Pick your words carefully.  Your clients will have to live with the results of your choice. Our challenge as bankruptcy lawyers is to extract, analyze, and present a huge amount of financial information. We have to get it from people who don’t really understand why we need it, nor the consequences of not getting it. We are usually working for less money than the job we do is worth, so the more time it takes, the less we make. But the fact remains, we need to get the right information from the person who has it, the debtor. So, choose your words carefully. The client with no “creditors” An entrepreneur came in to talk with me about a Chapter 7 filing.  The business was toast and he was ready to start over. At some point in the course of the business, there had been big investment and significant operations.  And the man was really anxious to file and get it over with. I asked about his creditors.  He gave me four credit cards with balances small relative to the business enterprise he described. I asked if he owed anyone else money.  No, he replied. Did he have any other bills?  No, he insisted. Was he certain?  Yes, he repeated. I was getting frustrated because the story didn’t add up.  He was getting frustrated, either because he thought I didn’t believe him or I was too dense to understand. Finally, I blurted out, “Is there anyone out there who wants to sue you?” ” Oh, yes,” came the response, “each one of my investors!” Bingo:  in the client’s mind, those investors weren’t “creditors.”  He didn’t “owe” them money.  They didn’t send him “bills”. But they sure as hell wanted a piece of his hide. My word choice had almost failed me. Beyond creditor In so many people’s mind, “creditors” are those who send you bills every month.  They are the entities to whom you acknowledge you owe money. But if you ask your client who their “creditors” are, you risk getting just a subset of those to whom they have legal exposure. If you task your client to fill in Schedule F on line, you almost assure that you get only the folks who send bills. You miss the guarantee of someone else’s debt, perhaps the payroll tax exposure, the assigned business lease, the disputed tort claim. You also risk that the client edits what you say to match his expectations.  ”Creditors”, when the bankruptcy attorney asks, means “people whose claims I expect to discharge”. So, choose your words carefully. Choose words that are expansive.  Or repetitive. Think about the ways that laymen sort and categorize things. Use words that don’t fit into little boxes in your client’s head, that invite him to skip over information outside of that box that you need. The discharge may ride on word choice. Image courtesy of Flickr and Patti Haskins.

The life of an appellate court judge is largely occupied by consideration of criminal appeals and prisoner petitions.    In FY2012, these cases made up 64% of the Fifth Circuit's docket.   (By contrast, bankruptcy appeals made up only 1.7% of cases docketed).    While they are statistically insignificant, the Fifth Circuit is having to devote an increasing amount of its time to cases involving persons unhappy about the foreclosure of their residence.   By my count, the Fifth Circuit has issued two published opinions and eighteen unpublished opinions so far during 2013.   These cases involve an increasing trend of litigants going to district court (usually a filing in state district court which is removed to U.S. District Court) to protest their foreclosures rather than going to bankruptcy court to prevent them.    Many of these cases fall into one of two categories:   either the homeowner argues that the lender lied about the effect of a request for a HAMP modification or that the foreclosing party lacked authority.    This post will examine two published cases dealing with allegations of misbehaving HAM Psters while Part 2 will examine the technical requirements for a Texas foreclosure.   (A HAM Pster is a cross between a hamster and a gangster.    While overworked, underpaid mortgage servicing employees often scurry about like hamsters trying to cope with overwhelming amounts of paperwork that they never manage to fully process, they often appear like gangsters to beleaguered  homeowners who are promised relief only to find that the HAMP process diverted their attention from the inevitably advancing foreclosure).    James and Allene Miller and Ashley Martins were two sets of homeowners who found themselves dealing with BAC Home Loans Servicing, LP.    In an opinion authored by Chief Judge Carl Stewart, the Millers emerged with part of their lawsuit intact.   Miller v. BAC Home Loans Servicing, LP, No. 12-41273 (5th Cir. 8/13/13), which can be found here.   Mr. Martins was not so fortunate.   Martins v. BAC Home Loan Servicing, LP, No. 12-20559 (5th Cir. 6/26/13), which can be found here.   The Martins case will be discussed further in Part 2.What HappenedThe Miller court succinctly summarized a story being heard often by attorneys:The Millers allege that between March 10, 2010 and May 3, 2010, they called BAC at least three times, and that each call resulted in an unfulfilled promise from a BAC call center representative to send them a loan modification application. Further, the Millers allege that at least one of the call center representatives assured them that there would be no need to make a premodification payment to cure the default.On May 3, 2010, the Millers received a letter from BAC’s foreclosure law firm stating that a foreclosure sale of the property would occur on June 1, 2010. The Millers allege that sometime between May 3, 2010, and May 18, 2010, a BAC foreclosure specialist named Victoria Masters informed them that she would make sure a loan modification application arrived, and that the foreclosure sale would be postponed while they attempted to modify their loan. The loan modification application arrived on May 18, 2010. The Millers returned their completed application by mail on May 28, 2010. That same day, they were contacted by an agent of BAC who informed them that the foreclosure auction would proceed on June 1, 2010. On May 31, 2010, the Millers again spoke with Ms. Masters, the BAC foreclosure specialist. She informed them that no postponement had yet been approved, but that she would attempt to obtain such approval from Fannie Mae. Later that day, the Millers allege Ms. Masters represented to them that she had obtained approval from Fannie Mae for foreclosure postponement pending disposition of their loan modification application.Notwithstanding this alleged representation of postponement, the foreclosure sale proceeded as scheduled on June 1, 2010.Miller, pp. 2-3.    The Martins case also involved an allegation that a representative of BAC "orally promised that his house would not be foreclosed if he submitted an application through the Home Affordable Modification Program (known as HAMP), which he did."    Martins, p. 9. In both instances, the home was lost to foreclosure and the homeowner brought suit.   In both cases, the state court suit was removed to U.S. District Court which granted a motion to dismiss for failure to state a cause of action in the former case and a motion for summary judgment in the latter. The Homeowners' Legal Theories   The homeowners attacked the foreclosing parties under a number of state and federal theories, including the Fair Debt Collection Practices Act (FDCPA) , the Texas Debt Collection Act (TDCA), the Texas Deceptive Trade Practices Act (DTPA) and the Texas common law theories of promissory estoppel and wrongful foreclosure.    In these particular cases, the TDCA was the only theory to survive initial scrutiny.The FDCPA vs. the TDCA  This case illustrates an important distinction between the state and federal debt collection statutes.   Both the FDCPA and the TDCA require that a person be a "debt collector" in order to be subject to its requirements.   A creditor is not a debt collector under FDCPA unless it acquired the debt after it was in default.   On the other hand, a creditor is a "debt collector" but is not a "third party debt collector" under the Texas statute.   The U.S. Magistrate recommended that both claims be dismissed on the basis that BAC did not fall within the definition of a debt collector.   While there was a question about whether the loan was in default when BAC took over the servicing, the debtor did not appeal the dismissal of its FDCPA claims.   On the other hand, the Fifth Circuit found that the TDCA did apply and that this claim was wrongly dismissed.   The Court stated:We reject this conclusion, which erroneously affords the lone third-party debt collectors reference talismanic significance despite the fact that the FDCPA is a “distinguishable, federal statute.” (citation omitted). The TDCA’s definition of debt collector is broader than the FDCPA’s definition. (citation omitted). Unlike the TDCA, the FDCPA expressly excludes from its definition of debt collector: “any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity . . . concerns a debt which was not in default at the time it was obtained by such person.” 15 U.S.C. § 1692a(6)(F)(iii).As noted above, we held in Perry that this FDCPA exclusion encompasses mortgage servicing companies and debt assignees “as long as the [mortgage] was not in default at the time it was assigned” by the originator. (citation omitted). However, we also held in Perry that servicers and assignees are debt collectors, and therefore are covered, under the TDCA. See id. (citation omitted). In light of Perry, we conclude that BAC qualifies as a debt collector under the broader TDCA, irrespective of whether the Millers’ mortgage was already in default at the time of its assignment. Miller, p. 7.   The Miller sued under four provisions of the TDCA:   misrepresenting the character, extent or amount of a consumer debt or its status in a judicial or governmental proceeding; falsely representing the status or nature of the services provided by the debt collector; misrepresenting that the debt was being collected by an independent, bona fide third party; and "using any other false representation or deceptive means to collect a debt."    The Court found that the debtors' allegation that the loan servicer promised to send the Millers a loan modification application and to delay foreclosure stated a cause of action under the TDCA provision relating to misrepresenting the services provided by a debt collector.    However, it found that the debtors' allegations did not state a claim under the other subsections.      The Court found that BAC had not misrepresented the character, extent or amount of the debt because the Millers knew that they owed the debt, knew what they owed and knew that they had defaulted and that BAC said nothing to lead them to think differently.   The Court found that because the debtors had not "alleged any facts stating that BAC was a subterfuge organization for Bank of America" that they had not misrepresented that the debt was being collected by a bona fide third party.    Finally, the Court found that the debtors had not alleged any specific deceptive acts or practices.   From where I sit, BAC engaged in a false and deceptive practice when it told the borrowers that it would not foreclose while it was considering their HAMP application.    However, the Court did not see it this way. DTPA The Court affirmed dismissal of the Millers' DTPA cause of action on the basis that the DTPA applies to a consumer.   A consumer is a person who acquires or seeks to acquire goods or services.   A straight loan of money without more is neither a good nor a service.   A loan to acquire goods or services can make someone a consumer but only if the claim arises from the purchase of the goods or services.   Because the Millers' claim arose from the attempted modification of the loan rather than the purchase of the home, the court found that they did not meet the definition of a consumer and did not state a cause of action under the DTPA. Promissory Estoppel  Both sets of plaintiffs alleged that the doctrine of promissory estoppel precluded BAC from honoring its alleged promise not to foreclose while it was considering the HAMP modification.    However, the specifics of the Texas doctrine prevented them from gaining traction here.   In Moore Burger, Inc. v. Phillips Petroleum Co., 492 S.W.2d 934 (Tex. 1972), the Texas Supreme Court held that a promise to sign a document that would comply with the statute of frauds would preclude the promising party from raising the statute of frauds.    Under Texas law, an agreement to make a loan for more than $50,000 as well as an agreement relating to sale of real estate must be in writing to be enforceable. As a result, the Court found that BAC's promise not to foreclose was unenforceable unless it was contained in a signed writing.  The Plaintiffs alleged that BAC agreed not to foreclose while it was considering the HAMP modification request.   However, the Plaintiffs did not allege that BAC said that it would sign a document in writing confirming this.   As a result, the doctrine of promissory estoppel did not apply. Wrongful Foreclosure Both sets of plaintiffs also unsuccessfully alleged wrongful foreclosure.   Under Texas law, there are three requirements for wrongful foreclosure:   (1) a defect in the foreclosure sale proceedings; (2) a grossly inadequate sales price; and (3) a causal connection between the two.   Mr. Martins alleged that failure to receive notice of the sale was a defect in the sales process.   However, the Court found that the notice need merely be sent, not received.   Additionally, it found that foreclosure for 92% of appraised value was not "grossly inadequate."   While the lower court accepted that the Millers' HAMP misrepresentation claims constituted a defect in the foreclosure sale process, it found that they had not attempted to satisfy the second and third elements of the test.   Instead, the Millers argued that they did not have to meet the second and third requirements where they sought damages but did not seek to set the foreclosure aside.   The Court disagreed.     What Does This Mean For Homeowners Chewed Up by HAM Psters? In a perfect world (or even a pretty good one), lenders would realize that these cases are not an aberration and take steps to make the program work better.   After all, people who default upon their mortgages are not mere deadbeats disconnected from the rest of society.   They have friends and relatives who might be future customers and might be turned off by stories of homes lost due to duplicity concerning the benefits of the HAMP program.   These same people might also have long memories the next time that Wall Street turns to Washington for a bailout.    Nevertheless, until the home mortgage crisis resolves itself, the Miller and Martins cases (and the eighteen unreported cases that I did not discuss) demonstrate that suing a mortgagor/servicer, even one that makes misrepresentations, is a daunting task.    If a loan servicer promises to forebear on a pending foreclosure based on a HAMP request, it is a good idea to have a bankruptcy lawyer waiting in the wings.  However, if that strategy doesn't work or isn't available, the cases discussed here provide a few litigation ideas.   First, if you have the luxury of talking to your client at the time that the loan servicer is promising that HAMP will make everything better, tell your client to ask for the agreement in writing.   They won't put it in writing, but they might say they would.   Offering to put the agreement not to foreclose in a signed letter would be enough to bring the case within promissory estoppel.  Second, be sure to remember the TDCA when pleading causes of action.   While it is not as sexy as the FDCPA, it was the only theory that worked in these cases.   Third, remember that there are three elements to wrongful foreclosure and make sure that you allege each of them (or perhaps omit the claim in favor of a stronger one).   Finally, call your Congressman and tell him that HAMP doesn't work and is being abused.     

The Scenario You’ve been struggling with the mortgage on your commercial real estate or industrial building. Now the bank has started a foreclosure in Illinois. You’re in a state of shock as it is. Now the bank has filed an emergency motion in court to appoint a receiver. What does this mean? What can you do about it? When you signed your mortgage on an apartment building, commercial or industrial real estate in Illinois, you also agreed that if you didn’t pay the bank what you were supposed to when due, the bank could start mortgage foreclosure proceedings. You also agreed that the bank could ask the court to appoint a receiver. In Illinois, the lender’s right to a receiver is just about absolute. The only defense you might have is that you are not in default and the lender doesn’t really have the right to foreclose. But the lender will get the benefit of the doubt. It is a good idea to consult with a Chicago foreclosure attorney to discuss your next move. So who is a receiver? A receiver must be qualified to take possession and to operate the real estate. Typically the receiver is a real estate professional with a track record as a property manager for the type of real estate he is taking over. A receiver of an apartment building is typically a property manager for apartments. A receiver for a shopping center might be a shopping center developer. A receiver for industrial property might be an industrial property expert. What can a receiver do? What does a receivership mean to you? A receiver must post a bond with the court. That’s because the receiver is acting for the benefit of all parties involved in the foreclosure, not just the bank. The receiver acts as an officer of the court. He must be honest. He must account for all rents collected and all expenditures made. So the bond protects all parties against any dishonesty by the receiver. The receiver can’t sell the property – that would be a short-cut to the mortgage foreclosure process, and if any actions to sell the property arise, it is imperative to contact a Chicago foreclosure attorney immediately. However, the receiver can collect rents, enter into leases, contract for the maintenance and repair of the real estate. A typical order appointing a receiver will specify exactly what the receiver can do without court authority. If the receiver wants to do something which is not within the authority granted in the order appointing him as a receiver, he will ask the court’s permission. A receiver will frequently employ an attorney to represent him in matters which come before the court. Who pays the receiver? The lender pays the receiver initially. However, all expenses for the receivership are added to the loan and become the borrower’s responsibility if the loan is “with recourse.” Even if the loan is “without recourse”, the expenses of the receivership are added to the loan and become additional indebtedness against the real estate. Can a Chicago Foreclosure Attorney Help Me? The bank wants a receiver because it does not trust the borrower to take care of the property itself. If you file a bankruptcy case in chapter 11, you can try to get the property back from the receiver. However, our Chicago foreclosure attorneys warn you that the lender and the receiver have the right to keep the property in the hands of the receiver even if you filed a chapter 11. So if you are worried about keeping the property out of the hands of a receiver and think you have a reasonable possibility of success in chapter 11, file your bankruptcy case before the receiver is appointed. For more information about receiverships, foreclosures and chapter 11 bankruptcy, including real estate reorganization, single asset real estate and real estate bankruptcy contact the Chicago foreclosure attorneys David Leibowitz or Jonathan Brand at Lakelaw.

An important part of making your decision to file bankruptcy is deciding which type of bankruptcy is right for you. For the most part you will be making the decision to file chapter 7 or chapter 13. Although it is possible to “convert” or switch from chapter 7 to chapter 13 or vice versa, it [...]

An important part of making your decision to file bankruptcy is deciding which type of bankruptcy is right for you. For the most part you will be making the decision to file chapter 7 or chapter 13. Although it is possible to “convert” or switch from chapter 7 to chapter 13 or vice versa, it […]The post Choosing the Right Type of Bankruptcy appeared first on Tucson Bankruptcy Attorneys Trezza & Associates.

There are several things that you should not do if you are considering filing for bankruptcy under either Chapter 7 or Chapter 13.  One of the things that people do which is a prohibited act is repaying a family member or a friend within a year of filing for bankruptcy.  This is known as a+ Read MoreThe post Is there anything I should not do if I’m thinking of filing for bankruptcy? appeared first on David M. Siegel.

By ARDEN DALE As offshore accounts draw greater scrutiny, some financial advisers are having their clients use a special trust as an alternative strategy to shield their assets from potential lawsuits.So far, 15 states allow the creation of domestic asset protection trusts, which safeguard securities or other assets of the owner. In the past, they weren't widely used and few states allowed them. One big driver of the trend is that offshore accounts--commonly used to ward off creditors--have grown less popular amid an ongoing Internal Revenue Service crackdown. The tax agency, which also contends the accounts help wealthy Americans evade taxes, has beefed up reporting requirements as well as penalties for violators. Increasingly, some advisers are having more discussions about domestic asset protection trusts as a matter of course with any client who owns a business, works in a high-risk profession like medicine, or worries that a child may wind up in a divorce. "We have been seeing a lot more of them," said Edward J. Mooney, managing director of BNY Mellon Wealth Management. Recently, Mr. Mooney raised the matter with a client who owns a shipping construction business in the energy sector. A boom in the fracking business, which carries the risk of liability over environmental damage, has prompted more use of the trusts, the adviser said. Anyone who wants to set up a domestic asset protection trust has to be prepared to work with a trustee in the state where the irrevocable trust is established. A client in Illinois, for example, can't set one up in his home state. So an adviser can help find the best state, and work to find a good trustee--usually a corporate trustee--to manage the trust there. Alaska, Delaware, Nevada, and South Dakota were early adopters of the trusts, and have been the most popular locations to site them. Illinois adviser Michael C. Foltz has been working with a client who is thinking about selling his electronic parts manufacturing business, but wants to keep his estate from having to pay state estate taxes on the proceeds. Mr. Foltz suggested a trust in a state with no state estate or income tax. He also broached the idea of setting up the trust to protect its contents from future creditors. "First and foremost, the estate planner is trying to find ways to reduce or eliminate estate tax, and if they can layer creditor protection on top of that, so much the better," said Mr. Foltz, a wealth manager at Balasa Dinverno Foltz LLC in Itasca, Ill., with about $2.1 billion under management. Robert J. Robes, an estate attorney with Greenberg Traurig in Boca Raton, Fla., said a domestic asset protection trust won't work for someone who sets it up in the face of an impending lawsuit. Instead, it must be in place well in advance of any litigation. "Be as proactive as you can," Mr. Robes said. "Oftentimes clients react to potential liability when something is starting to bubble up, which is too late." And don't put assets into the trust that are needed for the family to live on. Instead, think of it as a way to protect a nest egg, he said. Copyright 2013 Dow Jones & Company, Inc.  All rights reserved.

It is a much misunderstood truism that  a "secured creditor ‘with a loan secured by a lien on the assets of a debtor who becomes bankrupt before the loan is repaid may ignore the bankruptcy proceeding and look to the lien for satisfaction of the debt.'"     In re Howard, 972 F.2d 639, 641 (5th Cir. 1992).   Of course, the Bankruptcy Code does not say this.    In the case of a chapter 11 proceeding, what the Code does say is that  except as otherwise provided in the plan or in the order confirming the plan, after confirmation of the plan, the property dealt with by the plan is free and clear of all claims and interests of creditors, equity security holders and of general partners of the debtor.11 U.S.C. Sec. 1141(c).    Unfortunately, the courts in several circuits, including the Fifth Circuit, have added a judicial gloss to this clear statutory language and have held that in order for the provision to apply, that the creditor "must participate in the reorganization."    Elixir Industries v. City Bank & Trust Co. (In re Ahern Enterprises), 507 F.3d 817, 822 (5th Cir. 2007).     A new decision from the Fifth Circuit illustrates the perils of this rule.   Acceptance Loan Company, Incorporated v. S. White Transportation, Incorporated (Matter of S. White Transportation, Incorporated), No. 12-60648 (5th Cir. 8/5/13), which can be found here.What HappenedIn S. White Transportation, the creditor claimed a lien on the debtor's property and the debtor disputed the validity of the lien.   They had fought over the lien in state court without resolution.    When the debtor filed chapter 11, it scheduled the creditor as secured, but listed its claim as disputed.   The creditor did not file a proof of claim.   The confirmed plan acknowledged the lien dispute and provided for no distribution to the creditor.    The creditor did not object or vote upon the plan and it was confirmed.    After confirmation, the creditor requested a declaratory judgment that its lien had survived confirmation.   The Bankruptcy Court said no based on the rationale that notice and opportunity to participate was sufficient.   The District Court required actual participation and reversed.    The Fifth Circuit, relying on Black's Law Dictionary on rulings from other circuits, said that participation must be active to be effective.    The Court held:In light of our interpretation of the definition of the word “participate” and in accordance with the above-cited persuasive authority from our sister circuits, we hold that meeting the participation requirement in In re Ahern Enterprises requires more than mere passive receipt of effective notice.Opinion at p. 5.Judicial Gloss The difficulty with this decision is that the judicial gloss overshadows the statutory language.    The Code says that "property dealt with by the plan is free and clear of all claims and interests."    The Code does not that "property dealt with by a plan is free and clear of all liens and interests of parties who actively participated in the bankruptcy case."    Espinosa and Due ProcessDue process requires that a party receive notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections. United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 272 (2010), quoting Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314 (1950).  Clearly the creditor here received notice which satisfied the requirements of due process.The Fifth Circuit brushed Espinosa in a footnote, stating that it was a case about a motion for relief from judgment under Rule 60(b).    However, Espinosa was about more than simply Rule 60(b)--it was about the binding effect of a plan.    In Espinosa the creditor argued that the Court lacked the power to discharge its otherwise nondischargeable claim in a plan and was rebuffed.   In this case, the creditor argued that the Court lacked the power to avoid its lien and was validated.   Something is clearly amiss here.Practical Problems and Reductio Ad Absurdum The S. White decision also presents practical difficulties.   If a creditor alleges a lien, no matter how spurious, and does not file a claim, does this exempt the creditor from the bankruptcy process?     The Bankruptcy Rules allow the debtor to file a claim on a creditor's behalf which the debtor could object to.   However, if the creditor remains silent in response to the claims objection, then it still has not actively participated in the case.    The debtor could file an adversary proceeding to determine the lien's validity.   This would delay the bankruptcy and no doubt lead to criticism from the U.S. Trustee.   On the other hand, if the debtor files an adversary proceeding and obtains a default judgment, then the creditor still has not actively participated.   While it is true that an adversary proceeding provides the creditor with more more due process, the requirements of due process had already been met.   The problem with judicial creations such as this one is that they have the prospect of taking on a life of their own.   The reductio ab absurdum here is that if the active participation principle is taken to its extreme then every creditor could opt out of the chapter 11 process by not participating and a chapter 11 plan would be a worthless scrap of paper.     The Need for Rehearing En BancIt is time for the Fifth Circuit to reconsider the active participation rule.    This judicial gloss is inconsistent wit the language of the Code and is contrary to Supreme Court precedent.   It encourages a creditor who knows that its lien is being challenged to remain silent and hide behind the log to the detriment of the debtor and its other creditors.   In S. White, there were three other creditors who held undisputed liens upon the same property.    These creditors had the right to rely upon the terms of the plan and should not be subordinated to the claim of a creditor who sought to subvert the process through its silence.    

Who would have thought that abstention could be so interesting? Judge Leif Clark has written an opinion on abstention which jabs at some of the boilerplate language found in motions to abstain and contains a footnote destined to become a Clark-classic. The Official Committee of Unsecured Creditors of Schlotzsky's, Inc. v. Grant Thornton, LLP, Adv. No. 05-5109, 2006 Bankr. LEXIS 2435 (Bankr. W.D. Tex. 8/30/06), which can be found here.In the Grant Thornton case, the creditors' committee received permission to sue the debtor's auditors. They brought seven causes of action, five of which arose under state law. Grant Thornton responded with a motion to abstain from hearing the state law claims and a motion to dismiss. In denying the motion to abstain, Judge Clark resisted the temptation to check off factors on a multi-prong test. In fact, he questioned the usefulness of such tests in general. He stated: Many courts, in an effort to give expression to the parameters of that (equitable) discretion, have developed multi-factor tests. While helpful, they are by their very nature, not dispositive. Mechanical applications of such tests to rule on equitable issues that are heavily fact-specific are often doomed to produce incorrect outcomes. The various tests offered by these opinions must be viewed in the larger context of the task presented--to arrive at the equitable application of the permissive abstention doctrine, as appropriately applied in the bankruptcy context. Or, more simply, we must avoid losing the forest for the trees.Slip Op. at 5.Judge Clark illustrated his point in a footnote which only he could have written.A person is sent into a crowded room with directions to find Judge Clark by applying the following multi-factor test: (1) tall, (2) blond hair, (3) angular features, (4) dressed stylishly and (5) having a resonant voice. The person returns with David Bowie in tow. If the person had simply been given a recent picture of Judge Clark (which would have been worth far more than all the factors one could write down on a piece of paper), chances are he would have quickly returned with the judge, not the singer.Leif M. ClarkNot Leif ClarkNot Leif Clark Unless, of course, Judge Tony Davis was in the room, in which case the searcher might come back with two jurists. Instead, Judge Clark tried to identify the larger policies served the abstention doctrine, stating:The larger context of permissive abstention is informed by the base principles that led to its inclusion in the bankruptcy jurisdiction statute in 1978. Those principles included the importance of centralized administration in one forum, the breadth of bankruptcy jurisdiction intended to have been conferred, the need to deal with unexpected exigencies or to step back when the matter to be litigated is especially important to be resolved in a state forum, and the need to do justice (as well as to avoid doing an injustice).Slip Op. at 5.In the discussion which followed, Judge Clark addressed some of the boilerplate allegations which turn up in most motions to abstain:* Forum Shopping* State Law Issues* Non-Core StatusWith regard to forum shopping, Judge Clark pointed out that all parties with a choice of venue engage in forum shopping. The pertinent question is whether the particular exercize of forum shopping is abusive or consistent with the jurisdictional provisions of the Bankruptcy Code. In this case, the presumption in favor of centralizing proceedings related to the bankruptcy case in the Bankruptcy Court won out.With regard to the prevalence of state law issues, Judge Clark pointed out many of the issues which the bankruptcy court deals with a daily basis, such as property of the estate, allowance of claims, determination of exemptions, validity and priority of liens, avoidance actions brought under section 544(b) and questions concerning the enforceability of executory contracts, all arise under state law. Judge Clark had previously ruled upon a case involving professional liability. Therefore, the mere presence of questions of state law was not dispositive.With regard to non-core status, Judge Clark pointed out that this should really be a non-factor, since bankruptcy courts are expressly given the authority to hear non-core proceedings in the jurisdictional scheme of title 28. "Unless we are to read Congress' own enactment of section 157(c)(1) of title 28 as a perverse sort of statutory self-fulfilling prophesy, that section's operation should not factor into the abstention calculus." Slip Op. at 9. Properly understood, non-core status is a prerequisite to asking the abstention question. However, beyond that, it is not independently important.At the end of the day, Judge Clark found that abstention was not appropriate.It is refreshing to see Judge Clark take on some of the dogma surrounding abstention doctrine. So many of the opinions about abstention (and the briefs citing those same opinions) are long and self-important. However, abstention is really just about whether a particular choice of forum would be unfair. Although he did not use this specific formulation, his concept of not losing the forest amongst the trees could be summed up in two questions (which are arguably a multi-factor test themselves, but are certainly more direct and to the point):(1) Is the Plaintiff trying to obtain an unfair advantage by its choice of forum?(2) Is the Defendant being unfairly prejudiced by the choice of forum?The answers to those questions should generally result in an answer as reliable as the multi-pronged tests.(Note: In fairness to the promulgators of multi-factor tests, this approach is at least implied by the statute, which lists the interest of justice, comity with state courts and respect for state law as factors to be considered).

The very first thing you need to do before filing for Chapter 13 is to meet with an experienced attorney in your area to talk about your case. Most attorneys will have a bankruptcy questionnaire which you will fill out in advance or at your meeting. The questionnaire is a detailed listing of all of+ Read MoreThe post What do I need to do before filing for Chapter 13? appeared first on David M. Siegel.