Articles

Written by Craig D. Robins, Esq.

What the Meeting of Creditors Is All About. With most bankruptcies, the Meeting of Creditors is the only real “event” of any importance during the entire case, and it is generally the first and only time that you and your client will have to appear in Court. As creditors rarely show up, it is primarily an opportunity for the trustee to examine the debtor.

Ideally, the actual hearing goes smoothly and routinely, lasting just a few minutes, and then you and your client are happily on your way. However, there are a myriad of things that can go wrong at the meeting much to everyone’s consternation and dismay. Fortunately, most problems can be avoided with proper planning and preparation.

Since every bankruptcy case involves a Meeting of Creditors, and since I regularly witness so many problems that other attorneys are having while waiting for my cases to be called, I will devote the year’s three remaining columns to such problems and how to prevent or handle them.

Problem No. 1: Debtor Brings Insufficient Identification. The Office of the United States Trustee has a policy that requires all debtors to identify themselves with picture identification (typically a driver’s license) and proof of correct Social Security number (typically a Social Security card). What happens if your client fails to have these forms of identification at the hearing?

Trustees should also accept the following items as acceptable photographic identification: passport, legal resident alien card, military identification, or state-issued photo identification card. Trustees should accept the following as satisfactory proof of Social Security number: pay stub, health care card, any correspondence from the Social Security Administration, or a current W-2.

If the debtor fails to have proof of Social Security number, most trustees will examine the debtor but will require counsel to immediately fax a copy of acceptable proof. If the debtor does not have picture identification, most trustees will examine the debtor, but will require the debtor to personally appear later at the trustee’s office with photo identification in hand. However, some trustees may simply refuse to examine the debtor without the satisfactory identification documents and adjourn the meeting.

In my practice, I require all clients to provide me with their driver’s license and Social Security card at the initial intake. I then make a legible photocopy and place it in the file. On numerous occasions these copies have saved the day. Also, by reviewing the debtor’s identification early on, you have time to have debtor obtain satisfactory identification if the debtor does not immediately have it available.

Problem No. 2: The Trustee Sends the Debtor Away For Failing To Read the Trustee Information Sheet. The Bankruptcy Amendment Act of 1994 imposed an obligation on all trustees to make sure that debtors know certain bankruptcy fundamentals, now codified in Code section 341(d). Trustees now meet this obligation by asking each debtor at the beginning of their examination if they read the U.S. Trustee’s Information Sheet which is posted on the wall outside the hearing room. If the debtor states that he has not yet read it, the trustee will refuse to examine the debtor. I give each client a copy of this information sheet when they retain me and I also make it a part of their petition, which I have them sign. Thus all my clients have read this in advance. Nevertheless, I prepare them for this question so that they answer it properly.

Problem No. 3: You Learn that Creditors Were Inadvertently Omitted From the Petition. A debtor will frequently approach his attorney in the minutes before the hearing to advise the attorney that there is a creditor or other information missing from the petition. Sometimes this will come out while the debtor is being examined. You can easily amend the schedules of the petition prior to the closing of the case to add any inadvertently omitted creditors. At the meeting, however, you should immediately respond to one of the trustee’s first questions to the debtor, which is, “Are there any changes or additions that you would like to make to the petition?” Advise the trustee that a creditor was inadvertently omitted and that you will be amending the petition.

Problem No. 4: There Is a Discrepancy with the Social Security Number. If there is any problem with the correctness of the Social Security number as it appears in Court documents, it will probably surface at the Meeting of Creditors. If it turns out that the number on the petition is incorrect, then counsel must prepare and file an application and order correcting the caption to reflect the correct Social Security number. Remember that now, only the last four digits of the Social Security Number can appear in any document that will become part of the Court file. In your application, indicate that you will be sending a hard copy Amended Form 21 (Proof of Social Security Number) directly to the Clerk’s office.

Problem No. 5: You Are Running Late and Will Not Make it to the Hearing on Time (Or At All). The trustee may tell the debtor to call their attorney from the pay phone at the end of the hall. A few trustees may even ask the debtor if they mind being examined without their attorney present If the case seems rather simple. Otherwise, the trustee will adjourn the case for about two weeks. In any event, you should communicate with the trustee as soon as possible.

Problem No. 6: The Debtor Has Young Children Who Are Getting Very Impatient. Most trustees (not all) are understanding and will call certain cases out of order if the situation calls for it. Consider approaching the trustee in between cases and quickly discuss the special courtesy requested.

Problem No. 7: Your Client Fails to Show Up. I observe that this is a constant problem with many attorneys. To ensure that your client appears, always remind them a few days beforehand. I also send them directions and a photograph of the building so that they do not confuse it with the other court buildings nearby. I remind them not to bring cell phones into the building which may cause the U.S. Marshal to send them back to their car. I tell them to be there at least 30 minutes before their hearing, and to sit in the hearing room. If you still don’t see your client, they may be sitting in the wrong room as there are two meeting rooms next to each other. Consider using the pay phone at the end of the hall to call your client or have your office track them down. If all else fails, ask the trustee for an adjournment and then charge your client for having to make a second appearance if the client forgot to go.

About the Author.  Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the April 2004 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Medford, Commack, Woodbury and Valley Stream. (516) 496-0800. For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.

Written by Craig D. Robins, Esq.

Be Prepared for Emergency Filings. It is bound to happen. You receive a phone call from a potential client who says that his house is being auctioned off at a foreclosure auction tomorrow. Or, a creditor is about to file a judgment lien against your client’s property. Or, a creditor is about to immediately enforce a judgment by garnishing wages, restraining a bank account, or padlocking a business. Sometimes the bankruptcy petition must be filed immediately to get the benefit of the automatic stay, but there is insufficient time to prepare the entire petition and supporting schedules. This article will provide some practical information for addressing such an emergency situation.

The Automatic Bankruptcy Stay. The bankruptcy stay becomes effective at the time the petition is filed with the Clerk of the Bankruptcy Court. If you file electronically, the time of filing is basically the time you press the final send button on your computer, which time is then indicated in the E.C.F. (Electronic Case Filing) filing receipt. If you file in person at the bankruptcy court, it is the time that the clerk clocks in your petition with the clerk’s time and date stamping machine.

Filing a Skeletal Petition. The local rules do not require that you file all of the supporting schedules at the time the case is initially filed. Fortunately, you can commence a case by filing just the two-page bankruptcy petition together with a list of creditors and their addresses either in the form of the matrix or by filing the schedules of creditors. You must also pay the filing fee.

The local rules permit you to file the remaining schedules and forms several days thereafter. The Matrix and Social Security Number Statement must be filed within 48 hours. All of the other schedules must be filed within the next 15 days, although the Chapter 7 Statement of Intention (regarding secured assets) and the Statement of Attorney’s Time Pursuant to Local Rule 2017-1 can be filed up to the date of the Meeting of Creditors. If you do not file the remaining schedules during these time periods, the Court has the right to automatically dismiss the case. If you need additional time, you can bring an application seeking additional time during the 15-day period.

As a practical tip, in emergency situations you may have no choice but to file now and amend later. Note that pursuant to Local Rule 1007-1(b), any schedules filed after the filing of the petition may need to be accompanied by an affidavit. Any amendments or late-filed schedules must also be served on the Chapter 7 or 13 trustee, as well as the United States Trustee.

Filing the Petition. The Court now requires all attorneys to file their petitions electronically by E.C.F. If you have computer problems and must file under emergency circumstances, you can still file a petition in person at the clerk’s office. If you do, you should try to convert your papers into P.D.F. files and come to the Court with the files on a 3.5 inch floppy disk. If you are unable to do this, the Clerk’s office maintains a scanner for public use and they will require you to scan your papers into P.D.F. files there. You should also bring exact change for the filing fee.

If there is a line of people waiting to file petitions, the clerk will permit you to move to the front of the line if you declare that you have a true emergency filing with only minutes to spare. Please note that the time and date stamping machine sitting on top of the Court’s “night depository” drop box which is located outside the clerk’s office does not provide an official time and date stamp; only the clerk’s office can provide an official stamp. Therefore, stamping your petition with this machine will not help. If you have a real emergency situation with very little time to spare, and you are unable to file electronically, you should call the clerk’s office for further guidance and to advise them to expect you.

Assess Whether the Situation is Actually A True Emergency. I frequently get calls from potential clients who believe their house is about to be auctioned off in a foreclosure sale. However, many of them mistakenly confuse a motion return date in the foreclosure proceeding with the actual sale date. Before rushing like a madman, take the time to verify that the client’s urgency is well-founded.

Avoid Filing for Sole Purpose of Delay. You should remember that even though a bankruptcy filing will automatically stay any foreclosure sale or judgment execution, the Bankruptcy Code prohibits debtors from filing for the sole purpose of frustrating the legitimate collection rights of creditors. You should only file a petition on behalf of a debtor if it is supported by good faith. Even under emergency situations, a debtor’s attorney is still responsible for diligently ascertaining whether there have been several prior filings which may lead to a conclusion that a new filing is abusive and being done in bad faith. A potential client calling at the last minute may have been in a prior bankruptcy case that was dismissed with a provision that the debtor cannot re-file for a period of 180 days. It is the attorney’s responsibility to determine if any prior filings prohibit a subsequent filing.

Notifying Creditors of the Filing. The reason for an emergency filing is because a particular creditor is about to enforce a judgment. Most commonly, this is a foreclosure sale. It is advisable to contact the creditor’s attorney once you have been retained to advise them that there will be an emergency filing at the last minute. In addition, you should also fax them a letter containing the filing information and verify that they received it.

Try to Avoid Emergency Filings. Whenever possible, it is most advisable to file the entire petition and all supporting schedules at the commencement of the case. Otherwise, it becomes an additional burden to file the remaining documents on time, and extra attention will certainly be required to keep everything in order. Fortunately, however, there is a mechanism for filing a skeletal petition under emergency circumstances, but the emergency should be the result of the client calling you at the last minute, rather than caused by your own procrastination.

About the Author.  Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the March 2004 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Medford, Commack, Woodbury and Valley Stream. (516) 496-0800. For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.

Written by Craig D. Robins, Esq.

The U.S. Trustee Initiative Program. The Office of the United States Trustee has been scouring cases recently, looking for indications that a debtor has the ability to make a reasonable payment to his creditors. The United States Trustee Program launched a nationwide campaign, dubbed the “Civil Enforcement Initiative,” aimed at “advancing and protecting the integrity of the bankruptcy system.” The initiative was developed when, after years of proposed legislation to stop alleged bankruptcy abuse, none of the proposed bankruptcy reforms became law. Thus, the U.S. Trustee’s Office decided to adopt and implement some of the legislative policy themselves.

It appears that the initiative will focus on three key problem areas: ( i) debtors who abuse the bankruptcy system and engage in bankruptcy fraud, by loading up on credit card debt or orchestrating a bust-out; ( ii) debtors who have the ability to repay a reasonable portion of their debts; and (iii) debtors (or their attorneys) who file sloppy schedules, or false and incorrect schedules; and attorneys who provide poor legal representation or charge excessive attorney’s fees.

You can therefore expect to see a heightened amount of activity out of our district U.S. Trustee’s office investigating cases to see if debtors have truly filed in “good faith.” The following are my observations of this practice.

“Substantial Abuse” – Bankruptcy Code Section 707(b). The U.S. Trustee frequently relies on this section and alleges that a debtor is substantially abusing the bankruptcy system when it believes a debtor has not filed in good faith for one of the above reasons.

The Initiative Program Has Become the U.S. Trustee’s Foremost Priority. The Office of the U.S. Trustee is a division of the Department of Justice and has responsibility for overseeing all bankruptcy cases and trustees. Previously, a major portion of that office’s time was devoted to overseeing the administration of Chapter 11 business cases. However, Chapter 11 filings have decreased markedly over the past few years, apparently resulting in the U.S. Trustee’s office shifting their priorities from business cases to consumer cases.

Written by Craig D. Robins, Esq.

What Bankruptcy Reform Is About. During the past six years, bankruptcy filings more than doubled to about 1.7 million filings last year. The bankruptcy reform movement, spearheaded by the banking and credit card industries, intensified at the height of this increase when Congress apparently decided that it was time to enact new, more stringent bankruptcy laws designed to make it more difficult for consumers to file for Chapter 7 relief. The reform movement has run a very rocky course ever since.

Bankruptcy reformists, who are generally conservative, pro-business Republicans, are seeking to persuade Congress that the current bankruptcy laws have become too lenient and that a high percentage of filers are abusing the bankruptcy system because they have the ability to repay some of their debts.

In general, the bankruptcy reform movement seeks to prevent a large number of consumers from filing for Chapter 7 relief, which currently enables them to eliminate their credit card debts in full. The proposed new laws require that many of these consumers file a Chapter 13 payment plan bankruptcy instead, forcing debtors to pay off a portion of their debts over a period of time. If passed, the provisions of the new reform legislation will result in the most sweeping overhaul of the Bankruptcy Code in more than twenty years. President George W. Bush has indicated a willingness to immediately sign any new bankruptcy legislation that is placed on his desk.

How Consumer Bankruptcy Would Be Affected If Reform Legislation is Enacted. The essence of bankruptcy reform is to require consumers to meet certain minimum standards to qualify for Chapter 7 filing. For example, a consumer debtor’s income would need to be less than the state’s median income in order to qualify for Chapter 7. Also, the new legislation would disqualify consumers from Chapter 7 eligibility if they have the ability to pay at least $10,000 or 25 percent of their debts, whichever is greater, within three to five years. Another prerequisite for filing is that the consumer get credit counseling from an approved nonprofit organization. In addition, the new laws will make more consumer credit debts nondischargeable. Finally, the proposed legislation seeks to hold debtors’ attorneys liable for their clients’ conduct. Debtors’ attorneys will become responsible for conducting a reasonable investigation into the circumstances giving rise to the filing of the bankruptcy.

Opponents of the bill have argued that it does nothing to end the abuses of banks and credit card companies that flood the mail with solicitations for easy credit and indiscriminately increase lines of credit without conducting due diligence to ascertain if the customer can afford it. Furthermore, some families deemed too rich to qualify for Chapter 7 could be too poor to afford the necessary repayment schedule in a Chapter 13. Credit card companies have also been making it too easy for college students to begin racking up debt before they even graduate. The law also imposes additional obligations on those seeking to file Chapter 13. Virtually all consumer bankruptcy attorneys and trustees are against bankruptcy reform, as are most bankruptcy judges.

Written by Craig D. Robins, Esq.

The Bankruptcy Reform Movement. For each of the past five years, there has been a movement in Congress to toughen the existing bankruptcy laws. During this time, bankruptcy filings increased from 718,000 in 1990 to an average of about 1,400,000 filings per year in each year since 1998. The bankruptcy reform movement intensified at the height of this increase in1998 when Congress apparently decided that it was time to enact new, more stringent bankruptcy laws designed to make it more difficult for consumers to file for Chapter 7 relief. The reform movement has run a very rocky course ever since.

The push for bankruptcy reform has been fueled by the banking and credit card industries who have pumped tens of millions of dollars into lobbying efforts in an effort to persuade Congress that the current bankruptcy laws had become too lenient and that a high percentage of filers were abusing the bankruptcy system because they had the ability to repay some of their debts.

In general, the bankruptcy reform movement seeks to prevent a large number of consumers from filing for Chapter 7 relief, which currently enables them to eliminate their credit card debts in full. The proposed new laws require that many of these consumers file a Chapter 13 payment plan bankruptcy instead, forcing debtors to pay off a portion of their debts over a period of time. If passed, the provisions of the new reform legislation will result in the most sweeping overhaul of the Bankruptcy Code in more than twenty years.

What Reform Means to Consumer Bankruptcy. The essence of bankruptcy reform is to require consumers to meet certain minimum standards to qualify for Chapter 7 filing. For example, a consumer debtor’s income would need to be less than the state’s median income in order to qualify for Chapter 7. Also, the new legislation would disqualify consumers from Chapter 7 eligibility if they have the ability to pay at least $10,000 or 25 percent of their debts, whichever is greater, within three to five years. Another prerequisite for filing is that the consumer get credit counseling from an approved nonprofit organization. In addition, the new laws will make more consumer credit debts nondischargeable. Finally, the proposed legislation seeks to hold debtors’ attorneys liable for their clients’ conduct. Debtors’ attorneys will become responsible for conducting a reasonable investigation into the circumstances giving rise to the filing of the bankruptcy.

Opponents of the bill have argued that it does nothing to end the abuses of banks and credit card companies that flood the mail with solicitations for easy credit and indiscriminately increase lines of credit without conducting due diligence to ascertain if the customer can afford it. Furthermore, some families deemed too rich to qualify for Chapter 7 could be too poor to afford the necessary repayment schedule in a Chapter 13. Credit card companies have also been making it too easy for college students to begin racking up debt before they even graduate. The law also imposes additional obligations on those seeking to file Chapter 13. Virtually all consumer bankruptcy attorneys and trustees are against bankruptcy reform, as are most bankruptcy judges.

Reform Efforts During the Clinton Era. President Clinton, during his administration in the 1990’s through 2000, made it clear that he was not enthusiastic about any major bankruptcy overhaul and declared that he would be hesitant to sign any new legislation.

In 1999, the House passed a bankruptcy amendment bill. The Senate then passed this bill the following year. In 2000, after both houses of Congress overwhelmingly passed the bankruptcy reform bill, Clinton vetoed it on grounds that it would hurt ordinary people and working families who fell on hard times. He did this during his final weeks in office. Generally, Republicans are solidly in favor of bankruptcy reform, while Democrats are somewhat split.

Written by Craig D. Robins, Esq.

Significant Changes in 2003. During the past year, there have been a significant number of changes in the way consumer bankruptcy practitioners practice. This article will highlight some of the changes that have come about over the past year. These include possible bankruptcy reform, the new “initiative” of the Office of the United States Trustee to aggressively audit and investigate cases, the computerization of the bankruptcy court, and new forms and filing fees.

Legislative Status. Congress has vigorously tried to overhaul the Bankruptcy Code for each of the last five years. This reform movement has been fueled by banking and credit card industries who have pumped tens of millions of dollars into lobbying efforts. However, as a result of political squabbles and power shifts, changing administrations, shifting Congressional priorities towards national security issues after September 11th, and bankruptcy law amendments tied to volatile abortion issues, Congress has been most unsuccessful in getting bankruptcy reform signed into law.

Enactment is still possible this year. In the Spring of 2003, the House quickly passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2003. This was the seventh time in recent years that the House passed an omnibus bankruptcy reform measure. Some Senators have announced their determination to focus on the bill before the end of this year’s session, although as of November 25, 2003, the House filed the 2004 Omnibus Appropriations Bill, apparently without the Bankruptcy Reform Act. If Congress adjourns for the end of the year without enacting the new legislation, informed sources expect to see the reform bill come back immediately in 2004.

When and if the Bankruptcy Code is overhauled, it will drastically change consumer bankruptcy law and practice. These changes will be addressed in a future article.

The New, Paperless Bankruptcy Court. Bankruptcy courts around the country have been moving rapidly to implement procedures for electronic filing and computerization of all records. Prior to last year, all bankruptcy attorneys were accustomed to filing their petitions by personally delivering them to the court clerk’s office. However, in January 2003, the Court began pushing attorneys to file their petitions electronically through Electronic Case Filing (“E.C.F.”) over the internet.