Consumer Bankruptcy for Business Practitioners 4 Bars of attorneys: Creditor Business / \ Creditor Consumer / \ Debtor Debtor Business bankruptcy attorneys are typically skilled in either creditor or debtor work, because these practices are highly specialized. Most business practitioners know little to nothing about the consumer side of this field. Business attorneys often have a negative image of consumer practitioners; they envision bankruptcy mills that focus on quantity over quality, yielding for nominal fees for significant time and energy spent. There is a divide between the business and consumer practices in this field which perpetuates the lack of knowledge by business attorneys regarding consumer bankruptcy content (and vice versa). Business / commercial bankruptcy attorneys should be familiar with Chapter 13; they should know and understand the benefits and flexibility that it provides to debtors. They should be familiar with the rights and obligations that creditors have in the Chapter 13 context. Why? Businesses may have shareholders, principals, partners, who fall into financial distress. Chapter 13 is too often ignored as an option, simply because it is not understood by a majority of the bankruptcy community. Unless an attorney directly represents a party involved in a Chapter 13 case, practitioners have no reason to even look at the provisions contained in Chapter 13. This continued lack of general knowledge and understanding has led to an unintentional ‘ignorance’ on the part of the business/commercial bankruptcy bar with regard to Chapter 13. It is important to know and understand the benefits, rights, duties, and obligations of both debtors and creditors in these proceedings. Goals: To educate the business bankruptcy bar on Chapter 13 Consumer practitioners (mills and boutiques) Chapter 13 and the Code (legislative history, recent changes) Reasons why someone would file Chapter 13 (nuanced benefits: asset retention, lien avoidance and cramdown, reorganization that prohibits foreclosure and repossession, ability to treat secured priority claims to a greater extent, while diminishing the payout to general unsecured creditors, dischargeability of property settlement debt only available in Chapter 13) Topics for Discussion Who should file, when? -Everyone from the soon-to-be foreclosed homeowner, to the President/CEO of a large corporation -Chapter 13 can be an income-based repayment plan, or an asset liquidation repayment plan -Prevent foreclosure/repossession/seizure -Special treatment for certain liabilities arising from a divorce -Pending litigation for claims that could eventually exceed debt limits What are the benefits? -Different document production /requirements than in Chapter 7 -More flexibility than in Chapter 7 (can be dismissed voluntarily at any time) -Build equity in assets with lien avoidance and cramdown -Avoid state court litigation by putting the stay into place; treat disputed claims in Chapter 13 -Discharge property settlement debt -Interest on general unsecured debts stops accruing when a case is filed -Protect and retain assets with equity -Deadline to file claims may inure to the benefit of the debtor What are the downsides? -Priority debt is non-dischargeable, and must be paid in full in order to receive a discharge (administrative expenses, DSO obligations, tax liabilities) -Remittance of tax returns and refunds, ongoing duty of truthful disclosure -60 months from the date of confirmation or less -Debt limits (understand wherein the flexibility lies) Claims Administration process -Debtor may object to claims -Claims can be litigated and determined within the bankruptcy context Adversary Proceedings These topics are more general, including the timeline of a typical case and how to move through the Chapter 13 system What goes into a Chapter 13 Plan? -Treatment of claims -Tax returns / bonuses and refunds -Liquidation Analysis / Means Test requirements -Worksheet What are a Debtor’s requirements / duties / obligations? -Payments -Tax returns and refunds -Step payment increases -Ongoing duty to provide truthful / accurate information when requested Role of the Trustee -Administer case, disburse payments -Ensure a fair process for creditors in light of the Code Pre-Confirmation -Timeline and process -341 -Objections -Status Conference / Confirmation -Claims Administration -Adversary Proceedings Creditor’s Rights -Observe and evaluate treatment under plan -Timely file proof of claim -Timely file objections to confirmation Post-Confirmation -Payments -Monitor claims -Post-petition property and income tax obligations -Tax returns / refunds / bonuses -Plan modifications -Loan modifications -Motions to Incur debt -Changes in circumstances Discharge -Creditor’s duties -Debtor’s duties -Typical obstacles to discharge -Benefits of discharge Post-Discharge and beyond -Advising / assisting with formal lien removal -Advising with credit repair and rebuilding -Instances where another case is necessary or appropriate
