of the order that VSP complained about prevented it from pursuing affirmative claims against Hillair. It takes more imagination to see how precluding VSP from pursuing affirmative claims against Hillair would have an effect on the bankruptcy estate. Perhaps Hillair would have been able to assert indemnity claims against the estate if VSP prevailed and those indemnity claims would have an impact on the estate. That seems like more of a reach, especially if those facts did not appear in the record.However, there may be a better alternative rationale, at least in part. The agreed order made perfect sense in the context of a sale free and clear of liens. When Hillair purchased the counterclaims, it did not assume liability for VSP's claims That is the essence of a sale free and clear of liens. In this light, the prohibition against pursuing direct claims against Hillair was necessary to implement the order for sale free and clear of liens and thus would be covered by "arising under" jurisdiction. The problem with this rationale is that the parties didn't contemplate that VSP might discover that it had independent claims against Hillair, ones that didn't arise from purchase of the counterclaims. It seems likely that the parties did not contemplate that existence of independent claims when they drafted the Lift Stay Order or that they would have any reason to even contemplate this result. In this context, it might have been reasonable for VSP to approach the Bankruptcy Court to modify its Lift Stay Order to allow VSP to pursue its independent claims. It appears that VSP did make this approach and that the Bankruptcy Court said no. That seems like an abuse of discretion to me. Would the outcome have been different if VSP had appealed based on an abuse of discretion? Probably not. This is so because courts of appeals are reluctant to reverse orders based upon an abuse of discretion.At the end of the day, I am appalled that VSP told the California State Court that it could ignore the Bankruptcy Court's orders. However, I am also left wondering why the Bankruptcy Court refused to modify its order. It seems clear to me (someone who had no participation in the case) that the Lift Stay Order did not anticipate VSP discovering independent claims against VSP. The Lift Stay Order made perfect sense in the original context but led to jarring consequences later. I am left with two final conclusions. The first is that bankruptcy jurisdiction is simultaneously straightforward and incredibly complex at the same time. Most of the time, it is easy to apply "arising under," "arising in" and "related to." Then there are mind-splitting cases like the present one where it is easy to go down a rabbit hole and fall into a Through the Looking Glass world. The second conclusion is that in real life, it is impossible to anticipate every contingency that may arise. Courts should be willing to be flexible in interpreting orders that were not intended to deal with a specific situation. (Caveat: There may be other facts that are not apparent from the opinion that invalidate my conclusions).This case just leaves a bad taste in my mouth and makes my head hurt. On rare occasions, I have opined that the Fifth Circuit reached a terribly erroneous result. This is not one of those cases. It is a bad result but not necessarily a bad opinion.

Very often new clients ask me if they have to go to the  Hospital or doctor within 72 hours.  Apparently, people are told by the officer responding to the accident that they won’t be able to pursue a claim for personal injuries if they do not see a doctor in 3 days of the accident.  This is totally wrong.  Do not suffer in silence, but do not assume that you cannot proceed with a claim because of this “3 day” rule.  Even if you do not go to a physician within a week of the accident, you can proceed.  I have settled cases successfully where a client did not treat for an entire month after the accident!  This is not recommended and there should be a good reason for the delay.  But, the mere fact that more than 3 days had passed after the crash does not eliminate the claim.The post In a Maryland car accident do you have to go to the Hospital within 72 hours? first appeared on Scholnick Law.