What if I do not have paystubs and/or copies of my taxes?The trustee of your bankruptcy needs several things:Past 60 days of paystubsMost recently filed state and federal taxesBank statement from the date of filingWhat happens if you do not have paystubs either because you do not work or you do work but are not provided paystubs (for example someone who is self-employed or on a 1099). And what happens if you filed taxes but do not have a copy or if you did not file taxes because you are not required to?An affidavit can be provided to the trustee in place of any of the above documentation. If you are working and just do not have paystubs then the affidavit will ask you to state the amount of income you have the past 60 days. If you have had no income the past 60 days the affidavit will simply ask the last date that you were employed. If you did not file taxes last year it will ask the reason that you were not required to file taxes. If you filed taxes and do not have a copy it will ask why a copy cannot be provided.This affidavit however should not be used to prevent effort in obtaining these documents. If you lost your paystubs, you can contact payroll to get copies. If you lost your taxes, you can call IRS and Missouri Department of Revenue and ask that copies be sent to you. The trustee prefers to see these documents. But it in the case that they are not available, the affidavit can fulfill this requirement.

Do I have to file taxes in order to file for bankruptcy?That answer depends on a few things. First, are you required to file taxes? If you income is at an amount where you are not required to file taxes, then not filing taxes is not an issue. If however, your income requires that you file taxes and you just fail to do so then we have to look at what Chapter of bankruptcy you are looking to file.If you are filing a Chapter 7 then trustee wants your most recently filed taxes. If for example you file bankruptcy in December, 2011 the trustee will want a copy of your 2010 taxes upon filing (or the last you filed). Depending on your expected 2011 refund, they may want a copy of those once they are filed to determine whether the refund or a portion of the refund is owed to the bankruptcy estate. If they do request these taxes, then yes they can require you to file your taxes. Failure to cooperate with the trustee can result in denial or revocation of your discharge so if the trustee asks for documentation, provide it!If you are filing a Chapter 13, the trustee wants a copy of your most recently filed taxes. However, there is also a requirement in Chapter 13’s that you have to have filed the past 4 years of taxes (if income required you to do so). Both Missouri Department of Revenue and Chapter 13 trustee can file motions or objections in your bankruptcy case until these are completed. If you still fail to file the required taxes, it can lead to dismissal of your case.

Here at Shenwick & Associates, many clients come to us looking to wipe out their debts, usually through bankruptcy or a workout (but we also represent creditors).  While the cancellation of debts is desirable, the problem is that the IRS considers the cancellation of debt to be gross income under § 108 of the Internal Revenue Code.  However, there are exceptions to inclusion and exclusions to cancellation of debt (COD) income:Exceptions to inclusion from gross income are:Amounts specifically excluded from income by law, such as gifts or bequests (personal property received upon the death of the donor).Cancellation of certain qualified student loans. Certain student loans provide that all or part of the debt incurred to attend a qualified educational institution will be canceled if the person who received the loan works for a certain period of time in certain professions for any of a broad class of employers.  If a student loan is canceled as the result of this type of provision, the cancellation of this debt is not included in the recipient’s gross income.  If a taxpayer uses the cash method of accounting rather than the accrual method, the taxpayer does not realize cancellation of debt income if the expense would have otherwise been deductible.A qualified purchase price reduction given by a seller.  If debt you owe the seller for the purchase of property is reduced by the seller at a time when you are not insolvent and the reduction does not occur as the result of a bankruptcy, the reduction does not result in cancellation of debt income.  However, you must reduce your tax basis in the property by the amount of the reduction of your debt to the seller. Exclusions from gross income are:Cancellation of qualified principal residence indebtedness. Qualified principal residence indebtedness is any mortgage you took out to buy, build, or substantially improve your main home. It also must be secured by your main home. Qualified principal residence indebtedness also includes any debt secured by your main home that you used to refinance a mortgage you took out to buy, build, or substantially improve your main home, but only up to the amount of the old mortgage principal just before the refinancing.  The exclusion for qualified principal residence indebtedness provides canceled debt tax relief for many home owners involved in the mortgage foreclosure crisis. The exclusion allows taxpayers to exclude up to $2,000,000 ($1,000,000 if married filing separately) of qualified principal residence indebtedness.Debt cancelled in a bankruptcy case.Debt canceled during insolvency (which is the extent that the total of all of your liabilities was more than the fair market value of all of your assets immediately before the cancellation.Cancellation of qualified farm indebtedness.Cancellation of qualified real property business indebtedness, which is debt that (a) was incurred or assumed in connection with real property used in a trade or business; (b) secured by that real property; and (c) was incurred or assumed before 1993, or after 1992, if the debt is either (i) qualified acquisition indebtedness or (ii) debt incurred to refinance qualified real property business debt incurred or assumed before 1993 (but only to the extent the amount of such debt does not exceed the amount of debt being refinanced).For more information about how cancellation of debts can affect your income and taxes, please contact Jim Shenwick.

By JESSICA SILVER-GREENBERG Hospital patients waiting in an emergency room or convalescing after surgery are being confronted by an unexpected visitor: a debt collector at bedside. This and other aggressive tactics by one of the nation’s largest collectors of medical debts, Accretive Health, were revealed on Tuesday by the Minnesota attorney general, raising concerns that such practices have become common at hospitals across the country. The tactics, like embedding debt collectors as employees in emergency rooms and demanding that patients pay before receiving treatment, were outlined in hundreds of company documents released by the attorney general. And they cast a spotlight on the increasingly desperate strategies among hospitals to recoup payments as their unpaid debts mount. To patients, the debt collectors may look indistinguishable from hospital employees, may demand they pay outstanding bills and may discourage them from seeking emergency care at all, even using scripts like those in collection boiler rooms, according to the documents and employees interviewed by The New York Times. In some cases, the company’s workers had access to health information while persuading patients to pay overdue bills, possibly in violation of federal privacy laws, the documents indicate. The attorney general, Lori Swanson, also said that Accretive employees may have broken the law by not clearly identifying themselves as debt collectors. Accretive Health has contracts not only with two hospitals cited in Minnesota but also with some of the largest hospital systems in the country, including Henry Ford Health System in Michigan and Intermountain Healthcare in Utah. Company executives declined to comment on Tuesday. Although Ms. Swanson did not bring action against the company on Tuesday, she said she was in discussions with state and federal regulators about a coordinated response to Accretive Health’s practices across the country. Regulators in Illinois, where Accretive is based, are watching the developments closely, according to Sue Hofer, a spokeswoman with the State Department of Financial and Professional Regulation. “I have every reason to believe that what they are doing in Minnesota is simply company practice,” Ms. Swanson said in an interview, but declined to provide details. In January, Ms. Swanson filed a civil suit against Accretive after a laptop with patient information was stolen, saying that the company had violated state and federal debt collection laws and patient privacy protections. That action is still pending. An Accretive spokeswoman declined to comment on whether other states were looking into its practices and issued a brief statement, “We have a great track record of helping hospitals enhance their quality of care.” In its annual report, the company said it was cooperating with the attorney general to resolve the issues in Minnesota. As hospitals struggle under a glut of unpaid bills, they are reaching out to companies like Accretive that specialize in collecting medical bills. Hospitals have long hired outside collection agencies to pursue patients after they have left hospital facilities. But financial pressures are altering the collection landscape so that they are now letting collection firms in the front door, according to Don May, the policy adviser for the American Hospital Association, a trade group. To achieve promised savings, hospitals turn over the management of their front-line staffing — like patient registration and scheduling — and their back-office collection activities. Concerns are mounting that the cozy working relationships will undercut patient care and threaten privacy, said Anthony Wright, executive director of Health Access California, a consumer advocacy coalition. “The mission of these companies is in direct opposition to the supposed mission of these hospitals.” Still, hospitals are in a bind. The more than 5,000 community hospitals in the United States provided $39.3 billion in uncompensated care — predominately unpaid patient debts or charity care — in 2010, up 16 percent from 2007, the hospital association estimated. Accretive is one of the few companies specializing in hospital debt collection that is publicly traded. Last year, it reported $29.2 million in profit, up 130 percent from a year earlier. Late last month, Fairview Health Services, a Minnesota hospital group that Accretive provided services to, announced it was canceling its contract with Accretive for back-office debt collection. After Accretive informed investors, its stock plunged 19 percent in a day. On Tuesday, the company’s shares closed at $18.49, down 2.7 percent. Accretive says that it trains its staff to focus on getting payment through “revenue cycle operations.” Accretive fostered a pressurized collection environment that included mandatory daily meetings at the hospitals in Minnesota, according to employees and the newly released documents. Employees with high collection tallies were rewarded with gift cards. Those who fell behind were threatened with termination. “We’ve started firing people that aren’t getting with the program,” a member of Accretive’s staff wrote in an e-mail to his bosses in September 2010. Collection activities extended from obstetrics to the emergency room. In July 2010, an Accretive manager told staff members at Fairview that they should “get cracking on labor and delivery,” since there is a “good chunk to be collected there,” according to company e-mails. Employees were told to stall patients entering the emergency room until they had agreed to pay a previous balance, according to the documents. Employees in the emergency room, for example, were told to ask incoming patients first for a credit card payment. If that failed, employees were told to say, “If you have your checkbook in your car I will be happy to wait for you,” internal documents show. Employees at Accretive’s client hospitals ask patients to make “point of service” payments before they receive treatment. Until she went to Fairview for her son Maxx’s ear tube surgery in November, Marcia Newton, a stay-at-home mother in Corcoran, Minn., said she had never been asked to pay for care before receiving it. “They were really aggressive about getting that money upfront,” she said in an interview. Ms. Newton was shocked to learn that the employees were debt collectors. “You really feel hoodwinked,” she said. While hospital collections at Fairview increased, patient care suffered, the employees said. “Patients are harassed mercilessly,” a hospital employee told Ms. Swanson. Patients with outstanding balances were closely tracked by Accretive staff members, who listed them on “stop lists,” internal documents show. In March 2011, doctors at Fairview complained that such strong-arm tactics were discouraging patients from seeking lifesaving treatments, but Accretive officials dismissed the complaints as “country club talk,” the documents show. Ms. Swanson said that the hounding of patients violated the Emergency Medical Treatment and Active Labor Act, a federal law requiring hospitals to provide emergency health care regardless of citizenship, legal status or ability to pay. In the January lawsuit, Ms. Swanson said that by giving its collectors access to health records, Accretive violated the Health Insurance Portability and Accountability Act, known as Hipaa (pronounced HIP-ah). For example, an Accretive collection employee had access to records that showed a patient had bipolar disorder, Parkinson’s disease and a host of other conditions. In addition, she said, the company broke state collections laws by failing to identify themselves as debt collectors when dealing with patients. Late Tuesday afternoon, Accretive announced it won a contract to provide “revenue cycle operations” for Catholic Health East, which has hospitals in 11 states.Copyright 2012 The New York Times Company.  All rights reserved.

In a disturbing 52-page opinion, Judge Stacey Jernigan has administered “death penalty” sanctions against The Cadle Company based on double-dealing and non-disclosures by Cadle’s long-time attorneys who also represented the trustee.     The Cadle Company, LLC v. Brunswick Homes, LLC, Adv. No. 06-3417 (Bankr. N.D. Tex. 4/23/12).  The opinion may be found here.    The Court went so far as to state that “the entire Adversary Proceeding has been tainted and the temple of justice has been defiled.”   Opinion, p. 5.     The Cadle Company is a sophisticated party that purchases and collects debts.    It is known for its aggressive tactics in collecting debts from parties in bankruptcy.   Many of the leading Fifth Circuit cases involving Section 727 were brought by The Cadle Company.    (Disclosure:    I represented the debtor in Bobby D Associates v. Walsh (In re Walsh), 143 Fed.Appx. 580 (5thCir. 2005), a case brought by a Cadle affiliate).     I have previously written about the Cadle Company here, here and here.In this particular case, The Cadle Company succeeded in having the debtor’s discharge denied and made new law with regard to a trustee’s ability to settle rather than settle claims, see Cadle Co. v. Mims (In re Moore), 608 F.3d 253 (5th Cir. 2010).    However, their trail of successes in the case came to a screeching halt when the Court found out that Cadle had been simultaneously paying the attorneys for both sides to a dispute without making disclosure of that fact.     What HappenedThe Cadle Company several large debts against James H. Moore, III.   In an attempt to collect those debts, it filed a suit in state court against several entities related to the debtor seeking to hold them liable as transferees or alter egos of the debtor.    When the debtor filed bankruptcy in 2006, the state court action was removed to bankruptcy court.    The Cadle Company recognized that the claims now belonged to the trustee and arranged for the trustee to be substituted in as plaintiff.Cadle’s long-time attorneys, Bell, Nunnally & Martin, LLP offered to represent the trustee on a contingent fee basis.   This appeared to be a good deal for the trustee since Bell Nunnally was familiar with the file and agreed to take the case on a contingent fee basis.    Bell Nunnally signed an engagement agreement with the trustee which was incorporated into an application to be employed as special counsel.    The application and the engagement agreement represented among other things:That BNM had previously represented the Cadle Company but understood “that it represents and owes fiduciary duties only to the Trustee in the Action and not the Cadle Company.”“Compensation to BNM, if any, will be paid only upon recovery of money or property of value in connection with the Adversary Action on behalf of the estate and will be subject to the Court’s approval of a fee application to be filed by BNM at the conclusion of the Adversary Action.”“No promises have been made to BNM or any of its partners or associates as to compensation in connection with this case other than in accordance with the provisions of the Bankruptcy Code.”The application to employ was filed on August 22, 2006.     Three days later, on August 25, 2006, Bell Nunnally filed an adversary proceeding objecting to the debtor’s discharge on behalf of Cadle.    On October 23, 2006, the Court held a hearing on the application to employ.    The Court noted that “there was no disclosure of any special arrangements whereby the Creditor-Cadle might pay BNM’s fees and expenses in connection with the Veil-Piercing Action.”    Opinion, p. 14.Just two weeks later, on November 6, 2006, Bell Nunnally entered into a letter agreement with the Cadle Company that was, according to the Court “the proverbial smoking gun.”    In the letter agreement, Cadle confirmed that it would pay Bell Nunnally for both its work on behalf of the Trustee and in the adversary proceeding to deny discharge.   The letter stated:The Cadle Company has agreed to pay our firm’s fees related to the prosecution of the adversary proceeding [the Veil-Piercing Action] as well as to the representation of The Cadle Company’s interests as a creditor in the main case and its unrelated action to deny discharge.   At the conclusion of the case, assuming a positive result, we will request payment of the fees and expenses incurred by our firm in the prosecution of the [Veil-Piercing Action].    Upon receipt of payment from the Trustee, this firm will reimburse Cadle for the fees and expenses it has actually paid our firm in connection with the adversary proceeding.This side agreement was problematic, since the firm had previously represented under oath that it had no other agreements for compensation.    Besides constituting a false oath (something the firm knew much about since it often filed actions under section 727(a)(4)), it created a possible conflict between its two masters.   As determined by the Court, that possible conflict matured into an actual conflict.On April 18, 19 and 25, 2007, the Court conducted a trial on the objection to discharge, which ultimately resulted in denial of discharge.   While this trial was pending, Bell Nunnally filed a motion to withdraw as the trustee’s counsel in the Veil-Piercing Action for a reason that aroused the Court’s suspicion.   In the Motion to Withdraw, Bell Nunnally stated that its agreement with the trustee was that its fees would be contingent, but The Cadle Company would pay its expenses.   The firm further represented that as of April 5, 2007, it had “it had learned definitively that Cadle was not willing to pay any expenses to assist Mims Trustee.”    In one pleading, the firm managed to contradict both its own Engagement Agreement with the Trustee (which did not include any reimbursement of expenses from The Cadle Company) and its November 6, 2006 agreement with Cadle (which provided for payment of both fees and expenses.    It was also false in that Cadle continued to pay fees and expenses until February 2009.The Court was not pleased.    At the hearing on the motion to withdraw on May 15, 2007, expressed surprise that there was an agreement for Cadle to pay expenses.   At one point, the Court asked, “If there was an agreement, show me the agreement.”    Notwithstanding the Court’s request, the firm did not disclose the November 6, 2006 letter.    The Court denied the motion, finding that the trustee would be prejudiced.   The Court denied the motion without prejudice to being re-urged, but added that if it did so, the Court expected that the firm would “present some proof that there was an agreement that The Cadle Company would pay the ongoing expenses of BNM in pursuing this matter.”     Bell Nunnally succeeded in defeating a motion for summary judgment filed by one of the defendants.   However, the Court’s opinion highlighted the difficulties the plaintiff would have in ultimately proving its case.On the eve of trial, the Trustee reached an agreement with the defendants to settle for $37,500.   This is when the conflict matured from possible to full-blown.   The Cadle Company, acting through other lawyers, objected to the settlement, stating that it would pay $50,000 to purchase the causes of action.    The Court ruled that the Trustee was entitled to settle the claims rather than auction them.    At the hearing on the settlement, Cadle’s representative testified that there was no agreement to pay Bell Nunnally’s expenses, but that Cadle had paid “some bills” totaling $50,000-$60,000 towards the litigation.    The Trustee was not pleased to learn that his ostensible lawyer was being paid by the other side and demanded that the attorneys amend their disclosures to the Court.   They did not.Cadle appealed the Court’s order.   For reasons that are not clear in the opinion, the Trustee continued to retain Bell Nunnally to represent him on the appeal.    This meant that for a period of time, Cadle was footing the bills for both sides to the appeal.   (Cadle stopping paying Bell Nunnally in February 2009, about nine months into the appeal).    This conflict was even more serious because Bell Nunnally was sending invoices to Cadle for its trustee representation which referenced privileged communications with the trustee.    The trustee, however, neither knew that Cadle was receiving the invoices or saw them himself.   The day before oral argument in the Fifth Circuit, the principal attorney who had been representing the trustee left Bell Nunnally for another firm.    Although the oral argument had been scheduled for six weeks, the lawyers at Bell Nunnally apparently had not planned for this contingency.    The departing lawyer declined to handle the oral argument.  Instead, the firm sent a first year lawyer to the Fifth Circuit.     This later raised suspicions that the firm had intentionally taken a dive on the appeal to curry favor with Cadle.     (Note:    The Fifth Circuit’s opinion in Cadle Co. v. Mims was solidly reasoned so that sending a more experienced lawyer probably would not have made a difference.    However, the appearance was not good).    The Court found that “the surrounding circumstances here give every indication of the Chapter 7 trustee having been treated like the proverbial ‘hot potato.’”    Opinion, p. 34.After the Cadle Company prevailed on the appeal, the trustee conducted an auction sale of the cause of action.    Cadle was the high bidder at $41,500, an amount just $4,000 more than had been offered by the defendants to settle and $8,500 less than it had previously indicated that it was willing to pay.    The Court commented:   “A marvelous result?   Hardly.”    Opinion, p. 36.At this point the plot thickened.   As recounted by Judge Jernigan:At the April 11, 2011 sale hearing, in the midst of this lackluster result, Attorney BA appeared—purportedly on behalf of the Chapter 7 Trustee—seeking a continuance of the trial date in the Veil-Piercing Action.    At that point, the bankruptcy court raised questions as to whom exactly Attorney BA considered himself to be representing?   On the one hand, Attorney BA had apparently not felt like he could represent the Chapter 7 trustee at the Fifth Circuit oral arguments—because he had gone to a new firm.    Now, suddenly, Attorney BA was filing pleadings for the Chapter 7 Trustee.    But the Chapter 7 Trustee indicated that he had not instructed Attorney BA to seek a continuance or even talked to him about it.    Attorney BA’s actions had all the appearance of him seeking a continuance for the benefit of Creditor-Cadle, which had just newly purchased the claims in the Veil-Piercing Action.Opinion, pp. 36-37.   The Court granted the continuance but ordered that a representative of Cadle be present “to address some of the conflicts issues that had seemed to percolate to the surface.”     At the next hearing, Cadle sent a representative who stated that it was not able to find any agreement to pay Bell Nunnally for representing the Trustee, but that they had paid $92,000 to the firm over a two year period anyway.    Upon hearing this testimony, the defendants filed a motion to dismiss the adversary proceeding.     The Court conducted three days of hearings upon the motion and heard testimony from Cadle, Attorney BA (the former Bell Nunnally attorney) and the trustee.    The Court found the trustee’s testimony to be credible, while describing Attorney BA’s testimony as “cavalier” and “mostly devoid of any regret or concern.”    Opinion, pp. 39, 42.    The RulingEmployment of professionals is strictly regulated in bankruptcy.    In order to be employed as a professional, a person must “not hold or represent an interest adverse to the estate” and be a disinterested person.   11 U.S.C. Sec. 327.     In order to evaluate a professional’s eligibility, the Court relies upon the disclosures submitted.   As stated by Judge Jernigan:If a proposed attorney for the trustee represents a creditor, and a party-in-interest objects (which, by the way, did happen in this case in 2006), the bankruptcy court must look to whether there is an actual conflict of interest.   Conflicts of interest are often a matter of degree. They are fact-intensive analyses.So how does a bankruptcy court ascertain if there is an actual conflict of interest? Bankruptcy Rule 2014 is designed to help in this regard. Bankruptcy Rule 2014 states that an employment application for a professional person seeking to represent a trustee “shall state,” among other things, “any proposed arrangement for compensation” and “all of the person’s connections with . . creditors” and a verified statement of the person to be employed as to such connections. In other words, there are critical disclosures contemplated so that conflicts of interest can be identified and analyzed.Opinion, p. 44.    In a display of understatement, the Court described the firm’s disclosures as “amazingly inadequate.”    The Court recounted the various misrepresentations and failures to disclose discussed in the factual recitation discussed above.  The Court referred to the firm’s actions as “inexcusable and baffling” and that “the circumstances are highly suspect.”    The Court added:Bankruptcy requires an open kimono when it comes to possible conflicts.    Here, there was no open kimono.   There was no transparency.    Opinion, pp. 45-46.The Court noted that “there is more that has happened here than simple nondisclosure.”   The Court noted that the conduct included breaching the duty to maintain confidences and disregarding the instructions of a client.   However, the Court was not content to simply blame the attorneys.   The Court stated:But the problematic behavior lies not merely at the feet of Attorney BA and BNM, but also at the feet of Creditor-Cadle. This is not just a case of rogue attorneys. Creditor-Cadle has some accountability in all of this. Creditor-Cadle is a sophisticated party that regularly hires lawyers to monetize assets. Here, as earlier stated, the bankruptcy court believes that the very temple of justice has been defiled. Here, there is not merely a situation of lawyers representing a bankruptcy trustee that were conflicted and compromised by loyalty to another client. Creditor-Cadle itself failed twice to testify candidly about the exact financial arrangements it had with BNM . . . . . Creditor-Cadle is, again, a sophisticated party. BNM and Attorney BA were Creditor-Cadle’s trusted lawyers. It appears that Creditor-Cadle was happy for a while to quietly pay BNM while BNM ostensibly represented the Chapter 7 Trustee. But then, after a year of paying both sides of litigation and an appeal, someone at Creditor-Cadle said “no more.”            * * *             There is enough here to connect the dots. And it is not pretty. BNM and attorney BA had divided loyalties, and Creditor-Cadle was fine with that—it benefitted Creditor-Cadle having “its” lawyers on the other side of it in litigation. The various nondisclosures and conflicts of interest attributable to the Creditor-Cadle and its counsel (at both the bankruptcy court level and throughout much of a multi-month appeal) were so serious, so improper, and so demonstrative of callous indifference to applicable duties and ethical standards, that the entire Adversary Proceeding has been tainted. In the world of bankruptcy, lawyers are not only bound by the Rules of Professional Conduct, but lawyers and parties must abide by the Bankruptcy Code and Bankruptcy Rules. Bankruptcy Code section 327 and Bankruptcy Rule 2014 were totally side-stepped here.“The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.” 11 U.S.C. § 105(a). Here, the court believes the evidence is clear and convincing that Creditor-Cadle and Attorney BA acted in bad faith and recklessly disregarded their duties.   Thus, the “death penalty” (i.e., dismissal with prejudice) in this Adversary Proceeding seems entirely fitting.     Opinion, pp. 48-50. What Does It Mean?     This is an opinion that should be discussed whenever ethics in bankruptcy is studied. This was not simply a case of crossing the line; the lines were obliterated. This opinion deserves more attention than I am capable of giving it. Therefore, I will limit myself to a few points1. The court acted appropriately under its inherent authority. There is a line of cases that holds a court possesses inherent authority to punish bad faith conduct which exists beyond 28 U.S.C. Sec. 1927 and Rule 11.   Chambers v. NASCO, Inc., 501 U.S. 32 (1991); In re First City Bancorporation, 282 F.3d 864 (5th Cir. 2002).   While sanctions under the court’s inherent power are usually levied against attorneys, there is no reason why they would not apply to a party as well.    The court’s conclusion that the entire process had become tainted justified termination of the litigation.    Where the court did not otherwise have an adequate remedy, ending the court’s participation was appropriate.    Besides the blatant disregard of rules and ethical standards amply documented by the Court, there is another subtext.   This was a case in which Cadle paid one set of lawyers $92,000 to pursue claims on behalf of the trustee, paid a second set of lawyers to appeal the case to the Fifth Circuit and then offered only $41,500 for the claims themselves.  It seems hard to understand what economic motive The Cadle Company was pursuing.   Lawyers of any experience will confirm that sometimes litigation is pursued not for legal or economic principles, but for vengeance, the ability to inflict punishment upon another human being.   I can’t say definitively that malice explains this case.    However, it does look that way to this jaded observer.    It is a good thing when courts have the ability to terminate spiteful litigation.   Courts should exist to resolve conflict rather than to magnify it.   In this case, Judge Jernigan aborted a lawsuit which had become hideously deformed.    2. Disclosures matter.The disclosures that attorneys file in order to be employed by a bankruptcy estate are signed under penalty of perjury.    Just because they are routine does not mean that they are unimportant.   John Gellene went to jail and lost his license for non-disclosures that were arguably far less egregious than those in this case.   See United States v. Gellene, 182 F.3d 578 (7th Cir. 1999).   In a recent case that I have not had time to blog about, a firm failed to disclose the source of its retainer and its prior connections with the debtor.   The court found that the firm was still disinterested notwithstanding the omitted information and that the omission was innocent.   Nevertheless, the court made the firm disgorge $135,000 in payments it had received.   Waldron v. Adams & Reese, LLP, 2012 U.S. App. LEXIS 6367 (5thCir. 2012).3. Bankruptcy requires a heightened awareness of conflicts.Others have made the point better than I, but conflicts in bankruptcy are more complicated than conflicts in ordinary two party litigation.    Under section 327(e), a law firm that represented a creditor may represent the trustee as special counsel.    However, in doing so, they must always remember that their fiduciary duty is to the trustee and not to their original client.    As a practical matter, this may be difficult to manage when, as here, the creditor is a regular client of the firm and may have unrealistic expectations about counsel’s loyalties.   The same situation arises when counsel has represented a creditor and becomes counsel for the creditor’s committee.   In that situation, counsel cannot use the committee to provide his client with inside information or to advance the original client’s agenda.   When an attorney represents a debtor-in-possession, he represents the artificial construct of the Debtor-in-Possession, but must take direction from the flesh and blood human beings who constitute the debtor’s management.   

One of the stock lines in my sermon to clients about the importance of telling the entire and complete truth in the bankruptcy schedules has been the threat of denial of discharge. If your discharge is denied, I intone, those debts are forever non dischargeable in bankruptcy. It’s akin to the parental threat:  the bogeyman will get you. Jay Fleischman wrote a piece in answer to the question about a bankruptcy filing following a denial of discharge, and my reaction was:  that’s not quite the way I know it.  But there were other things to do and I left it unaddressed. And then I actually met someone whose discharge had been denied, as a result, as far as I can see, of wretched representation by a local, experienced bumbler.  (Note that not all mistakes and outrages are committed by new lawyers…I try to be fair here.) He needed a citation to the law that makes debts from the case where discharge was denied non dischargeable, for use in trying to settle one of the surviving debts.  So I started to dig. We all know (don’t we?) that Chapters 1, 3, and 5 of the Bankruptcy Code apply in all bankruptcy cases.  The provisions unique to the various kinds of cases are found in the dedicated chapters 9, 11, 12, 13, and 15. The non- dischargeability of debts included in a bankruptcy case in which discharge was denied is clear:  §523(a)(10): (10) that was or could have been listed or scheduled by the debtor in a prior case concerning the debtor under this title or under the Bankruptcy Act in which the debtor waived discharge, or was denied a discharge under section §727(a)(2), (3), (4), (5), (6), or (7) of this title…   But then, take a look at the discharge provisions in Chapter 13 …the court shall grant the debtor a discharge of all debts provided for by the plan or disallowed under section 502of this title, except any debt— (1) provided for under section 1322(b)(5); (2) of the kind specified in section 507(a)(8)(C) or in paragraph (1)(B), (1)(C), (2), (3), (4), (5), (8), or (9) of section 523(a); Son of a gun! The provision in §523(a)(10)that  excluded the debts from a unsuccessful Chapter 7 is NOT one of the exceptions to the Chapter 13 discharge. Therefore, debts non dischargeable in Chapter 7 when a prior Chapter 7 resulted in denial of discharge can be discharged in Chapter 13.  The specific trumped the general.  Principles of statutory construction at work. My flat statement about denial of discharge has been overbroad for all these years. Another reason to read the Code and to trust but verify those things you just know. Image from a mural at the Library of Congress courtesy of wikimedia.

It was one of those occasions when in retrospect, you’re certain there is no neural path between your brain and your mouth. And it happened in public, in a courtroom, with my client present. My creditor client filed an objection to confirmation of a Chapter 13 in pro per.  Opposing counsel filed a response.  The response tracked each of the wordy and ill focused complaints my client had voiced. In preparation for the hearing, I had formulated our objections in my head, tracking the code and those issues I thought essential to Chapter 13 confirmation. At the prehearing, the judge turned to me and asked me which of the numbered paragraphs in the eight page debtor’s response were still in play. Certainly before thinking, I blurted out “You expect me to speak to their pleading?” My  unspoken subtext was clearly, “You’ve got to be kidding, judge.” My position was organized better, in my head, and I had seen no point in furthering the rambling that came from the debtor’s response to an ill focused objection.  Better, I thought, to distill the remaining objections. But the judge wanted it differently. I repeat this painful story, which is quite recent, for a purpose.  Make it your practiced response, when caught off guard, to ask for time. In  this case, the judge saved me from further embarrassment by passing the matter to the end of the calendar.  That was enough time to come up with my list of objections, by numbered paragraph,  still in play. If the problem you confront is a matter of missing facts or a question of strategy or compromise, ask for an opportunity to confer with your client, either in the hallway or on the phone. If the issue that threatens your case is a legal one to which you don’t know the answer, ask for an opportunity to brief the question.  It’s OK to admit you don’t know, or that you think the answer is thus-and-such.  Offer to brief it for the court so that the basis for the decision you want is in the record. Too much bravura and too much courtroom television makes us think that we must have an answer for everything at the tip of our tongue.  It isn’t so. When flummoxed in the courtroom, take a deep breath, with your mouth closed, and then ask for time.  Image: Fotolia

Disclosure of Property in BankruptcyWhen filing a bankruptcy, clients are required to list and disclose their property in the bankruptcy petition when it is filed.  Debtors often wonder what needs to be disclosed and what does not.  If there is a doubt whether it should be included, it is probably a good idea to speak with your attorney about the matter, and they will be able to advise you more specifically where the property should be included in the petition.The bankruptcy schedules require Debtors to disclose personal property, such as vehicles, furniture, household goods, jewelry, wedding rings, bank accounts and the money in those accounts, cash on hand, retirements funds, annuities, stocks, tools and other equipment, clothing, books and pictures, electronic equipment, interest in insurance policies that are pending, and tax refunds, etc.  Schedule B specifically asks about each of these items, as well as other items, and Debtors have an obligation to disclose the applicable property with a value and description of the property.  If there are things that are not included in the bankruptcy petition and the Trustee finds out, they may assume the Debtor was trying to hide the assets, and the Debtor may be investigated for bankruptcy fraud.  Attorneys usually have no way of knowing what property Debtors have unless they are informed so it is very important for Debtors to inform their attorney of what property they have and how much the property is worth.It is also important for Debtors to list any real property they may have, including houses, timeshare units, and mobile homes, as well as the value of the property so the Trustee can determine if there is equity in the property.Listing one's property is essential for many reasons.  There can be situations where the property not be listing can negatively affect Debtors outside the bankruptcy proceedings.  One example is if a Debtor's house is robbed or if there is a fire in the residence.  Insurance companies will often check the bankruptcy schedules if the insured has filed a bankruptcy.  If the property the Debtor has included in the insurance claim is not listed in the bankruptcy paperwork, the insurance company can deny the claim and report the Debtor to the Trustee for not have accurate information in their bankruptcy schedules.  The same situation applies with one's car.  If the car is stolen or is in an accident and needs repairs, the insurance company can deny the claim if the property is not listed appropriately in the bankruptcy petition.  It is therefore essential for Debtors to list their property.  If you have any questions about this, please contact a St. Louis or St. Charles bankruptcy attorney.

What Issues Can Arise If I File Bankruptcy More Than Once?There are certain restrictions with regard to how often people can file bankruptcy petitions, and some issues can arise if a person files bankruptcy more than once.  As a general rule, a person can file a Chapter 7 bankruptcy eight years after they file another Chapter 7.  If a Chapter 13 is filed first, a person can file a Chapter 7 four years later.  If a person files a Chapter 7 first and then a Chapter 13, the waiting period is six years.  Going from a Chapter 13 to another Chapter 13 only requires a waiting period of two years.  If the case is dismissed for some reason, that bankruptcy does not count in these figures.If a Debtor is not eligible to receive a discharge under a Chapter 7 or 13 bankruptcy because of the time restraint, they will not be able to file a Chapter 7 bankruptcy, but the Debtor can file a Chapter 13 bankruptcy.  However, they will not be able to receive a discharge under the bankruptcy if six years have not passed since the filing of the Chapter 7 or 2 years since the filing of the Chapter 13.  They will ultimately have to dismiss and re-file when they are eligible for a discharge.There are other issues that can arise if people file several bankruptcies in a short period of time, even if they are dismissed and not discharged.  If a person files a Chapter 13 bankruptcy and has had another bankruptcy case pending in the last year, there is only a 30 day automatic stay, and a Motion to Extend the Automatic Stay will need to be filed.  If there has been two or more cases pending in the last year at the time of the filing of the Chapter 13, there is no automatic stay, and a Motion to Impose the Automatic Stay will need to be filed.  What that means is that there is no automatic stay protecting a Debtor's property until that motion is granted.  That means a vehicle can be repossessed or a house can be foreclosed until the time the Motion to Impose is granted.  A Debtor may want to speak to their attorney about filing for an expedited hearing to impose the stay in a timely manner, but it is up to the bankruptcy Judges about whether they will hear the manner expeditiously or whether it will need to be heard at the next docket.  It is important for attorneys to do a Pacer check on clients before filing using their social security number so they can determine if previous bankruptcy cases have been filed and file motions and advise accordingly.  If you have questions about this, please contact a St. Louis or St. Charles bankruptcy attorney.

By Sue Shellenbarger Between the ages of 18 and 22, Jodi Romine took out $74,000 in student loans to help finance her business-management degree at Kent State University in Ohio. What seemed like a good investment will delay her career, her marriage and decision to have children. Ms. Romine's $900-a-month loan payments eat up 60% of the paycheck she earns as a bank teller in Beaufort, S.C., the best job she could get after graduating in 2008. Her fiancé Dean Hawkins, 31, spends 40% of his paycheck on student loans. They each work more than 60 hours a week. He teaches as well as coaches high-school baseball and football teams, studies in a full-time master's degree program, and moonlights weekends as a server at a restaurant. Ms. Romine, now 26, also works a second job, as a waitress. She is making all her loan payments on time.They can't buy a house, visit their families in Ohio as often as they would like or spend money on dates. Plans to marry or have children are on hold, says Ms. Romine. "I'm just looking for some way to manage my finances."High school's Class of 2012 is getting ready for college, with students in their late teens and early 20s facing one of the biggest financial decisions they will ever make. Total U.S. student-loan debt outstanding topped $1 trillion last year, according to the federal Consumer Financial Protection Bureau, and it continues to rise as current students borrow more and past students fall behind on payments. Moody's Investors Service says borrowers with private student loans are defaulting or falling behind on payments at twice prerecession rates.Most students get little help from colleges in choosing loans or calculating payments. Most pre-loan counseling for government loans is done online, and many students pay only fleeting attention to documents from private lenders. Many borrowers "are very confused, and don't have a good sense of what they've taken on," says Deanne Loonin, an attorney for the National Consumer Law Center in Boston and head of its Student Loan Borrower Assistance Project.More than half of student borrowers fail to max out government loans before taking out riskier private loans, according to research by the nonprofit Project on Student Debt. In 2006, Barnard College, in New York, started one-on-one counseling for students applying for private loans. Students borrowing from private lenders dropped 74% the next year, says Nanette DiLauro, director of financial aid. In 2007, Mount Holyoke College started a similar program, and half the students who received counseling changed their borrowing plans, says Gail W. Holt, a financial-services official at the Massachusetts school. San Diego State University started counseling and tracking student borrowers in 2010 and has seen private loans decline. The implications last a lifetime. A recent survey by the National Association of Consumer Bankruptcy Attorneys says members are seeing a big increase in people whose student loans are forcing them to delay major purchases or starting families. Looking back, Ms. Romine wishes she had taken only "a bare minimum" of student loans. She paid some of her costs during college by working part time as a waitress. Now, she wishes she had worked even more. Given a second chance, "I would never have touched a private loan—ever," she says. Ms. Romine hopes to solve the problem by advancing her career. At the bank where she works, a former supervisor says she is a hard working, highly capable employee. "Jodi is doing the best she can," says Michael Matthews, a Beaufort, S.C., bankruptcy attorney who is familiar with Ms. Romine's situation. "But she will be behind the eight-ball for years." Private student loans often carry uncapped, variable interest rates and aren't required to include flexible repayment options. In contrast, government loans offer fixed interest rates and flexible options, such as income-based repayment and deferral for hardship or public service.Steep increases in college costs are to blame for the student-loan debt burden, and most student loans are now made by the government, says Richard Hunt, president of the Consumer Bankers Association, a private lenders' industry group. Many private lenders encourage students to plan ahead on how to finance college, so "your eyes are open on what it's going to cost you and how you will manage that," says a spokeswoman for Sallie Mae, a Reston, Va., student-loan concern. Federal rules implemented in 2009 require lenders to make a series of disclosures to borrowers, so that "you are made aware multiple times before the loan is disbursed" of various lending options, the spokeswoman says.Both private and government loans, however, lack "the most fundamental protections we take for granted with every other type of loan," says Alan Collinge, founder of StudentLoanJustice.org, an advocacy group. When borrowers default, collection agencies can hound them for life, because unlike other kinds of debt, there is no statute of limitations on collections. And while other kinds of debt can be discharged in bankruptcy, student loans must still be paid barring "undue hardship," a legal test that most courts have interpreted very narrowly. Deferring payments to avoid default is costly, too. Danielle Jokela of Chicago earned a two-year degree and worked for a while to build savings before deciding to pursue a dream by enrolling at age 25 at a private, for-profit college in Chicago to study interior design. The college's staff helped her fill out applications for $79,000 in government and private loans. "I had no clue" about likely future earnings or the size of future payments, which ballooned by her 2008 graduation to more than $100,000 after interest and fees.She couldn't find a job as an interior designer and twice had to ask lenders to defer payments for a few months. After interest plus forbearance fees that were added to the loans, she still owes $98,000, even after making payments for most of five years, says Ms. Jokela, 32, who is working as an independent contractor doing administrative tasks for a construction company.By the time she pays off the loans 25 years from now, she will have paid $211,000. In an attempt to build savings, she and her husband, Mike, 32, a customer-service specialist, are selling their condo. Renting an apartment will save $600 a month. Ms. Jokela has given up on her hopes of getting an M.B.A., starting her own interior-design firm or having children. "How could I consider having children if I can barely support myself?" she says. When Debt Takes Over Potential consequences of taking out too many student loans--Delays in buying a car or purchasing a home--Postponement of marriage and childbirth for financial reasons--Parents feel pressure to take out loans or otherwise help with payments--Risk for parents who co-sign loans of losing homes, cars and other assets--Little ability to discharge student loans in bankruptcy--Inability to get credit cards or home or car loans--Inability to rent a home because of high debt-to-income ratio--Being forced to deal with private collection agencies in the event of default--Having liens placed on bank accounts or property in a default*--Facing collection fees of 25% of amount owed in a default--No statute of limitations on collection efforts--Having wages garnisheed--Possible loss of state-issued professional licenses--Reduction of Social Security payments**--Seizure of tax refund***Used primarily by private lenders**Government loans onlyCopyright 2012 Dow Jones & Company, Inc.  All rights reserved.