You are required to list all of your creditors in your bankruptcy petition.  You will want to run a credit report, whether you do that yourself or have your attorney run the report for you.  Everything listed on your credit report should be listed on your petition if there is an amount owed.  However, your credit report is only a starting point.  Not all companies and organizations report to credit bureaus.  Some common examples of places that may not report to credit agencies are some doctors, small businesses, and friends or family members.  You want to make every effort possible to ensure that you have listed all creditors.  In listing your creditors on the petition they receive notice of the filing. However, if a creditor was missed, there are different options depending on how far your case has progressed.  If you are in a Chapter 7 and your case is still open you can add creditors to your petition.  If this comes late in the process it may hold your case open a bit longer to provide those creditors with notice.  There may be additional fees for adding creditors at this stage.  If you are in Chapter 13 a creditor may file a proof of claim, however, there is a deadline to file claims.  The deadline is set by the court.  If you case has already been dismissed you cannot add creditors to the petition.  However, as long as the debt was incurred prior to your petition date the debt is still discharged.  In this case you should contact your attorney.  Either you or your attorney can provide a copy of your discharge to the creditor.  It is certainly preferred that all creditors are provided notice through your filing.  In a Chapter 13, if there are creditors that were not initially disclosed to your attorney you monthly plan payment may have to be increased to account for the additional debt.  Notably, you cannot add creditors to your bankruptcy filing where the debt was incurred after the date of your petition in either a Chapter 7 or a Chapter 13 bankruptcy filing.  If you want to list debts incurred after your filing you would have to have your case dismissed and re-file your case.  If you have any questions, or would like to discuss your case, contact a St. Louis Bankruptcy Attorney today!

Many people fear that they will never again have good credit if they have to file for bankruptcy. While having a bankruptcy in your past has a very negative impact on your credit score, the overall results of discharging your other debts may actually increase your credit score despite the bankruptcy and position you toward good credit in the long-term. This article will address how bankruptcy may actually improve your credit score.  By the time most people have made the decision to file for bankruptcy, their credit scores are likely already very low. The fact is that people who are paying their bills on time and who have the money to pay them in full simply do not need to file bankruptcy. Depending on how many delinquent accounts a debtor has and how high the balance is on those accounts, their credit scores will reflect exactly how bad their position is financially. Thus, individuals considering bankruptcy already have low credit. Unless the debtor is expecting a financial windfall, bankruptcy may be the only way out of the debt cycle keeping their credit low.Bankruptcy and Credit ReportsFiling for bankruptcy appears on credit reports and has a dramatic impact on overall credit scores. Depending on the reporting institution, it can lower credit scores anywhere from 100-200 points. Chapter 7 bankruptcies stay on credit reports for ten years from the date of discharge. Chapter 13 bankruptcies are reported for seven years after the date of filing. One common credit scoring service, Fair Isaac, which publishes the FICO score, divides consumers into ten groups to compare them to consumers in similar financial situations. That means that if you file bankruptcy, your FICO score will partially base your score on how you are doing compared to other bankruptcy filers. You won't be compared to those who have never filed bankruptcy and have perfect credit. This scoring system works to your advantage, despite the bankruptcy lingering on your credit report.Credit After BankruptcyIf you have filed for Chapter 7 bankruptcy, once the bankruptcy court grants a discharge, all of the debts that were included in the bankruptcy will reflect that fact on your credit report. That means that your debt to income ratio will improve, improving your score in that regard. Your late payment history on those accounts will diminish over time. Perhaps most beneficially, you will no longer have to try to make payments on the discharged debts, meaning that you can pay your remaining bills on time and in full to start establishing a positive payment history on your remaining accounts. If you have filed for Chapter 13, the debts that are included in your bankruptcy plan will reflect that fact on your credit reports. After completion of your plan, any debts remaining will also be discharged similar to a Chapter 7 bankruptcy. Before discharge, Chapter 13 plans are based on budgeting appropriately. With a manageable plan payment, you will be able to start paying your remaining debts on time and in full prior to discharge, putting you in a very positive position even before your debts are completely discharged.If you are struggling with your bills, do not rule out filing bankruptcy solely because it will affect your credit. After all, the overall effect of filing bankruptcy may actually positively influence your credit long term. Bankruptcy is not appropriate or available for everyone, so it is important to speak with a qualified bankruptcy attorney to determine if bankruptcy is right for your situation.

      This seems to have been my season for issues driven by testamentary, or pseudo testamentary transfers. I’ve encountered the post petition trust beneficiary; the client with an unanticipated prepetition interest in a probate estate; and the residual beneficiary of a spend thrift trust irrevocable before filing. But I saw a new one that I need to add to my list of things to discuss with clients. My clients were the beneficiaries of a couple of small insurance policies owned by one debtor’s parent.  The policies were intended to provide for funeral expenses of the parent. When the parent passed away within 180 days of the bankruptcy filing, those insurance policies dumped their bounty into the lap of the bankruptcy trustee. So thanks to § 541(a)(5), money flowing from the efforts of a non debtor and intended for one purpose either pays my clients’ creditors or displaces the exemption protecting some asset of the debtors. Twenty questions I currently ask new clients if they have an interest in the estate of someone who has already died and if there is any likelihood that someone may pass away in the next six months.  If possible we try to determine whether the testamentary instrument is a will or a trust. If it’s a will, we consider whether the testator might be open to making any provision for my clients in a spend thrift trust as an alternative. But I need now to look for life insurance issues where the purpose was not to benefit the beneficiaries but to enable payment of the deceased’s last expenses. Complexities never cease. Image courtesy of jarrodstone.

In a ruling that could shed some light (but not very much) on the authority of bankruptcy judges, the Fifth Circuit has ruled that a magistrate's ruling in an insurance coverage dispute did not run afoul of the Supreme Court ruling in Stern v. Marshall, ___ U.S. ___, 131 S.Ct. 2594 (2011). Technical Automation Services Corp. v. Liberty Surplus Insurance Corporation, No. 10-20640 (5th Cir. 3/5/12), which you can find here.The IssueTechnical Automation Services Corp. involved whether an insurance company had a duty to defend an insured in an underlying lawsuit. The parties consented to trial before a U.S. Magistrate. The magistrate granted summary judgment in favor of the insured. On appeal, the Fifth Circuit requested briefing on the application of Stern v. Marshall to a magistrate. See "Fifth Circuit to Consider Impact of Stern v. Marshall on U.S. Magistrates" here. In response to the question "whether Article III of the Constitution permits a federal magistrate judge, with the consent of the parties, to enter final judgment on a party's state law counterclaim," (opinion, p. 7), the Court answered "yes."The DecisionBy way of prelude, the Court noted that a prior panel of the Fifth Circuit had ruled in favor of the ability of a magistrate to proceed with consent. Puryear v. Ede's Ltd., 731 F.2d 1153, 1154 (5th Cir. 1984). Thus, the court was bound to follow the prior precedent "absent an intervening change in the law, such as by a statutory amendment, or the Supreme Court or by our en banc court." Opinion, p. 9. This framed the question of whether Stern v. Marshall overruled prior decisions about the power of magistrates.While noting the many similarities between bankruptcy judges and magistrates, the Court chose to base its ruling on the Supreme Court's insistence that Stern was a narrow decision. Accordingly, the Court reaffirmed that Congress may not withdraw “from judicial cognizance any matter which, from its nature, is the subject of a suit at the common law, or in equity, or admiralty.” (citation omitted). The Supreme Court emphasized that even the slightest “chipping” away of Article III can lead to “illegitimate and unconstitutional practices,” and accordingly held that the jurisdiction of the bankruptcy courts did not extend to most counterclaims based on common law. (citation omitted).This holding can be translated to the many similarities of the statutory powers of federal magistrate judges. Whereas Article III judges “hold their offices during good behavior, without diminution of salary,” bankruptcy judges and federal magistrate judges are Article I judges who lack tenure and salary protection. (citation omitted). Moreover, the text of 18 U.S.C. § 157(b) (the statute addressed in Stern) and the text of the Magistrates Act, 28 U.S.C. § 636(c), allow Article I judges to enter final judgments, allow for judges’ final judgment to be binding without further action from an Article III judge, entitle the decisions to deference on appeal, and permit the courts to exercise “substantive jurisdiction reaching any area of the corpus juris.” (citation omitted).Although the similarities between bankruptcy judges and magistrate judges suggest that the Court’s analysis in Stern could be extended to this case, the plain fact is that our precedent in Puryear is there, and the authority upon which it was based has not been overruled. Moreover, we are unwilling to say that Stern does that job sub silentio, especially when the Supreme Court repeatedly emphasized that Stern had very limited application. Id. at 2620. (emphasizing the limited scope of the decision, saying that the issue addressed was a “narrow one” that related only to “certain counterclaims in bankruptcy”) (internal quotation omitted) see also id. (“Article III of the Constitution provides that the judicial power of the United States may be vested only in courts whose judges enjoy the protection set forth in that Article. We conclude today that Congress, in one isolated respect, exceeded that limitation in the Bankruptcy Act of 1984.”) (emphasis added). Article III jurisprudence is complex, requiring the court to do an examination of every delegation of judicial authority. (citation omitted). Notwithstanding that this constitutional question may be seen in a different light post Stern, we will follow our precedent and continue to hold, until such time as the Supreme Court or our court en banc overrules our precedent, that federal magistrate judges have the constitutional authority to enter final judgments on state-law counterclaims. (emphasis added).Opinion, pp. 11-12.What It MeansOn the most basic level, Technical Automation Services says very little about the authority of bankruptcy judges. It simply holds that Stern does not upset prior Fifth Circuit precedent governing the authority of magistrate judges. However, it provides advocates of bankruptcy court authority with two valuable arguments:1. The Fifth Circuit is willing to take Chief Justice Roberts at his word when he says that Stern is a narrow decision. While many were concerned that Stern could be another Marathon Pipeline and could signal a return to the old summary/plenary distinction under the Bankruptcy Act, the Fifth Circuit is willing to take it slow. If the other circuits slow play the decision and the Supreme Court strategically declines to grant cert, it could be decades before the issue reaches the Supreme Court again. 2. Since a central feature of magistrate jurisdiction is consent, Technical Automation provides a powerful rebuttal to parties who want to consent to bankruptcy court decision making and then cry "Stern" when they don't like the result.If nothing else, Technical Automation is significant because it didn't change anything significant.Post-Script: Although I edited it from the quote above for purposes of brevity, the opinion contains a wonderful quote from Chief Justice Rehnquist's concurrence in Northern Pipeline where he referred to Article III cases as "but landmarks on a judicial 'darkling plain' where ignorant armies have clashed by night." Northern Pipeline Construction Company v. Marathon Pipe Line Company, 458 U.S. 50, 91 (1982)(Rehnquist, J. concurring). I know that I will be looking for ways to include this language in future Stern briefs.

By IAN MOUNT For the past 23 years, Chuck Benjamin has been working as a turnaround consultant, primarily for troubled private companies with annual revenues of $25 million to $250 million. During that time, his company — Benjamin Capital Advisors of Rye Brook, N.Y., and Boca Raton, Fla. — has handled some 70 cases. “My endgame is to save companies,” said Mr. Benjamin, 71, “hopefully for their owners.” That has become much more difficult in recent years, he says, as changes in bankruptcy law have given unsecured creditors more power and made bankruptcy more expensive. These legal changes and increased costs have in turn pushed troubled companies to liquidate their assets instead of reorganizing, Mr. Benjamin said, which ends up eliminating the original owners — and many jobs — in the process. The following is a condensed version of a recent conversation.  Q. You say the bankruptcy process is broken. How so?  A. When bankruptcy evolved, it was to protect debtors, the owners. The whole concept was forgiving debts or restructuring so the business would survive in the hands of the owners. But the rules have changed over the years. Today, if they have to go into Chapter 11, the odds of the owners keeping the business are much lower. So there’s no incentive for the owners to enter Chapter 11 and reorganize. Why save a company for somebody else?  Q. What changed?  A. First, the Supreme Court’s 1999 LaSalle decision basically meant that any company that entered bankruptcy was on the market and could be bought either whole or piecemeal. And then in 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act, and that changed the face of Chapter 11 for privately held businesses. No. 1, B.A.P.C.P.A. changed the landlord’s position. It limits the time to just seven months for debtors to decide whether to accept or reject the lease in bankruptcy. It used to be you could get extended almost forever the time you could accept or reject a lease. Now they have seven months. That’s not a long time to decide which locations to close while you’re in trouble and you’re trying to work through all kinds of other issues. The second change is exclusivity, that is, the debtor’s exclusive right to file a plan of reorganization. It used to be you had all kinds of extensions. Sometimes bankruptcies used to take two, three, four, five years. I had one that was in Chapter 11 for seven years. But it survived. Now you have 18 months where the owner has the exclusive right to file plans for reorganization. Unsecured creditors know that after 18 months they can file a plan excluding the debtor. After you’re in Chapter 11 for eight or 10 months, creditors say, “I’m just going to hang on. I’ll file my own plan and take over the company. Or after 18 months we’ll just liquidate it.”  Q. It’s hard to see anything positive about a bankruptcy that takes seven years.  A. Sometimes staying in bankruptcy a longer time was better, because it gave a debtor time to catch its breath.  Q. Who wins from this change?  A. The LaSalle decision and B.A.P.C.P.A. have given unsecured creditors a huge advantage, and the result is the cost of bankruptcy has gotten so high — because of professional and other costs — that the ability to continue the company under current ownership has reached almost zero. I understand the plight of unsecured creditors, but everyone who sells on unsecured account understands the risk. Every businessman understands this when he sells and makes a credit decision.  Q. Really? Small-business owners offer credit like this routinely. You don’t think they expect to get paid? A. You know that old saying, “Let the buyer beware”? I think it’s every businessman’s responsibility to know to whom he sells and offers credit. If I sell to you and you begin to pay very slowly — which often happens before a bankruptcy — I should stop selling to you on credit. But if I continue to sell to you to make a buck, it’s not your fault, it’s mine.  Q. So what happens instead of reorganization these days?  A. Companies are liquidated. Back in 1983, the Lionel case allowed companies the freedom to sell off assets as opposed to filing a plan of reorganization. It expanded what could be sold in a “363 sale.” The 363 component was originally designed to allow companies to sell off spoilable product, like fruit. If you were in the grocery business and you filed bankruptcy, it allowed you to sell off assets. The Lionel case expanded that so you could sell major assets, virtually including the whole company. That’s a quick way to avoid a plan of reorganization.  Q. How does a 363 sale work?  A. The 363 sale requires nothing more than saying, “I’m going to sell you my equipment,” and I publish that, and for 30 or 40 days people have a right to object to it and the judge can decide, O.K., sell it, or if there’s a higher or better bid, it goes to the highest or best bidder. That happened in the Brunschwig & Fils bankruptcy where I was the chief restructuring officer. I sold the company’s assets for $10 million, very successful, but the original owners lost control and 116 employees lost their jobs. In the old days we would have been able to reorganize the company.  Q. How do these changes affect a troubled company’s ability to get financing during reorganization?  A. All of these changes say to the world that the chance of a company surviving bankruptcy is much lower. And if it’s much lower, the banks aren’t going to give debtor-in-possession financing — and rightfully so. The D.I.P. financer gets a priority lien. Last in, first out. But the company has to survive to have the money to pay that super-priority lien.  Q. Does this change how troubled companies act?  A. Debtors are delaying seeking help longer and longer and longer. They’re very frustrated. They’re walking in molasses. They figure if they wait another week the economy is going to turn.  Q. What should business owners do instead of filing for Chapter 11?  A. People need to seek help quicker, change their business plan quicker, and avoid Chapter 11. It’s just an absolute last resort. It’s virtually nonsurvivable. One of the things we do as consultants is take two weak companies that are facing annihilation and we merge them and we get one survivable company — without a bankruptcy. We also try to make out-of-court settlements with creditors, as opposed to Chapter 11 proceedings. In Chapter 11, the debtor pays for attorneys, accountants and consultants of the creditors’ committee. They even pay for the investment bankers. The owner is paying the other side to oppose him. It’s tilted to the unsecured creditor side.  Q. But doesn’t this law fix some biases toward debtors that allowed them to drag out the process, hurting their creditors as they did so?  A. The law probably does fix some problems, but you have to look at the nuances. There are some cases with the tighter rules where the creditors get a little more but the company fails. The other option is the bankruptcy lingers and the creditors get a little less but the company survives, and that way the creditors continue to have a customer.  Q. You’re a small-business owner yourself. How is your business doing?  A. Business right now is kind of quiet. I think this is the calm before the storm. Copyright 2012 The New York Times Company.  All rights reserved.

    The Chapter 13 Trustee almost snarled from the counsel table at last week’s hearings. Counsel’s “fix”, she told the court, put the debtor instantly in default. Huh?  The amended plan was supposed to correct the previous defect in the filed plan.  What’s the problem?  Counsel certainly was befuddled. There were several such cases, and whatever dollars and cents problem in the plan the amendment was addressing, counsel in each case didn’t deal with the payments already made to the previous plan. The problem Most simply, assume that the plan  provided payments of $200/month for 60 months.  The trustee’s objection points out that the plan pot, at $200/month, is $3000 short of paying all the creditors provided for in the plan. By the time the amended plan is filed, the debtor has made four payments to the plan.  But counsel’s amended plan reads:  $250/month for 60 months. The math is correct:  Sixty times $250  produces a plan pot of $15,000. But the debtor’s first four payments were only $200, because that’s what the defective plan provided. Bingo:  instant default, unless the debtor ponies up an extra $200 ($50 a month times four payments already made).  The payments already made did not match the terms of the amended plan. The fix To get the money right and avoid an instant default, the amended plan needed to read: 4 payments of $200  (validating what’s already happened) 56 payments of  $253.57 I always round plan payments up to the nearest five dollars, since I’m never absolutely certain that claims will come in just as I expected, nor that the trustee’s percentage commission might not change during the life of the plan.  Plus, I want a number my client won’t have trouble remembering (client memory is another story for another day). So, the moral of this tale is:  recognize that you can’t change the past when you amend a Chapter 13 plan to provide more money. For those of you who followed the flap about my day in Chapter 13 confirmation hearings populated with professional bumblers, this piece emanates from a different court altogether.  And these attorneys who didn’t get it right only had to go back and do it again.  Egg on the face, but no lasting harm to the clients. If you are within driving range of Mountain View, I’m presenting a bankruptcy basics class on Chapter 13 plans April 14.  Details on Crafting Chapter 13 Plans. Image courtesy of soldierant.

The Dallas Court of Appeals has published a new decision correctly applying the doctrines of judicial estoppel and standing relating to a cause of action omitted from a bankruptcy filing. Norris v. Brookshire Grocery Company, ___. S.W.3d ___ (Tex. App.--Dallas, 2/29/12, no pet.). You can find the opinion here.In Norris, the plaintiff filed suit against Brookshire Grocery prior to filing bankruptcy. Upon filing bankruptcy, the plaintiff/debtor neglected to mention the suit in either the Schedules or the Statement of Financial Affairs. However, just thirteen days after filing bankruptcy, the debtors filed a motion to dismiss their bankruptcy case on the ground that they "desire to work a payout with creditors." No party objected and the case was dismissed.After the bankruptcy case was dismissed, Brookshire moved for summary judgment based on judicial estoppel and lack of standing. The trial court granted the motion. On appeal the Dallas Court of Appeals reversed finding:1. In order for judicial estoppel to apply, the Bankruptcy Court must have "actually accepted" the debtors' non-disclosure of the asset. Where the debtors dismissed their case without receiving a discharge, there was not an opportunity for the bankruptcy court to "actually accept" their position.2. Normally, an undisclosed asset remains property of the bankruptcy estate and is not abandoned when the trustee closes the case. This is not the case when the case is dismissed, since the estate ceases to exist. As a result, the debtors had standing to pursue their cause of action.The opinion by the Dallas Court of Appeals should be commended for correctly applying difficult principles of bankruptcy law. The purpose of judicial estoppel is to prevent debtors from gaming the system and reaping a benefit from taking inconsistent positions. Reading between the lines, it seems likely that when debtors' counsel learned of the cause of action, he gave them a choice: proceed with the bankruptcy and lose the cause of action or dismiss the bankruptcy and keep the cause of action. Because the debtors effectively undid the omission by dismissing their bankruptcy, judicial estoppel did not apply.Hat tip to St. Clair Newbern.

Starting in September of each year, when clients come in asking about bankruptcy one of the questions we ask is whether the prospective client expects to receive a tax refund for the upcoming tax year. If the answer is yes, we ask how much. For a Chapter 7 for example, if someone comes in and says they expect a $4,000 tax refund and they want their bankruptcy filed on September 1st (the 244th day of the year), we explain that 244/365 about 67% ($2,673.97) of the tax refund for the next year is part of the bankruptcy estate. Does this mean the trustee automatically gets over $2600 of this client’s refund? No. The court gives you certain exemptions to keep property, including money in a bank account or an expected tax refund. The amount of these exemptions vary case by case depending on whether you are head of household and whether you have dependents under the age of 18. This is something that you will need to consult your attorney about to determine for your specific case how much could be protected. So lets say the client expects $4000. This client is not head of household and does not have any dependents. The amount that could be protected would be limited to a $600 wildcard exemption. This client may want to wait to file the bankruptcy after they have received and spent their tax refund. Once it is spent, we no longer need to exempt it and the trustee cannot take it. However, if this is the route you chose to go, it is important to be cautious of what you are spending the money on. You cannot make payments to family members or friends and do not want to pay any creditor more than $600. You can however pay normal expenses: rent, utilities, necessities for yourself or dependents, etc. If you are not sure whether the bills you plan to pay with your tax refund and acceptable, contact your bankruptcy attorney. 

A married person can file bankruptcy without their spouse.  If a person files bankruptcy individually, it will not negatively affect their spouse or their spouse's credit.  However, if there are joint debts, the filing spouse's liability for the debt will be eliminated, but the non-filing spouse can still be held liable for the debt and may be pursued by creditors.  In that case, the non-filing spouse's credit may be affected.  If there are joint debts, it probably would be beneficial to file a joint bankruptcy so both parties' liability for the debt is eliminated.  In that case, any debt in joint names or any debt in each party's individual names would be discharged through the bankruptcy. If a person's spouse only has debt that is not able to be discharged, such as student loans, certain taxes, alimony, child support, etc., or secured debts they are current on and wish to keep, they can continue to make those payments without needing to file bankruptcy.  They do not need to file jointly just because they are on certain secured debts together.  Secured debts are those that are protected by collateral, such as a house or a car.  For instance, if both spouses' names are on a car loan or a mortgage and the loan or mortgage is current and the property is going to be retained, both spouses do not need to file just because their name is on the property jointly.  However, if both spouses do not file, and the loan or mortgage becomes delinquent, or the property is foreclosed or repossessed, the non-filing spouse would then be responsible for the deficiency. Additionally, if a person files without their spouse, their spouse would not be included in the bankruptcy, but their income would be included for purposes of determining median income as long as the married couple is living together.  That is based on the assumption that if a married couple is living in the same house, they are sharing income and expenses.  If you have any questions regarding this material or bankruptcy in general and would like to meet with a St. Louis or St. Charles bankruptcy attorney, please contact us at 636-916-5400.

Tax refunds in a Chapter 13 are handle somewhat different than in a Chapter 7. We know, in a Chapter 7, as long as you received and spend your refund before filing, or are able to exempt your refund, then the trustee does not take it. In a Chapter 13 if you have already received and spent your refund before filing, the trustee cannot take it. However, exemptions cannot be used in a Chapter 13 to protect an anticipated refund. The entire time you are in a Chapter 13 bankruptcy, between 36-60 months), any refund over $600, or 2x your plan payment amount (whichever is less) is to be turned over to the trustee. If however, unanticipated expenses have occurred after the filing of the bankruptcy and you need to keep this money for a specific purpose we can file a Motion to Retain Tax Refund. In order to do this, you must provide your attorney with copies of bills, estimates, etc. showing the amounts you need to retain the refund for. Acceptable uses of the tax refund are medical bills from AFTER filing, car repairs, unexpected home repairs, and so on. It cannot be kept to pay things that are already allotted in your budget like utilities, rent, or even getting caught up on your Ch 13 plan payments. All of these expenses are already accounted for in your budget and therefore the trustee will not allow you to retain additional money to pay these creditors. Once you have provided your attorney with this document, we file the motion and then wait 21 days to see if the trustee objections. If not objections are filed, then an order is submitted to the court. Once granted, you can spend the tax refund on the approved expenses. If however, an objection is filed, your attorney can work with you to correct the issues. If the issues are not resolved and the order is not granted, you must turn the tax refund over to the trustee. So let’s say you do not have any additional expenses and do not need the refund. What happens to it once you send it in to the trustee? Does the trustee get to keep it? No. The money is spread out proportionally to all of your unsecured creditors.