slamming the brakes: dealing with a bankruptcy filing … · slamming the brakes: dealing with a...
TRANSCRIPT
SLAMMING THE BRAKES: DEALING WITH A
BANKRUPTCY FILING
OUTLINE
I. BACKGROUND
II. GETTING SITUATED
III. AUTOMATIC STAY
IV. MOTION FOR RELIEF FROM STAY (11 USC §362(d))
V. PROOFS OF CLAIM
VI. DISCHARGE
VII. PARTICULARS DEALING WITH A DEBTOR IN CHAPTER 13
VIII. PARTICULARS DEALING WITH A DEBTOR IN CHAPTER 11
IX. TAKING CONTROL OF THE SITUATION AND USING THE BANKRUPTCY CASE
TO YOUR ADVANTAGE
X. GETTING HIRED AND PAID BY CHAPTER 7 TRUSTEE
XI. GETTING HIRED AND PAID IN CHAPTER 13
XII. GETTING IN BETTER POSITION FOR THE NEXT BANKRUPTCY
SLAMMING THE BRAKES: DEALING
WITH A BANKRUPTCY FILING
as presented for
CCCBA 21st Annual MCLE Spectacular
Walnut Creek Marriot
NOVEMBER 20, 2015
Speakers:
David A. Arietta, Esq. Law Offices of David A. Arietta
700 Ygnacio Valley Road, Walnut Creek, CA 94596
(925) 472-8000
Scott Jordan Dunning Law Firm
18 Crow Canyon Ct., Suite 280
San Ramon, CA 94583
(925) 406-4851
M. Jeffrey Micklas Law Offices of M. Jeffrey Micklas
2930 Camino Diablo, Ste. 300
Walnut Creek, CA 94597
(925) 932-0800
Leo Spanos Staff Attorney
Office of Martha G. Bronitsky, Chapter 13 Trustee
22230 Foothill Blvd. #150
Hayward, CA 94541
(510) 266-5580 ext. 1936
1
I. BACKGROUND
A. THE LAW AND RULES
1. Bankruptcy Code—title 11 of the United States Code. Substantial
changes in 2005 BAPCPA- watch out for old caselaw.
2. Jurisdictional provisions- 28 U.S.C. Sections 151,157, 158, 1334, 1452.
3. Procedural Rules- Federal Rules of Bankruptcy Procedure
4. Local Bankruptcy Court Rules i.e. Northern District of California
Bankruptcy Local Rules
5. Judge Rules- Specific requirements of each bankruptcy judge
B. LOCATIONS
1. Northern, Eastern, and Southern Districts of California—county specific
2. Northern District of California- Santa Rosa, San Francisco, San Jose and
Oakland Divisions. See www.canb.uscourts.gov
C. STRUCTURE/CASE INFORMATION
1. The main bankruptcy case- petition, schedules, and statement of financial
affairs, electronic filing, PACER, closure/reopening
2. Assignment to Specific Judge—Lafferty, Effremsky, Novack for Oakland
3. Within the case- Adversary Proceedings- see B.R. 7001 et. seq. & Motions
D. TYPES OF BANKRUPTCY CASES
1. Chapter 7 – “Throw in the Towel” bankruptcy. Liquidation of non-
exempt assets to pay creditors. Most cases are no-asset and no
distribution. Payout according to priority of claims. Discharge issued in
about 3-4 months.
2. Chapter 11- individuals and businesses who restructure their financial
affairs through a “plan”. Corporations can receive a discharge.
Individuals can receive a discharge but have to wait until completion
of plan payments.
2
3. Chapter 13 – individual debtors but not corporations or partnerships who
can keep their assets so long as they propose a plan to use their projected
disposable income to pay creditors over a 3-5 year timeframe.
Discharge upon completion of plan payments.
E. PARTIES
1. Debtors and Creditors
2. Trustees—Chapter 7 Trustee and Chapter 13 Trustee
a. Chapter 7 Trustee takes charge of assets, liquidates the estate,
prosecutes avoidance actions, examines and investigates the debtor
b. Chapter 13 Trustee examines the debtor, collects earnings from
debtor and disburses them to creditors.
3. Debtor in Possession – Chapter 11 Trustee is an alternate option
a. No trustee appointed in a Chapter 11 unless the court orders it.
b. DIP has the powers and responsibilities of a trustee.
4. U.S. Trustee- arm of the Department of Justice that supervises trustees
and monitors cases, including debtor activity
5. Creditors Committee- mandated participation but usually in larger cases
F. KEY CODE PROVISIONS
1. Section 109 – identifies who can be a debtor in bankruptcy
2. Section 362- automatic stay
3. Section 507- establishes a ladder of priority for the payment of claims.
4. Section 523- exceptions to discharge
5. Section 524- discharge rules
6. Section 727 – discharge rules for a Chapter 7 case.
7. Sections 1123 and 1129 – how to confirm a Chapter 11 Plan
8. Section 1141 – discharge rules for a Chapter 11 case
9. Sections 1322 and 1325 – how to confirm a Chapter 13 Plan
10. Section 1328 – discharge rules for a Chapter 13 case
II. GETTING SITUATED
A. GET INFORMED OF THE SITUATION
1. Chapter? Location? Status? Pending motions? Schedules?
3
B. PRIOR FILINGS
1. Chapter 7- Not eligible for a Chapter 7 discharge if were previously
discharged in a Chapter 7 case filed within 8 years or in a Chapter 13 case
filed within 6 years.
2. Chapter 13 – Not eligible for a Chapter 13 discharge if were previously
discharged in a Chapter 7 case filed within 4 years or in a Chapter 13 filed
within 2 years.
3. Serial filings?
C. FILE A REQUEST FOR SPECIAL NOTICE
D. CALENDAR IMPORTANT DATES
1. Meeting of Creditors-: you might want to go and ask questions or advise
trustee of situation
2. Deadline to Object to Discharge- may want to dispute dischargeability
3. Deadline to File a Claim – Chapter 13 – so you can participate
III. AUTOMATIC STAY
A. Generally precludes Creditors from taking any collection action against Debtor
and Creditor must discontinue collection action against Debtor regarding pre-
petition claims
1. Bars actions against estate property. Property of the Estate includes
property in which Debtor has a legal, equitable or possessory interest.
B. Goes into effect immediately upon the filing of the bankruptcy petition
C. Applies to all Creditors even if Creditor unaware of bankruptcy filing
D. Also applies to a co-debtor/co-obligor in a Chapter 13 regarding a consumer debt
1. Stay generally does not apply to guarantors, partners, non-filing co-
defendants
4
2. Where debtor is an indispensable party, Bankruptcy Court can issue an
injunction staying the action
E. Primary purpose is to give a Debtor breathing room
F. Actions that are stayed (see 11 USC §362):
1. Enforcement of pre-petition judgments
a. Precludes recording of Abstract of Judgment
b. Precludes wage garnishments
c. Renewal of Judgment stayed. Renewal deadline tolled until 30
days after notice of termination of the stay
2. Foreclosure process (judicial and non-judicial)
a. Postponement of foreclosure sale not prohibited
b. Exceptions
1) Not stayed where within 180 days debtor filed a prior
bankruptcy case that was dismissed for failure to comply
with court orders or where prior case was dismissed by
debtor following the filing of a motion for relief from stay.
2) Debtor’s current case filed in violation of bankruptcy
court’s Order entered in prior case prohibiting debtor from
filing future bankruptcy cases
3. Actions to obtain possession or control of estate property
a. Dunning letters or telephone calls, demands for payment
b. Monthly billing/invoice
1) Work with debtor’s counsel
2) Do not include past due amounts
3) HOAs: separate into pre-petition and post-petition
c. Creditor may refuse to deal with a debtor
d. Set-off: right to set-off but first need relief from stay
5
e. Administrative freeze. Can freeze but cannot take funds without
relief from stay
4. Repossession of collateral (includes leased property)
5. Creating, perfecting, or enforcing liens
a. Includes post-levy sale of property even if levied upon prior to
bankruptcy filing.
6. Suing a debtor (includes administrative proceedings)
a. Statute of limitations:
1) (11 USC §108(a)) If period in which debtor must sue has
not expired prior to filing of bankruptcy, trustee may
commence action before the later of: the end of such period
or two years after the bankruptcy filing
2) (11 USC §108(b)) If period in which debtor may file any
pleading, demand, notice, cure a default is not covered by
11 USC §108(a) and such period has not expired before the
filing of the bankruptcy, trustee may only do so before the
later of: the end of such period or 60 days after the
bankruptcy filing
3) (11 USC §108(c)) If a period in which a claim against a
debtor has not expired before the filing of the bankruptcy,
then such period does not expire until the later of the end of
such period or 30 days after the notice of termination or
expiration of the stay
Caveat: May want to file relief from stay to avoid situation
where you do not receive notice
b. Debtor has affirmative duty to serve and file a notice of stay with
the State Court (see California Judicial Form CM 180)
c. Precludes filing of cross-claim against debtor
1) Includes claim for indemnity
6
2) May need to file motion for relief from stay
3) If debtor suing for monetary relief, may need to determine
if Chapter Trustee has abandoned claim. Trustee may be
the proper party in interest
d. Entry of Judgment, verdict, or decision precluded
7. Appeals
a. Appeal by debtor defendant precluded
b. Appeal by debtor plaintiff probably not precluded
8. Discovery
a. If debtor a party, all discovery as to debtor is precluded.
Caveat: Abandonment of property by Chapter Trustee may
still have debtor protected by stay
G. Exceptions to the Automatic Stay (11 USC §362(b))
1. Criminal action against debtor. Collection of criminal fines or restitution
orders are stayed
2. Domestic relations proceedings and enforcement of support Orders are
stayed
a. Paternity
b. Establish or modify child custody or visitation Order
c. Dissolve a marriage (except for division of property)
d. Withholding of income for payment of domestic support
obligations
e. Interception of tax refund to pay past-due support obligations
3. Post-petition perfection of liens
a. Where State law permits retroactive perfection, window period is
30 days unless otherwise stated
b. UCC purchase money lien. Creditor has 20 days to perfect
7
c. Mechanic’s lien
d. Foreclosure deed. 15 days after sale (relates back to date of sale)
4. Revocation of a professional license not stayed
a. Sanctions for attorney misconduct not stayed
5. No stay where the term of a commercial lease comes to an end on a date
certain. May be prudent to seek relief from stay
6. Exception for presentment of negotiable instrument or giving notice of
dishonor
7. Exception for residential eviction proceedings where judgment for
possession entered pre-petition
Caveat: Other stay provisions might apply
H. Duration of the Automatic Stay
1. Stay applies to property of the Estate and property of the debtor. Estate
may abandon property to debtor so stay still exists since debtor has interest
in property
2. Stay can automatically expire
3. In Chapter 7, failure to file and/or act upon Statement of Intention re
encumbered personal property
a. Debtor must elect to redeem, reaffirm or surrender property
b. Stay expires earliest of 30 days after petition date or on date of the
meeting of creditors
c. If a purchase money agreement, stay expires 45 days after meeting
of creditors.
d. If debtor fails to perform, stay expires 30 days after date first set
for meeting of creditors
8
e. Stay expires even if debtor current on loan obligation
4. In Chapter 7, failure to reject or assume a personal property lease within
60 days of petition date
5. In Chapter 11 or 13, if lease of personal property not assumed or rejected
in the plan confirmed by the court
a. In Chapter 13, co-debtor stay terminates as well
6. Where individual debtor’s prior bankruptcy case dismissed within one
year of the filing of the current bankruptcy
a. Stay terminates as to debtor on 30th
day after filing of current case
1) Caveat: Stay terminates as to debtor. There may be
other stays in effect and termination does not affect co-
debtor stay in a Chapter 13
b. Debtor can obtain extension through noticed motion but Order
extending stay must be filed within 30 day period
7. Where individual debtor had two or more bankruptcy cases dismissed
within one year of the filing of the current bankruptcy
a. Stay does not go into effect at all
1) Caveat: Stay terminates as to debtor. There may be
other stays in effect and termination does not affect co-
debtor stay in a Chapter 13
b. Debtor can obtain extension through noticed motion but Order
extending stay must be filed within 30 day period
8. Caveat: Though it appears that stay may no longer be in effect,
creditor may still want to file motion for relief from stay or motion that
stay no longer in effect.
9
a. Protects creditor from possible claim for actual and punitive
damages and/or having to re-do process as action taken is
considered void
1) Specific intent to violate stay not required; knowledge of
the stay and an intentional act will suffice
b. Many third parties want a “comfort order” - e.g., title companies,
repossessors, courts
9. Until case is dismissed, closed, or discharge obtained
10. Until relief from stay is granted
IV. MOTION FOR RELIEF FROM STAY (11 USC §362(d))
A. SEEKS PERMISION FROM THE COURT TO UNDERTAKE CERTAIN
ACTIONS OTHERWISE STAYED
1. Creditor may seek to condition, modify, terminate or annul the stay
a. Annulling the stay is similar to nunc pro tunc relief
1) Vacates the stay at an earlier date
2) Usually feasible where creditor unaware of stay and would
otherwise have been entitled to relief from stay
B. GROUNDS FOR RELIEF FROM STAY
1. Cause including lack of adequate protection
a. Lack of adequate protection
1) limited to secured creditors
2) Adequate protection protects value of secured creditor’s
interest in collateral
10
a) Lack of insurance may be sufficient lack of
adequate protection
3) Proving lack of adequate protection usually requires expert
opinion and may be expensive and time consuming
4) Debtor usually not paying so creditor can simply rely on
lack of payment as “cause” where debt is secured
a) If debtor brings account current prior to hearing,
seek adequate protection Order
b. Litigation in non-bankruptcy forum
1) Enforcement of judgment probably still stayed
2) Caveat: File Proof of Claim if litigation will not be
final before last day to file a Proof of Claim
3) Relief to allow a state court to divide property is usually
not granted
4) Contractually mandated arbitration usually sufficient cause
5) Litigation of insured claims
a) Court will usually lift stay where debtor has liability
coverage for both defense costs and any resulting
judgment
6) Perfection of pre-judgment attachment lien obtained
outside the preference period
2. Relief from stay where debtor lacks equity and property not needed for
reorganization
3. Single asset real estate cases
a. Single asset real estate is real property:
1) constituting a single property other than residential real
property with less than four units
2) that generates substantially all of the gross income of a
debtor
11
3) on which the debtor conducts no substantial business other
than the business of operating the property
C. PROCEDURE
1. Requires noticed motion
a. Caveat: Check local rules as courts have different
procedures
1) e.g., Eastern District may state on its calendar printed the
day before the hearing that no hearing will be held on
matter
b. Courts generally require electronic filing
2. Pleadings usually required: Motion, Notice of hearing, Memorandum of
Points and Authorities, Declaration, Relief from stay cover sheet, and
Certificate of Service
3. There is a 14 day waiting period after Order for relief from stay entered
but creditor in its motion should seek to have this waived.
4. Caveat: If seeking relief from stay to foreclose, creditor should also
include seeking relief from stay for creditor or successful third party
bidder to be able to proceed with eviction.
V. PROOFS OF CLAIM
1. Proofs of Claim - a creditor may file a “proof of claim” – See Section
501(a). Covers claims that arose before the bankruptcy order for relief. A
Debtor can file a claim on behalf of a creditor.
12
2. Deadline: For non-governmental claims it is 90 days after the date first set
for meeting of creditors - Bankruptcy Rule 3002(c). New window to file
claims after a conversion to Chapter 7.
3. Chapter 7 versus Chapter 11 versus Chapter 13: No need to file proof of
claim in Chapter 7 unless notice to file claims sent. Need to file proof of
claim in Chapter 13. No need to file proof of claim in Chapter 11 unless
disagree with scheduled amount or if scheduled as disputed, contingent or
unliquidated.
4. Bankruptcy Rule 3001 sets forth requirements for proof of claim. Official
Form and classifications of secured, priority or general unsecured
5. Contingent/Unliquidated Claims - Section 502(c) allows court to estimate the
allowable amount.
6. Caps on Claims
a. 502(b)(6)- lease termination claims limited to rent for one year (or, if
greater 15% - but not to exceed three years- of the remaining term)
b. 502(b)(7)- damages for termination of an employment contract are
limited.
7. Objections to Claim. A filed proof of claim is deemed allowed unless objection filed – Seee
Sections 502(a) and (b); Bankruptcy Rule 3007.
VI. DISCHARGE
A. THE BANKRUPTCY DISCHARGE (11 U.S.C §524)
1. Voids any judgment to the extent such judgment is a determination of
personal liability
2. Injunction against the commencement or continuation of an action, or an
act to collect, recover or offset
3. Debtor may voluntarily repay any debt
4. Community property discharge - bars collection from after acquired CP
on any community claim
13
5. Attorney's fees and costs recoverable when a creditor unsuccessfully
challenges a discharge of a consumer debt
B. EXCEPTIONS TO THE BANKRUPTCY DISCHARGE (11 U.S.C. §523)
1. All debts are dischargeable except for those that are not.
2. Secured debts require Motion for Relief from Stay.
3. Taxes (of course, with exceptions).
4. Debts obtained by "false pretenses, false representation, or actual fraud, other
than a statement respecting the debtor's or an insider's financial condition".
(11 U.S.C. §523(a)(2)(A))
5. Debts obtained by "use of a statement in writing" (11 U.S.C. §523(a)(2)(B)).
a. That is materially false;
b. That is about debtor's or insider's financial condition;
c. On which the creditor reasonably relied; and
d. That the debtor caused to be made or published with intent to deceive.
6. Bankruptcy Fraud Test
a. False representation or written statement;
b. That the Debtor knew to be false;
c. That Debtor intended to deceive the Creditor;
d. Creditor reasonably relied on;
e. Damages (proximate cause test).
7. Other non-dischargeable debts.
a. Non-scheduled debts;
b. Fraud or defalcation while acting in a fiduciary capacity,
embezzlement or larceny;
c. Domestic support obligations;
d. Willful and malicious injury to another or their property;
e. Fines, penalties or forfeiture owed to a governmental unit;
f. Student Loans (Exception: Under Hardship - Brunner Test);
g. Death or personal injury caused by Debtor's intoxication;
h. Debts previous determined non-dischargeable;
14
i. Res Judicata or Collateral Estoppel where Fraud is found;
j. Trust fund debts;
k. Non-support debts owed to spouse, former spouse, or child must be
accounted for in separation or MSA divorce judgment;
l. HOA fees incurred after the filing date;
m. Penal/restitution fees;
n. 401K etc. loans;
o. Debts incurred by violation of State or Federal Securities laws
C. CHALLENGING BANKRUPTCY DISCHARGE
1. Adversary Proceeding (Fed. Rule of Bankruptcy Proc. 7001)
a. Lawsuit to determine whether a single debt is non-dischargeable;
b. Complaint must be filed within 60 days of the first date set for the
Creditor's Meeting ("drop dead date");
c. Can be extended by court only for cause;
d. New deadlines if case converted 7 to 13 or 11/13 to 7
2. Creditor files complaint.
3. Debtor responds.
4. Initial Status and Scheduling Conference -90 days after Complaint
filed.
5. Trial generally scheduled within 6 months.
BE READY TO GO BECAUSE IT WILL!
D. DENIAL FOR WRONGFUL CONDUCT (11 U.S.C. §727)
1. Generally brought by Bankruptcy or U.S. Trustee AP.
2. The bankruptcy court shall grant the debtor a discharge, unless:
a. The debtor is not an individual;
b. The debtor, with intent to hinder, delay, or defraud a creditor or an
officer of the estate charged with custody or property under this title,
has transferred, removed, destroyed, mutilated, or concealed, or has
permitted to be transferred, removed, destroyed, mutilated, or
15
concealed property of the debtor, within one year before the date of
the filing of the petition; or property of the estate, after the date of the
filing of the petition.
3. The debtor has concealed, destroyed, mutilated, falsified, or failed to keep or
preserve any recorded information…unless such act or failure to act was
justified under all of the circumstances of the case.
4. The debtor knowingly or fraudulently, in or in connection with the
case:
a. made a false oath or account;
b. presented or used a false claim;
c. Gave, offered, received, or attempted to obtain money, property, or
advantage, or a promise of money, property, or advantage, for acting
or forbearing to act; or
d. Withheld from an officer of the estate entitle to possession…any
recorded information…relating to the debtor's property or financial
affairs.
5. The debtor has failed to explain satisfactorily, before determination of denial
of discharge…any loss of assets or deficiency of assets to meet the debtor's
liabilities.
6. The debtor has refused, in the case:
a. To obey any lawful order of the court;
b. On the ground of privilege against self-incrimination, after immunity
is granted.
7. Where debtor has been granted a Chapter 7 discharge in a case commenced
within 8 years before the date of the filing this petition. (6 years for a prior
Chapter 13 case)
8. Where debtor waives discharge.
VII. PARTICULARS DEALING WITH A DEBTOR IN CHAPTER 13
A. WHAT TO DO IF A CLIENT FILES A CHAPTER 13
1. If your client is a plaintiff and he files for bankruptcy, you should
immediately notify the court in which the litigation is pending and ask for
16
guidance. The judge will probably continue the matter for a status
conference and request an order from the bankruptcy court. You should
also seek approval from the bankruptcy court to continue the litigation.
2. If your client fails to disclose the litigation as potential asset and/or seek
approval from the bankruptcy court to continue litigation, your client may
lose the cause of action when it is eventually discovered by the bankruptcy
court. Alternatively, any recovery may be required to be paid to creditors
in your client’s bankruptcy.
3. If the defendant files for bankruptcy, you should immediately stop any
litigation activities. To continue in the litigation, you must file a motion
for relief from stay in the bankruptcy court.
B. CHAPTER 13 PLAN. (Section 1322) provides for proper plan provisions.
a. Best Interests of Creditors
b. Cure of Defaults on Secured Debt- Sections 1322(b)(3) and (b)(5)
c. Assumption of Leases- Section 1322(b)(7)
C. CONFIRMATION STANDARDS. (See Section 1325.)
a. Good Faith- Sections 1325(a)(3) and (a)(7)
b. Liquidation Test- Section 1325(a)(4)
c. Feasibility- Section 1325(a)(6)
d. Domestic Support Obligations- Section 1325(a)(8)
VIII. PARTICULARS DEALING WITH A DEBTOR IN CHAPTER 11
A. KEY PARTS OF CASE
1. Disclosure Statement- sets forth history of debtor, plans to
reorganize, feasibility. Need to provide “adequate information” for
a person to make an informed judgment about the proposed plan.
Section 1125
2. Chapter 11 Plan - reorganization vs. liquidation vs. sale.
17
a. Section 1123 sets forth the contents of Plan- designation of classes
as impaired and not impaired; treatment of classes, provide for means
of plan implementation, curing of defaults, modification of liens.
3. Objections to Plan Confirmation- good faith, liquidation value, feasibility-
compliance with the provisions of Section 1129
4. Voting – one class of creditors who are impaired have to vote in favor of
plan. To have a class vote in favor means more than 2/3 in value and ½ in
number. Section 1126
IX. TAKING CONTROL OF THE SITUATION AND USING THE
BANKRUPTCY CASE TO YOUR ADVANTAGE
A. RULE 2004 EXAMINATION.
1. Broad scope and can request production of documents
B. CAUSES OF ACTION/COUNTERCLAIMS
1. If Debtor was the holder of an affirmative claim or cause of action, the
Chapter 7 trustee may prosecute and settle the claim it.
C. ESTOPPEL
1. Failure of a debtor to list a cause of action and defendant contends that
debtor is judicially estopped to proceed.
2. Equitable doctrine
3. Result depends on whether debtor was aware of the pre-petition cause of
action or whether the omission was inadvertent and debtor corrects the
oversight.
4. Defendant does not get a windfall as estopped debtor might not own or
have standing to prosecute omitted cause of action but the bankruptcy
trustee would.
18
X. GETTING HIRED AND PAID BY CHAPTER 7 TRUSTEE
1. Debtor’s pre-petition attorney can continue to prosecute a claim or lawsuit
if the attorney is retained by the bankruptcy trustee to represent the
bankruptcy estate. See Section 327.
2. Need employment application and employment order from the court
before work is commenced. Failure to do so or being tardy may result in
all fees being disallowed.
3. Conflicts may prevent employment
4. Once retained, still cannot get paid absent court approval. Application for
approval of fees and costs to be filed with notice and a hearing.
5. See Guidelines for Payment of Compensation on Northern District website
for details, especially how to keep time records
XI. GETTING HIRED AND PAID IN CHAPTER 13
A. (11 U.S.C. § 327.) EMPLOYMENT OF PROFESSIONAL PERSONS
1. Outside counsel seeking to be paid in an active chapter 13
bankruptcy must obtain bankruptcy court approval under section 327(a)
which allows the trustee “with the court’s approval” to employ “attorneys .
. . that do not hold or represent an interest adverse to the estate, and that
are disinterested persons, to represent or assist the trustee in carrying out
the trustee’s duties under this title.” Since section 1303 gives a chapter 13
debtor “exclusive of the trustee, the rights and powers of a trustee under
sections 363(b), 363(d), 363(e), 363(f), and 363(l)” most cases find that
the term “trustee” in section 327(a) is applicable to a “debtor” in chapter
13. As such, the debtor can hire an attorney subject to the limitations of
327(a).
19
B. BANKRUPTCY RULE 2014
1. Specifies the details that must be included in an application for
employment.
a. Specific facts showing the necessity of employment;
b. The name of person to be employed;
c. The reasons for the selection;
d. The professional services to be rendered;
e. Any proposed agreement for compensation;
f. All the applicant’s connections with the debtor, the creditors, any
party in interest, the debtor’s bankruptcy attorney and accountants,
or the United States Trustee
C. 11 U.S.C. § 328. Limitation on compensation of professional persons
1. Section 328(a) limits the compensation of an attorney or other professional
“on any reasonable terms and conditions of employment, including a
retainer, on an hourly basis, on a fixed percentage fee basis, or on a
contingent fee basis. . . .”
2. In short, the attorney must file a motion, a declaration in support of the
motion, and obtain an order of the bankruptcy court to be employed as
outside counsel. Check the local rules for service and notice requirements.
3. Given that the court needs to balance the interests of creditors in the
bankruptcy, a contingency fee agreement is usually a safe bet. Hourly fee
arrangements will be scrutinized.
Practice tips –
Check the Bankruptcy Local Rules, General Orders, and Guidelines, of the District (and
possibly Division) in which the bankruptcy case was filed. For the Northern District of
California, go to http://www.canb.uscourts.gov/.
Contact the Debtor’s bankruptcy counsel to see if they have had experience in hiring
outside counsel and have insight as to what the court expects. If the bankruptcy attorney
is not helpful, contact the Bankruptcy Section of the local Bar Association.
Always ask any prospective client if they are in an active bankruptcy. It should be
included in your questionnaire for any prospective clients.
Make sure you get approval of the Bankruptcy Court before incurring considerable time
and expense on the case.
20
4. After you have been hired and your fee agreement has been approved, you
must notify the bankruptcy trustee and bankruptcy court of any settlement
of judgment. The settlement and judgment, including the amount of the
fees and costs must be separately approved by the Bankruptcy Court. This
can be done by motion and stipulation with the trustee.
XII. GETTING IN BETTER POSITION FOR THE NEXT BANKRUPTCY
1. Order for Examination Lien- CCP Section 708.110
2. Abstract of Judgment Lien
3. UCC-1 Lien