BankruptcyforNon‐BankruptcyParalegalsMathew Laskowski, Senior Paralegal2014 New Jersey Paralegal Convention

Whatarewegoingtolearntoday?:• Basic differences between the Chapters.• Trustees, Trustees, everywhere!• Rules and where to find them.• Personal vs. Corporate Bankruptcy.• Proofs of Claim and their differences.• Adversary Proceedings 101.• PACER vs. CM/ECF Accounts – Why you need both.• Pitfalls to avoid.• Resources to help you.

WhatisBankruptcy?• Bankruptcy is a legal proceeding involving a person or business thatis unable to repay outstanding debts.

• Bankruptcy proceedings fall under District Courts the Federal Courtsystem: 12 Circuits and 94 Judicial Districts.• Some states have one district (New Jersey), some have multiple (NewYork has four).

• Appeals from Bankruptcy Court go to the District Court first, then tothe Circuit Courts.

• A person doesn’t lose everything.• A business may continue to operate.• Creditors may get a portion of what they are owed.• It’s a fresh start for the debtor.• Bankruptcy Court is a Court of “equity” which allows the Judges andparticipants to be “creative” in the administration of a case.

• Upon notice of the bankruptcy, you must cease all efforts to collecton your debt without permission from the Court or you openyourself up to serious sanctions.

FederalCircuitandDistrictMap

Rules:Federal,Local&Chambers• Bankruptcy’s “home” is Title 11 of the United States Code• Federal Rules of Bankruptcy Procedure

• Closely follows the Federal Rules of Civil Procedure, if there is noprocedure for it in the FRBP you default to the FRCPs.

• Federal Rules of Evidence apply.• It helps to be familiar with the Judicial Code:

• 28 U.S.C. §§ 151‐159 which covers the powers of Bankruptcy Judgesand Appeals.

• 28 U.S.C. §§ 581‐589b covers the United States Trustee.• 28 U.S.C. § 1334 covers jurisdiction and §§ 1406‐1412 covers venue.• 28 U.S.C. § 1927 and 1930 covers bankruptcy fees.

• Every jurisdiction and circuit has local rules and sometimes specificforms. Make sure you review the local Courts website for them.

• Nearly all Judges have Chambers rules as well.• Nuances like filing deadlines, copies of documents, adjournmentrequests, telephonic appearances, etc…

ThePetitionandStatementofFinancialAffairs• Petition – Three pages, basic initial information.• Summary of Schedules (with Statistical Summary).• Schedule A – Where all real property is listed.• Schedule B – Where all personal property is listed.• Schedule C – Property Exemptions list.• Schedule D – Secured creditor list.• Schedule E – Priority – Unsecured creditor list.• Schedule F – General Unsecured creditors list.• Schedule G – Executory contracts and unexpired leases.• Schedule H – Where any co‐debtors are listed.• Schedule I and J – Monthly income list and monthly expense list.• Statement of Financial Affairs.• Statements of Intention.• Attorney Compensation Statement.• Means Test Calculation.• Creditor Matrix.

PersonalBankruptcy:Chapter7‐ Generally• Chapter 7 – Liquidation

• Some assets are protected by exemptions.• The current list of Federal exemptions and limits can be foundunder §522 of the Code.

• Some states have their own exemption scheme and you must pickthe state exemptions or federal exemptions when you file. Youcannot have your feet in both pools.

PersonalBankruptcy:Chapter7–MeansTest• The Debtor must pass the “Means Test” or you have to file aChapter 13. Started with the 2005 Code overhaul.• The test determines whether your income is low enough for youto file Chapter 7 bankruptcy. It's a formula designed to keep filerswith higher incomes from filing for Chapter 7 bankruptcy.

• If your current monthly income is less than the median incomefor a household of your size in your state, you pass.

• The means test doesn't mean that you must be poor in order touse Chapter 7. You can earn significant monthly income and stillqualify for Chapter 7. If you have a lot of expenses, such as highmortgage and car loan payments, taxes, and other expenseswhich result in little to no disposable income it’s possible to stayin Chapter 7.

PersonalBankruptcy:Chapter13and11• Chapter 13 – Personal Reorganization

• Pay back portion of debt over 5 years generally, using availabledisposable income.

• Less likely to lose assets like a house or car.• Per §109(e) of the Code the unsecured debt must be under$383,175 and the secured debt must be under $1,149,525. Ifeither are over you must file a Chapter 7 or 11.

• Chapter 11 – Like a Chapter 13, with no debt limits, but is veryexpensive.

Non‐DischargeableDebts:Chapter7• Taxes and tax liens.• Student loans.• Alimony and child support (domestic support obligations).• Debts obtained through fraud, false pretenses or falserepresentation.

• Debts you failed to schedule in time to allow creditors to file proofsof claim (unscheduled debts).

• Debts for fraud while you were acting in a fiduciary capacity, or forembezzlement or larceny.

• Debts for willful and malicious injury.• Debts for fines or penalties to governmental units.• Debts for judgments in wrongful death or personal injury lawsuitsresulting from motor vehicle, vessel or aircraft accidents while youwere intoxicated.

• Condominium or cooperative association fees or assessments.

Non‐DischargeableDebts:Chapter13• Child support and alimony (domestic support obligations).• Student loans.• Fines and restitution.• Certain taxes, such as withholding taxes if you had employees, or taxesconnected to fraudulent tax returns or tax evasion.

• Debts incurred through fraud.• Debts for fraud while you were acting in a fiduciary capacity, or forembezzlement or larceny.

• Debts for willful and malicious injury.• Judgments in wrongful death or personal injury cases arising from yourintoxication.

• Unscheduled debts.• Debts incurred after filing your case, which weren't included in yourChapter 13 plan.

• Debts that are no dischargeable under other laws, for example amountsowed for certain health education programs.

• Interest owed on no dischargeable debts.

PersonalBankruptcy:CreditCounselingandFinancialManagementCourses

• Chapters 7, 13 & 11• All chapters require approved credit counseling and financialmanagement classes.

• It must be from an approved provider and the list of those providerscan be found on the US Trustee’s website.

• It can be completed online, in person or over the phone. Creditcounseling must be done before you file and the certificate cannotbe more than 180 days old.

• Financial management classes are done after you file and must becompleted in order to get a discharge. If you take the financialmanagement course prior to filing you have to retake it after you file.

CorporateBankruptcy:Overview– Chapter7• A corporation can file under Chapter 7 or 11. In some cases, aperson filing Chapter 13 can incorporate business debt intotheir case so it’s as if the corporation declared Chapter 13, butuncommon.

• Chapter 7 is straight liquidation of the company. The owners“turn the keys over” to the Chapter 7 trustee and basicallywalk away after the §341 meeting.

• They are expected to cooperate with any investigations andhelp the trustee as needed, but there is usually very little forthe debtor and their counsel to do after filing.

CorporateBankruptcy:Overview– Chapter11• Chapter 11 bankruptcy is reorganization; it’s generallycomplicated; expensive and time consuming. Themanagement generally stays in power. Cases can go on foryears. The plan is to keep the company operating.

• If a corporation’s liabilities are under $2,490,925 they areclassified as a small business debtor. This classificationchanges the deadlines and essentially speeds up the case.There is no Creditors Committee formed.

• If there is fraud or gross mismanagement, the US Trustee canintervene and request a Chapter 11 Trustee be put in place ofmanagement; they could also convert the case to a Chapter 7.

• Chapter 11’s can come “pre‐packaged” where the majorcreditors are on board and the case is filed with a plan anddisclosure statement.

CorporateBankruptcy:FirstDayMotions• When a case starts, the company cannot do anything withoutcourt approval, thus a number of motions are filed on the“first day” which allow the company to continue to operate“normally.” The most common motions include:• Debtor‐in‐Possession Financing;• Use of Cash Collateral;• Pay wages and honor pre‐petition payroll;• Use existing bank accounts, forms and cash managementsystems;

• Direct utilities to continue service;• Retain counsel; financial advisors and other professionals;• Case management order; and• Compensation of professionals.

CorporateBankruptcy:CreditorsCommittee• Committee is formed by the US Trustee’s office. It’s supposed to bea representative cross‐section of the unsecured creditor body,mostly made up of creditors that appear on the Top 20 list. Alwaysan odd number and size can be as few as three and as many as nine.

• Creditors ask to be put on the Committee.• Unknown magical process on how the Committee is actuallyformed… seriously.

• The Committee, once formed, picks one law firm and one financialadvisor to represent them.

• The fees and expenses for the Committee counsel and financialadvisor are paid by the Estate.

• It costs nothing to be on the Committee, aside from time toparticipate in meetings, which are usually done over the phone.

AdditionalBankruptcyTypes:

• These are not common:• Chapter 9 ‐Municipality Bankruptcy• Chapter 12 ‐ Family Farmer Bankruptcyor Family Fisherman Bankruptcy

• Chapter 15 ‐ Ancillary and Other Cross‐Border Cases

TheTrusteesandWhatTheyDo:Overview• Under the jurisdiction of the Department of Justice.• Created by Congress to oversee the bankruptcy process,including the administration of bankruptcy cases and privatetrustees.

• Each region has an Assistant US Trustee that has a team ofanalysts, trial attorneys and paralegals working for them.

• The UST’s office will interject when they feel the process is notbalanced or rules are being broken. They act very much like areferee at a sporting event.

• Some jurisdictions are more involved than others.

TheTrusteesandWhatTheyDo:TheChapter7Panel• There is a “panel” of Chapter 7 Trustees in each jurisdictionthat are randomly assigned to Chapter 7 cases. They are notgovernment employees. Many are private practice attorneys,although they do not need to be an attorney to be a paneltrustee. Peggy Stalford, a paralegal, is a long term member ofthe panel in New Jersey.

• They run Chapter 7 cases from start to finish.• The trustee's main task is to sell nonexempt property to repaygeneral unsecured creditors. The trustee also looks forbankruptcy fraud, makes sure your paperwork is accurate, andconducts an investigation into the debtor’s property andfinances.

• They will hire special counsel when circumstances arise.• There are over 30 trustees on the panel in New Jersey.

TheTrusteesandWhatTheyDo:TheChapter13Trustee• The Chapter 13 bankruptcy trustee performs many dutiesranging from making sure the repayment plan complies withbankruptcy laws to actually administering the plan after it isapproved by the court.

• Reviews the Bankruptcy Petition and Repayment Plan.• Conducting the Meeting of Creditors.• Administering the Bankruptcy Repayment Plan.• Objecting to Improper Claims of Creditors.• The three Chapter 13 Trustees in New Jersey are:

• Isabel C. Balboa (Camden)• Marie‐Ann Greenberg (Newark)• Albert Russo (Trenton)

TheTrusteesandWhatTheyDo:Chapter11Cases• The UST’s office is actively involved in Ch. 11 cases.• You must hard copy serve anything filed in the case on theTrial Attorney handling your case.

• They conduct the initial debtor interviews, request financialinformation, coordinate the formation of the UnsecuredCreditors Committee (or other special committees) and runthe §341 meeting.

TheTrusteesandWhatTheyDo:Chapter11Cases‐ Continued• They heavily weigh in on the “First Day Motions,” includingprofessional retention applications; debtor financing; wageand bank motions, etc… They also will interject as the casemoves on through the end of the case culminating with theplan and disclosure statement.

• They review and comment on fee applications.• They facilitate installing Healthcare Ombudsmen whenneeded.

The§ 341Meeting:• The §341 Meeting is required in Chapter 7, 11 and 13 cases, bothpersonal and corporate.

• The meeting will usually take place at the US Trustee’s office, or aroom at the Courthouse, it’s not done in a Courtroom generally.

• Within a month of filing for bankruptcy (unless another date isagreed to), the debtor must appear at the §341 meeting. If thedebtor does not appear, the Trustee can dismiss your case.

• The Bankruptcy Trustee will ask questions.• The Creditors can ask questions of the debtor.

• Most don’t show up.• In a personal bankruptcy case the Trustee will curtail questions of thedebtor from creditors.

• The Bankruptcy Trustee can ask for additional documents.• There is an audio recording that can be requested from the USTrustee’s office free of charge.

FeeApplications:• Attorneys, Financial Advisors, Claims and Noticing Agents andother professionals retained by the Estate must file feeapplications to be paid for fees and expenses.

• Depending on the case, there may be a compensation orderthat allows monthly payments. If there is no such order, youcan file an interim fee application every 120 days.

• All applications must comply with the US Trustee Guidelines(available on their website).

• Professionals retained in the ordinary course by the Estatemay not need to file fee applications depending on how theirretention order is worded.

AdversaryProceedings:Whatarethey?/CreditorUsage• They are litigations filed under the main bankruptcy case.Unlike litigation pending outside of the bankruptcy case, thesearen’t automatically stayed.

• Common use by a creditor is to file a non‐dischargeabilityaction under §523 of the code. They are used to keep theirdebt from being discharged. They usually stem from a debtincurred due to fraud or willful misconduct.• Watch for deadlines and/or Orders directing when non‐dischargeability actions must be filed by.

• Credit card companies file these when they see a debtorintentionally max out a card just prior to filing bankruptcy.

AdversaryProceedings:EstateUsage• The most common adversary proceedings used by the Estateagainst creditors are for preference cases.• Preference cases are used to claw back funds into the Estate.• Any payments made by the debtor to the creditor in the 90 daysleading up to the bankruptcy filing will be analyzed and could besubject to forfeiture.

• This is done to ensure no creditors are preferred over anotherleading up to the bankruptcy filing.

AdversaryProceedings:PreferenceDefenses• There are defenses to these cases and you can mix and match.Some defenses include:• Ordinary Course;• Contemporaneous Exchange;• New Value;• Demand Floor. Under §547(c)(9), in a corporate case the transfermust be at least $6,225; and

• Venue. Under 28 USC§ 1408, in a corporate case if the transferamount is under $12,475 the defendant must be sued in thedistrict court for the district they reside in. Meaning if the case isvenued in NJ and the defendant is in Wisconsin, they have to besued there.

AdversaryProceedings:OrdinaryCourseDefense• Section 547(c)(2) of the Bankruptcy Code is the "ordinarycourse of business" defense. Under that defense the trusteemay not recover an otherwise preferential transfer to theextent that the transfer was "a) in payment of a debt incurredby the debtor in the ordinary course of business or financialaffairs of the debtor and the transferee; b) made in theordinary course of business or financial affairs of the debtorand the transferee and c) made according to ordinary businessterms.“

AdversaryProceedings:ContemporaneousExchangeDefense• 11 U.S.C. Section 547(c)(1). Under this section of theBankruptcy Code, a preference cannot be avoided by thetrustee if you can prove that the transfer was intended by thedebtor and the creditor to or for whose benefit such transferwas made to be a contemporaneous exchange for new valuegiven to the debtor and the transfer was in fact a substantiallycontemporaneous exchange.

AdversaryProceedings:NewValueDefense• Per § 547(c)(4) a creditor can reduce its potential preferenceexposure by the value of the goods and services that it provided tothe debtor after receiving a preference payment ‐ i.e., if a creditorreceived a payment of $100,000 on October 1, and shipped $80,000worth of goods on October 24, then the net exposure is reduced to$20,000.

• It should be noted that Circuits are split on whether or not the newvalue must remain unpaid in order to use the offset so you’ll have toresearch that depending on where the case is venued.

• When calculating new value, you cannot go below $0. Meaning, ifyou received a $5,000 payment, then ship $10,000 worth of goods,you cannot be ‐$5,000, you are $0. This is important as if you getanother payment, and it’s for the $10,000 you shipped, yourexposure is $10,000, unless you ship more goods. You don’t start offwith your $5,000 remainder working for you.

ProofsofClaim:CommonTypes• Administrative Claim (NJ Local Form 24) ‐ Debt incurred by the debtor,with court approval, after the bankruptcy filing including: necessarycosts of preserving the estate, wages, salaries, court costs, lawyers' fees,accountants' fees, trustees' expenses, etc.

• Secured Claim (Generally listed on Schedule D of the Petition) ‐ Acreditor holding a claim against the debtor who has the right to take andhold or sell certain property of the debtor in satisfaction of some or allof the claim. Include things like mortgages, car loans, etc.

• Priority Unsecured Claim (Appear on Schedule E of the Petition) ‐ Anunsecured claim that is entitled to be paid ahead of other unsecuredclaims that are not entitled to priority status. Include tax claims, rentclaims, consumer deposits, and unpaid wages and benefits from beforethe filing.

• General Unsecured Claim (Appears on Schedule F of the Petition) –Most common form of claim and nearly last in priority (only ahead ofdebtors equity claim in itself). A claim or debt for which a creditor holdsno special assurance of payment; a debt for which credit was extendedbased solely upon the creditor's assessment of the debtor's futureability to pay.

ProofofClaimForm:B10‐ Sample

ProofofClaimForm:NJLocalForm24‐ Sample

SpecialClaims:• 503(b)(9) Claim ‐ For suppliers these claims can mean the difference between

receiving nothing and being paid 100% of the value of the goods delivered in the20 day period before a customer’s bankruptcy. To be entitled to a 503(b)(9)claim, a supplier must show four things:• (1) that it sold goods to the bankrupt customer;• (2) that these goods were received by debtor within 20 days prior to its

bankruptcy filing;• (3) that goods were sold to debtor in ordinary course of the debtor’s business; and• (4) the value of the goods that were sold to the debtor.

• 502(h) Claim ‐ A claim arising from the recovery of property undersection 522, 550, or 553 of this title shall be determined, and shall be allowedunder subsection (a), (b), or (c) of this section, or disallowed under subsection(d) or (e) of this section, the same as if such claim had arisen before the date ofthe filing of the petition.• They are most common when a creditor has to return funds to the Debtor as a

result of a judgment or settlement arising out of a Preference Suit.• It essentially allows the creditor to file a general unsecured proof of claim after

the bar date as a result of having to give funds back to the estate.

ClaimsandNoticingAgents:• They are usually found in larger Chapter 11 cases.• They handle mass mailings for the estate, many time steppingin the shoes of noticing on behalf of the Bankruptcy Court.

• They will typically provide general case information and a copyof the docket for anyone to access for free.

• They are paid by the estate for their services and have to beretained like counsel. They generally do not have to file feeapplications to get paid.

• They also handle the claims process for the estate. In manycases where there is a claims and noticing agent you will fileyour proof of claim directly with the agent and not the courts.• Ensure you leave enough time to get your claims in.

ClaimBarDatesandImportantInformation:• Ensure you know all of your claim bar dates and stay on top of them. If you miss

a bar date it is extremely difficult to fix and you open yourself up to a lot oftrouble with your client.

• Know what forms the estate is using. As long as it’s B10 it will usually beaccepted, unless the estate has had an order put in place to use a special form.Make sure you use it so you don’t get your claim objected to.

• Also make sure the claim is directed to the proper debtor when the case hasmultiple debtors. There should be an order in the case that explains how/whereto file the claim and the formatting.

• If the debtor has you scheduled for a claim amount and you file a proof of claim,that proof of claim supersedes the scheduled amount.

• You can amend a filed claim after the bar date.• Know where to send your claim, if it’s the Court, it can be e‐filed if you have

access to that ECF system, otherwise it needs to be hard copy filed with a “wetink” signature and you must include documents to support the claim. Failure tosupport to the claim could result in it being objected to.

• If you have to mail out a hard copy of the claim to the Court or a Claims/NoticingAgent, make sure you have enough time for it to get there. Send it via FedEx orUPS so you can track it, and make sure you include a copy with S.A.S.E. to get astamped copy back.

Transcripts:• Nearly all in Court transcription in Bankruptcy Court is audio now.• The transcription service will request the audio from the Court.

• Some jurisdictions are making the audio available for download tothe public.

• Some jurisdictions allow you to use any approved vendor (i.e. NewYork), some have agreements with specific vendors and you have touse them (i.e. New Jersey).

• Maximum page rates are standardized by the Administrative Officeof the U.S. Courts (www.uscourts.gov).• First party to request pays the full rate, each additional pays copycharges only.

• You will know when a transcript has been ordered as a notice isplaced on the docket that it is available. You can download a copy ofthe transcript from PACER (and pay the usual PACER costs) after 90days.

RelieffromtheAutomaticStay• Once a Debtor has filed Bankruptcy, most proceedings against him are stayed, 11 USC Section 362 (a). ‐ In order for a party to continue a proceeding against the debtor that was stayed because of the filing of the Bankruptcy and the Automatic Stay, he must file with the Bankruptcy Court a Motion for Relief from the Automatic Stay, or a Stipulation for Relief from the Automatic Stay if the other parties, the debtor and the trustee agree. 

• Creditors must stop all collection efforts.• Lawsuits against the debtor stop as well.• If you are a creditor and want to pursue collection efforts, you must file a motion for relief from the automatic stay.  It costs $176 to file.• Common for banks that want to foreclose on a property or seize a financed vehicle.

PACERv.CM/ECFAccounts:PACER• Read only access.  You cannot e‐file with a PACER account.• Costs $.10 per page up to 30 pages per document.• Anyone can get an account.  There are no tests.• One log‐in works in all Federal jurisdictions.

PACERv.CM/ECFAccounts:CM/ECF• Only way to electronically file documents.• Check for scheduled downtime.• Attorney must be admitted to the District Court of where theyare trying to file.

• Attorney must pass a test to get their filing password.• Some jurisdictions will allow you to skip the test if you can showyou took it elsewhere and can demonstrate a history of proper e‐filing.

• Attorney singing the main document must match the ECFaccount. Although there are some exceptions.

• Attorney needs an ECF account for EACH jurisdiction they filein (i.e. New York has four districts, you need four differentaccounts).

PACERv.CM/ECFAccounts:CM/ECF‐ Continued• District Court account is DIFFERENT from Bankruptcy Courtaccount, they are NOT interchangeable.

• Once you sign up for ECF you waive the expectation for hardcopy service aside from certain circumstances (i.e. Counsel forthe Debtor, Trustee, Creditors Committee or you filed a Noticeof Appearance).

• Creditors can obtain limited use ECF accounts that allow themto file proofs of claim, claim transfers and notices ofappearance.

• Make sure add your e‐mail account to your attorney’s ECFaccount so you get copies of the filing notices.

EmergencyCases:PersonalBankruptcy• What’s needed to file an emergency petition?

• 3 Page Petition;• Creditor Matrix;• Filing Fee;• Approved “Credit Counseling” certificate not more than 180 daysold; and

• Filing fee.

EmergencyCases:CorporateBankruptcy• What’s needed to file an emergency petition?

• 3 Page Petition;• Creditor Matrix;• Corporate Resolution authorizing the filing of bankruptcy;• The Top 20 unsecured creditors in a Chapter 11 case; and• Filing Fee

Resources:Software,FormsandBooks• If you plan to start filing bankruptcy cases get solidpreparation software.• BestCase Bankruptcy is an industry standard.

• Functions just like tax software.

• Forms are available on all Bankruptcy Court Websites.• Make sure you have copies of the Bankruptcy Code, Rules(Collier Pamphlet Edition from LexisNexis is best).

• I highly suggest getting a copy of the ABI Preference DefenseHandbook.

Resources:Websites• Some good websites to look for information related to bankruptcy:• Federal Courts – Bankruptcy Section: http://www.uscourts.gov/FederalCourts/Bankruptcy.aspx

• Court Locator – Federal: http://www.uscourts.gov/court_locator.aspx

• US Trustees Office: http://www.justice.gov/ust/

• Bankruptcy Code (Title 11) / Rules (FRBP) and relevant sections of Titles 18, 26 and 28: http://law.abi.org/

• My personal bankruptcy resource site: http://www.bankruptcypara.com

ThingstoTakeAway:• Deadlines are key, KNOW THEM!

• Look for form B9, it’s filed by the US Trustee’s office and has manyimportant dates (341 meeting, claim bar dates, etc…) and keyinformation.

• If you are a creditor and you know the debtor is bankrupt STOP ALLCOLLECTION EFFORTS unless the Court authorizes you to continue.

• Get your PACER and CM/ECF accounts when you DON’T need them!• Get a notice of appearance on file for your client so you don’t missanything.

• Chambers staff are your friends. Nearly all of the Chambers staff ishappy to help and answer questions so feel free to reach out tothem if you have a problem. Look for the contact information on thejurisdiction’s website.

• Finally, acknowledge when you are over your head, use yournetwork and know when to refer work out.