Articles

Written by Craig D. Robins, Esq.

We have now seen several straight years of rapid real estate appreciation on Long Island. With the current real estate boom, most home prices have doubled in the past six years. Buoyed by low interest rates and a hot real estate market, the mortgage industry has become incredibly competitive and has relaxed many previous requirements that have acted as impediments to former bankruptcy debtors seeking to obtain a new mortgage or refinance an existing one. You can help your prior bankruptcy client purchase their first home, or take advantage of increased equity in their existing home by helping them with refinancing.

Homeowners with Bankruptcy Histories Are Often Able to Get Mortgages, Sometimes at Respectable Rates. With over a million and a half consumers filing bankruptcies each year, many mortgage companies have tapped into the lucrative market of offering mortgages to those who recently sought Chapter 7 bankruptcy protection, and even those still making payments in open Chapter 13 cases. Just a few years ago, debtors seeking to obtain mortgages under such circumstances found it difficult, if not impossible. Today, however, mortgage lenders actively solicit the profitable sub-prime market of recent home-owner debtors. A “sub-prime” mortgage is one where the borrower has a blemished credit history. Lenders, in their drive to maximize profits, have actually become quite lenient with the sub-prime market and have relaxed some previous requirements. Some lenders even specialize in providing financing to recent debtors. A former Chapter 7 filer can qualify for a mortgage one year after the bankruptcy is over.

Mortgage Companies Offer Various Mortgage Programs Depending on Financial History. Although the borrower may not qualify for the best rates (known as “A” paper) if there was a recent bankruptcy filing, they may nevertheless qualify for sub-prime rates, (known as “B, “C” or “D” paper). Lenders with programs for recent debtors will typically offer something like a two-year hybrid adjustable rate mortgage in which the mortgagor has the option of converting to a more conventional mortgage with better interest rates after a two year period of time, provided that the borrower makes timely payments and keeps his new credit history clean. Even former debtors who developed additional negative credit information after their bankruptcy was concluded can qualify for financing if they have a healthy loan-to-value ratio of 70% or less.

Debtors May Become Eligible for “A” Paper Mortgages Sooner Than They Think. According to some published guidelines, a former Chapter 7 debtor may be eligible for the best rate FHA mortgage just two years after the discharge if the borrower has re-established good credit or has not re-established any new credit. If more than two years have elapsed since the Chapter 7 bankruptcy was discharged and the borrower is applying for a VA mortgage, then the bankruptcy will not even be considered. If the borrower is applying for a conventional mortgage, then they will be considered for the best rate after four years, although some lenders will consider them after three years, if there is a good reason. For Chapter 13 debtors, the provisions are even better for FHA and VA mortgages. In such instances, debtors need only wait 12 months from the date of filing and may even be in an open case.

Debtors Should Consider Consulting a Mortgage Broker. Ordinarily, I steer my real estate clients directly to banks. However, when it comes to borrowers who have blemished credit histories or previous bankruptcies, I sometimes suggest that they consult with a mortgage broker, who will have access to many potential lenders, and who should be keenly familiar with the various sub-prime financing issues. As a variety of lenders offer different programs to borrowers with prior bankruptcies, a mortgage broker catering to this customer base should have a good familiarity with what program might be best for a particular borrower. Savvy brokers should also be able to give tips to clients in advance about improving chances for qualifying.

Chapter 13 Debtors in Open Cases Who Seek to Refinance Must Either Obtain a Court Order or Withdraw Their Case. If the borrower is still a debtor in a pending Chapter 13 case, refinancing a home will require seeking court approval of the refinance by bringing a motion. Consider discussing this issue with the Chapter 13 trustee if refinancing becomes a possibility. Alternatively, you may consider withdrawing the debtor’s petition, although you would only want to do this if the conditional mortgage commitment permits it, and the debtor can handle the unsecured debt after the case is dismissed. Also remember that the debtor loses the protection of the bankruptcy stay once the case is dismissed. Therefore, you should only withdraw a case if it appears absolute that all closing conditions have been met, and the closing will definitely occur.

Consumers Should be Cautious with Adjustable Rate Mortgages. Previous bankruptcy filers may have no choice other than obtaining an adjustable rate mortgage hybrid. At some point, the monthly payments for all adjustable rate mortgages increase. As your client previously got into a financial bind resulting in the prior bankruptcy filing, it is important that you advise them about preparing realistic future budget projections so that they do not end up in a future financial bind when the rate increases.

Many Abstract Companies Do Not Understand How Prior Bankruptcies Discharge Debts. Several times a year I deal with a lender or abstract company who insists, incorrectly, that certain discharged debts actually remain for various reasons. This usually happens when the client refinances without the aid of legal representation or uses an attorney who is unfamiliar with bankruptcy law, and I get a frantic call from the client while they are sitting at a closing table. In-house title examiners at abstract companies are notorious for their lack of knowledge about the implications of a bankruptcy filing. You should persuade former bankruptcy clients that it is advisable to utilize counsel for all real estate financing transactions. Then, if the lender’s abstract company raises a bankruptcy-related problem, insist on speaking directly with underwriting title company’s clearance department or legal department to clear up any bankruptcy-related title exceptions.

Practice Pointer for Helping Debtors with Mortgages and Re-financing: Be aware that financing is often available, advise your client of the options, and suggest that your client retains legal counsel for real estate transactions.

About the Author.  Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a frequent columnist for the Attorney of Nassau, published in Nassau County New York for members of the bar. This article appeared in the December 2004 issue of the Attorney of Nassau. 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.

Motions to lift the stay must comply with the various rules.     The most common type of motion in consumer bankruptcy practice is a motion to lift the stay. Such motions are typically brought by a secured creditor, such as a mortgagee or auto lender, because the debtor has fallen behind with his or her payment obligations.

Almost all creditors’ attorneys now bring “lift-stay” motions by filing and serving a “notice of presentment of a proposed order lifting the stay,” as this type of application alleviates the need to make a court appearance unless opposition is filed. However, the judges in this district have strict chamber’s rules pertaining to how such applications can be brought, which are in addition to Bankruptcy Code and local rule requirements. The various court rules seek to protect a debtor by requiring that various due process requirements be satisfactorily addressed.

Lift-stay motions often contain fatal mistakes.    Most lift-stay motions are prepared by secretaries and paralegals. A large percentage of these applications are not sufficiently reviewed by supervising attorneys and do not meet all of the court’s requirements. Consequently, it is often possible to spot a fatal procedural flaw, which, if brought to the attention of the court, could end up buying your client more time in their home. A former law clerk estimated that as many as one-fourth of all lift-stay motions are initially defective.

Reviewing a lift-stay motion for errors can help your client.    Even in situations where there is a low likelihood of the debtor ultimately saving the subject premises, you may be able to extend the debtor’s time in the house by bringing these fatal flaws to the attention of the court. No matter how solid a creditor’s position is, the creditor still has an absolute obligation to make sure that its motion papers are properly prepared and conform to the Bankruptcy Code as well as local rules and chamber’s rules. I have focused the following discussion primarily on lift-stay motions brought by mortgagees (as opposed to other secured creditors like car loan lenders), as efforts undertaken by a foreclosing mortgagee will probably affect your client the most. However, the same principals apply to all lift-stay motions.

Were the motion papers properly served?     Make sure that service of the motion was proper. The moving party must file with the court an affidavit of service or certificate of mailing indicating that all proper parties were served. This includes the debtor, debtor’s counsel, and the bankruptcy trustee, all of whom are indispensable parties who must be joined. In addition, notices of presentment must have a time period of at least 20 days from the date of service to the date of presentment.

Did the motion include the necessary supporting documents?   A motion to lift the stay must include a copy of the mortgage note and mortgage, and these documents must show the date of recording. In addition, the debtor must be a party to the note or mortgage. All exhibits must be legible. This is important as exhibits are often generated from microfiche where the legibility may be poor.

Did the moving party establish standing?   Mortgages are frequently assigned. If the moving creditor is not the same entity as the creditor set forth in the mortgage and note, then there must be a recital in the motion papers explaining that either the mortgage was assigned or that the movant is a servicing agent. If the mortgage was assigned, a copy of the recorded instrument of assignment must be attached to the motion papers. If the movant is the servicing agent, then the motion papers must contain a copy of the servicing agreement or power of attorney authorizing the servicing agent to take legal action to enforce the mortgage.

Is there a supporting affidavit from the loan representative?   It is elementary law that all motions must be supported by an affidavit from someone who has actual knowledge of the relevant facts. Accordingly, there must be a notarized and executed affidavit from a loan representative. This affidavit must set forth the post-petition payment defaults and the total amount of the mortgage indebtedness. In addition, the affidavit must either indicate that the stay should be lifted for cause, in which event the specific cause should be set-forth, or the stay should be lifted because the mortgage indebtedness exceeds the value of the property. Finally, the affidavit must correctly identify the address of the subject property.

Has the mortgagee properly demonstrated the value of the property?    When the mortgagee asserts that the ground for lifting the stay is that the mortgage indebtedness exceeds the value of the property, then the mortgagee must include a valuation report such as an appraisal or broker’s price opinion letter as an exhibit to the motion. The valuation report must be current, which generally means that it must have been made within the preceding 90 days, or within 90 days of the petition date. Anything older than that can be considered obsolete. The valuation report must be signed and must also contain language in the form of an affidavit that the person who prepared the report attests that he or she is disinterested and is not a broker or selling agent under a listing agreement and does not anticipate acting as the broker or listing agent for any party in interest. The person who signs the valuation report must include a statement of his or her professional qualifications. The report must contain a suitable description of comparable values of properties that have been recently sold. If the moving party is taking the position that the mortgagee lacks adequate protection, then the moving papers cannot contain any inconsistent statements which indicate that the mortgagee is fully secured. In lieu of providing a valuation report, the mortgagee can rely on the debtor’s admission of the value of the property as indicated in the debtor’s bankruptcy schedules. In such an event, the creditor must include a legible copy of the debtor’s schedule “A” or “D” as an exhibit.

Is the motion seeking proper relief?   Generally, a motion to lift the stay, when brought by notice of presentment, may not seek any type of equitable relief other than an unadorned vacating or modifying of the stay to permit the mortgagee to enforce its state law remedies. Accordingly, a proposed order cannot seek payment of costs and attorney’s fees as this creates an inconsistency between section 362 (a)(d)(2) and section 506 (b).

What happens if you demonstrate a fatal error?   The mortgagee must usually start the entire motion process all over again. This means that the mortgagee must take the necessary time to correct and amend its motion. The mortgagee must then re-serve all necessary parties, and begin the twenty-day time period all over again. This can get your client an extra four to six weeks or more in their home. Keep in mind that this article focused on utilizing procedural errors as a defense. There are numerous substantive issues that you can raise as well.

Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a frequent columnist for the Nassau Lawyer, the official publication of the Nassau County Bar Association in New York. This article appeared in the November 2004 issue of the Nassau 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, Patchogue, Mastic, Coram 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.

With our turbulent economy, even established businesses may find it difficult to cope with their ever increasing trade debt, pay their taxes, and deal with secured creditors. An option available to a financially troubled company is to seek protection afforded by a bankruptcy reorganization. Chapter 11 enables a business to obtain protection from its creditors while it attempts to reorganize its debts and pay them off, at least partially, over a period of time. Chapter 11 relief is available to virtually any business whether it is a sole proprietorship, partnership or corporation.

Scope of This Article. Many of my previous articles focused on consumer bankruptcy practice and procedure. Chapter 11 business bankruptcy, however, is infinitely more complex than consumer bankruptcy, and is not recommended for the casual bankruptcy practitioner.

Competent representation of a business in reorganization requires a thorough knowledge of the entire bankruptcy code and local rules, together with a keen understanding of local chapter 11 practice and procedure. Therefore, this article will provide an overview of what chapter 11 is about, to better enable you to adequately advise your small business clients as to whether chapter 11 should be considered as a viable option, and if so, what may be expected. In the event chapter 11 looks like a distinct possibility for your client, consider referring your client to a bankruptcy attorney. I will present this article in a three-part series.

Comparison With Other Chapters. Consumers utilize chapter 7 to eliminate most debts, and they generally use chapter 13 to keep real estate and stop foreclosure while paying off their debts with a payment plan. Individuals who ordinarily would file chapter 13, but are prevented from doing so because they have more than $290,525 in unsecured debt or more than $871,550 in secured debt, can utilize chapter 11. Corporations may file chapter 7 as a means of orderly dissolving a debt-ridden corporation that does not want to continue operating. Any significant assets of a corporate chapter 7 debtor are liquidated by a trustee. Corporations may not file chapter 13.

Situations Where Chapter 11 Is Beneficial. Unfortunately, most chapter 11 proceedings are filed only after a company has gotten so seriously into debt that it can barely continue functioning, or the company may be facing a creditor who is threatening to take drastic collection action. In advising a financially troubled company, you should explain that bankruptcy considerations should not be put off too long while the principals of the company hope that business will turn around. Instead, a bankruptcy filing should be taken as a more preventative measure at the early signs of financial difficulty, rather than as an emergency measure done under extreme pressure.

Perhaps the most common situation in which a company is forced to quickly file chapter 11 is when numerous trade creditors have already begun significant collection activity, which may include the initiation of law suits or the enforcement of judgments. Another common emergency situation is when one of the taxing authorities threatens to levy a bank account or padlock the door. Pressure from secured creditors to repossess key equipment, or from a mortgagee to foreclose business property, are also reasons to seek immediate chapter 11 protection. Sometimes a bankruptcy reorganization may be used for less apparent reasons, such as to terminate a highly unprofitable lease or contract.

The Chapter 11 Petition. The petition is essentially similar to the official form used in chapter 7 cases. Thus, the debtor must list all of its creditors and amount of debts; list all assets and property; set forth a statement of income and expenses; and disclose pertinent financial information. In addition, there is a schedule of the “top twenty” largest debts owed to non-insider creditors; an exhibit setting forth whether the shares of stock are registered with the S.E.C., and who the majority shareholders are; a schedule of all equity shareholders; and a corporate resolution authorizing the retention of the bankruptcy attorney and the filing of the chapter 11 proceeding.

In addition, local rules require an affidavit from an officer of the debtor setting forth the estimated weekly payroll and operating expenses for the thirty day period following the filing of the petition, the estimated gain or loss in the operation of the business during this period, and information that will fully inform the court as to the desirability of the debtor continuing business.

Emergency Filings. A chapter 11 petition can be filed in an emergency by filing a skeletal petition. The remaining documents must be filed within a period of two to fifteen days, depending on the document. Chapter 11 petitions must be filed electronically.

The Chapter 11 Attorney. An attorney representing a chapter 11 debtor must be authorized by the court to represent the debtor. In addition, once the petition is filed, the attorney is not entitled to earn any legal fees until the court issues a written order authorizing the attorney to represent the debtor.

For this reason, the bankruptcy attorney will prepare a “first day” application and order requesting approval to be retained by the debtor. The application, which is submitted on the first day of the bankruptcy, must set forth the attorney’s previous chapter 11 experience and qualifications, as well as the attorney’s hourly rates. In addition, the attorney must submit an affirmation of disinterest indicating that he or she represents no interest adverse to the debtor or the bankruptcy estate.

Legal Fees. Because of the extensive amount of work involved in chapter 11 proceedings, legal fees tend to be rather substantial. Virtually all chapter 11 attorneys are compensated on an hourly fee basis. The attorney will usually request a sizable retainer that is paid prior to filing. The amount may depend on the size and volume of the debtor’s business, the number of creditors and amount of debt owed, the attitude and aggressiveness of the creditors, and the extent of issues requiring litigation.

A typical retainer for a small business reorganization is usually $10,000 and up. Most bankruptcy attorneys will also require the principals of the business to personally guarantee the legal fee.

One of the reasons that a large retainer is necessary is because the attorney may not receive any additional legal fees unless authorized by the court. The bankruptcy rules limit the number of fee applications the attorney can make. Thus, once the petition is filed, the attorney will not see any additional legal fees for many months, if at all.

The bankruptcy court takes a very active role in monitoring the legal fees paid by the debtor. Therefore, the fee application itself is a rather involved process requiring a court hearing. The court will only compensate attorneys for necessary legal work, and then, only in an amount which is reasonable. Scrupulous time records are necessary to substantiate the legal work performed. Many attorneys have been criticized by the court for failing to keep proper time records and have suffered accordingly. Some judges are particularly notorious for imposing elaborate record-keeping requirements on counsel.

Court Fees. The current filing fee for chapter 11 is $839. In addition, there are quarterly fees payable to the United States Trustee until the case is confirmed, based on the amount of the debtor’s disbursements.

The Automatic Stay. As with all bankruptcies, an automatic stay pursuant to Bankruptcy Code section 362 goes into effect immediately upon filing the petition. The automatic stay acts as an injunction to stop all foreclosures, collection actions, civil litigation, and creditor harassment. The stay applies to all creditors including taxing authorities.

Moratorium on Paying Debts. The debtor does not have to pay most pre-petition debts for a period of several months, until the payment plan is confirmed. However, the debtor may have to pay something towards certain debts, such as rent or arrears on secured debt, under certain circumstances. This breathing time is essential to permitting the debtor to concentrate on becoming a more profitable entity.

First Day Orders. A debtor must obtain court permission to retain any professionals (such as the bankruptcy attorney), or engage in certain conduct. Since such court permission is necessary immediately, the bankruptcy attorney will prepare a number of applications and orders which are immediately presented to the designated judge on the day the bankruptcy is filed. These urgently needed court authorizations are referred to as first day orders. Although such relief is requested ex-parte, a judge will frequently direct counsel to serve all creditors, or certain parties in interest with the application and order, and will permit these parties to later oppose a continuation of the requested relief at a hearing.

Other situations that may require first day orders include applications to pay pre-petition wages, use cash collateral, continue existing bank accounts, employ an accountant, or sell assets outside the ordinary scope of business.

How Creditors Are Notified. About three days after the case is commenced, the court will mail all creditors an official notice of filing which will also set forth the judge, court, name of debtor’s attorney, and date for the first meeting of creditors. In addition, the court also sends a blank proof of claim form which the creditor may use to file a claim.

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 November 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.

We are all aware of people who cheat on their taxes, and crooked accountants who sometimes assist them. Unfortunately there are a few bad apples in the bankruptcy arena as well: debtors who lie in their bankruptcy proceedings and attorneys who may help them. Authorities estimate that ten percent of all bankruptcy cases contain some element of fraud.

The Bankruptcy Code imposes an affirmative duty on a debtor to truthfully list all assets and other information required in the petition. This must be done under the federal penalty of perjury. Not only can dishonesty in connection with a bankruptcy case result in the denial of a discharge pursuant to Bankruptcy Code section 727, but it can also land the guilty party in the jail.

Increased Investigations of Bankruptcy Crimes. Now that the U.S. Trustee’s office has embarked upon a quest to sniff out bankruptcy abuse and bankruptcy fraud through its Civil Enforcement Initiative, it appears that an increasing number of those individuals who commit bankruptcy crime are being caught. The U.S. Trustee, which is a division of the Department of Justice (DOJ) also now has a Criminal Enforcement Unit.

Criminal procedure aspects of bankruptcy fraud are set out in Title 18 of the United States Code. Section 152 of that title states that whoever knowingly and fraudulently conceals assets, makes false oaths, presents false claims, receives property with the intent of defeating the provisions of the Bankruptcy Code, destroys records of the debtor, or withholds documents from a trustee, shall be imprisoned for up to five years or fined up to $5,000. The same statute also imposes liability upon any agent or officer of any person or corporation involved in such fraud.

Section 155 of that title states that a debtor’s attorney who knowingly and fraudulently enters into an agreement with another attorney for the purpose of fixing the fees to be paid to any attorney for services rendered, with such fees to be paid from the bankruptcy estate, shall be imprisoned for up to a year or fined up to $5,000.

Another part of that title, section 3057, imposes a congressional directive to the district offices of the U.S. Attorney to become more active in the prosecution of bankruptcy fraud cases. Bankruptcy fraud can involve other federal statutes as well.

Although bankruptcy fraud is committed by a very limited few, it nevertheless has at times cast a negative reflection upon everyone who files for bankruptcy relief.

Some lawyers might not recognize criminal activity that the DOJ now targets for investigation. Examples include filing for bankruptcy using an incorrect Social Security number, and receiving payments from a bankruptcy debtor that were not approved by the bankruptcy court. In both of these examples, DOJ investigations led to convictions and jail time. The decision to prosecute is based on the level of loss or injury, the existence of sufficient evidence, and the clarity of the law. In some cases, civil penalties for fraud are deemed sufficient to punish and deter.

The DOJ often issues press releases about recent indictments and convictions for bankruptcy fraud. Consumer Bankruptcy News, an excellent periodical for practitioners, now regularly reports news of bankruptcy crime. The following cases, which were gleaned from recent issues and press releases, highlight some interesting bankruptcy crimes involving not only debtors, but their attorneys as well.

Colorado attorney suspended because he secured his legal fees by taking liens against client’s homes. Conrad Kindsfather not only secured his unpaid legal fees by having his bankruptcy clients give him a mortgage on their property, he then failed to disclose his interest in the property in the bankruptcy proceeding. Practical Tip: If you become a secured creditor of the debtor, you have a conflict of interest in a bankruptcy proceeding and may not represent the debtor. Also, and this probably goes without saying, do not prepare a petition and intentionally conceal material information, as this is a deceptive practice.

Identification Theft in Bankruptcy Proceeding Lands Defendant in Prison. Rodney Jones obtained a fraudulent identification card and used it to impersonate someone by filing a bankruptcy petition in that person’s name in order to stop a foreclosure proceeding. Practical Tip: Always ask for and check your client’s driver’s license and social security card at the time they retain you, and make sure your client is who he or she appears to be.

Debtor lied about assets owned by his corporation and was convicted for bankruptcy fraud. Duncan Edwards filed a Chapter 13 petition and listed his corporation as an asset, but indicated that it had only nominal value. It turned out that the corporation owned stock options in another corporation. Edwards later converted his case to Chapter 7 and did disclose the stock options, but testified that they were worthless. A few days later the trustee learned that the debtor had sold the options two weeks prior to the hearing for $445,000. Needless to say, Edwards will be serving time. Practical Tip: Try to make sure your client is realistic about the value of scheduled assets. Remind your client that pulling a fast one and trying to cheat in the bankruptcy system can result in a felony conviction.

Attorney and client are both indicted for scheme to defraud creditors. Arnold Stuart retained Gregory Lyons, Esq. The U.S. Attorney alleged that they schemed to prevent certain creditors from obtaining and recording a judgment lien on Stewart’s property. While Stewart was in bankruptcy, the men allegedly entered into a coal-mining investment encumbering the debtor’s property, but never disclosed that fact to the creditors, the bankruptcy court or the trustee. Instead, they led creditors to believe they were following the order of the bankruptcy court to sell the land and to pay proceeds to the creditors, according to the investigators. When it appeared that some creditors had learned of the scheme, the defendants attempted to conceal the fraud by dismissing the bankruptcy case; however, they were caught. Practical Tip: Practitioners should be aware that there may be criminal law consequences based on advice given and actions taken in the planning and conduct of a bankruptcy case.

Bankruptcy crime seminar in November. Stephanie Wickouski is one of the country’s leading experts on bankruptcy crime. She is the author of the leading treatise on that subject. On November 17, 2004, she will be joined by Southern District Bankruptcy Judge Cornelius Blackshear and Deidre Martini, U.S. Trustee for Region 2, for a roundtable discussion of bankruptcy crimes, their genus and aftermath. The panel will explore the effects that these crimes have on the economy and on confidence in the economic system. The seminar, which will be at the Milleridge Cottage in Jericho, is being sponsored by the Long Island Chapter of the Turnaround Management Association. For information, contact Chapter President Jeff Wurst at (516) 663-6535.

 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 October 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 Old Laws Are Now History. If you have bankruptcy petitions that you have not yet filed, you are out of luck. The new laws that all consumer bankruptcy attorneys have dreaded for quite some time are now upon us. On October 17, 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), this country’s most sweeping bankruptcy legislation in decades, became effective. During the past month, the Bankruptcy Court saw a record number of filings by debtors trying to get in under the old laws.

The New Laws Are Extremely Complex. To prepare for the rough road ahead in handling BAPCPA, I recently attended a symposium and workshop in Orlando, Florida sponsored by the National Association of Consumer Bankruptcy Attorneys. BAPCPA contains so many new and complex provisions that several days of morning to evening seminars and workshops seemed to barely skim the surface. The Nassau and Suffolk Bar Associations both offered recent one-evening C.L.E. seminars. However, they merely provided an overview of just a few of the new provisions. The CLE’s were nevertheless very informative as our local judges and trustees gave their input as to how they were planning to address the changeover.

The days of the general practitioner grabbing a Blumberg bankruptcy form are over. In order to effectively represent your clients (and avoid being sanctioned), taking a thorough course on the new laws is an absolute prerequisite. The National Association of Consumer Bankruptcy Attorneys announced that it will be offering some additional symposiums in the near future. Over 1,500 attorneys attended the one in Orlando. Before that, 1,700 attorneys attended their symposium in Chicago. Various organizations will certainly be offering full-day seminars in the near future.

Electronic Filing and Computer Petition Preparation Are Now Mandatory. With the advent of the new laws, combined with the local court requirement that attorneys file petitions electronically, it is inconceivable that a practitioner can prepare a bankruptcy petition without using a computer together with specialized and current bankruptcy petition preparation software. If you plan to practice consumer bankruptcy, then you must make this investment. All of the leading petition preparation software publishers have rushed to prepare updated versions of their software. The software will be especially important in assisting you with the numerous calculations required by the means test. The software should also include all necessary databases regarding the IRS standardized expense tables and the state median income.

The Bankruptcy Law Has Changed Considerably. Discussing the provisions of the new law could easily fill a thousand of these columns. The means test is a major component. Its ostensible purpose is to determine, after a series of calculations, whether a debtor who seeks to file for Chapter 7, would be abusing the bankruptcy laws if that debtor could afford to pay something back to his creditors. In addition to this totally new procedure, there are new provisions for determining property of the estate and calculating exemptions. There are new procedures for valuing assets. There are new laws concerning the automatic stay, which will not be so automatic in some instances. Treatment of secured claims has changed and debtors will likely have to reaffirm all secured debts, a procedure that had been mostly done away with in this jurisdiction during the past decade. Matrimonial obligations are now treated totally differently in a way to designed to protect the innocent spouse. There are new exceptions to discharge. There are also greater limitations upon re-filing after a previous petition has been filed. And don’t forget, debtors must receive credit counseling as a condition to filing for bankruptcy relief, and budget counseling as a condition to receiving a discharge, and you will certainly need to assist them with this.

You Must Read the New Laws. Let me repeat that. You must read the new laws. If you file a petition after October 17, 2005 without having a thorough understanding of the new laws, you will be inviting sanctions, embarrassment and malpractice suits. Although the new laws are several hundred pages, you must read them and you must understand them. At the bankruptcy CLE at the Suffolk Bar Association earlier this month, one of the speakers suggested that all attorneys read the new section 521, concerning debtor’s duties, at least ten times.

The Most Significant Change is the Means Test: A Potential Nightmare. The essence of the new law is the means test, a six-page, fifty-five line item, computational form that makes the most complicated tax return form look like a walk in the park. This form alone will intimidate the most seasoned practitioner and will likely have the effect, intended or not, of preventing many people from filing for bankruptcy for various reasons. If you fail to properly prepare the means test, you will be looking at sanctions. Even though your software will assist you with the computations, you must still understand the appropriate figures and definitions that the new law requires.

Attorneys Now Face Tough New Responsibilities and Liabilities. At the CLE at the Suffolk Bar Association earlier this month, speaker Sal LaMonica suggested that “as a result of this law, you have to look at each new client as a potential liability.” The number one concern that most consumer bankruptcy attorneys probably have about the new law is that it imposes a tremendous responsibility and potential liability on the attorney.

The attorney must now conduct a reasonable investigation to verify the accuracy of the information provided by the client. In addition, the attorney must determine that the petition and all other information provided to the court and the trustee is well-grounded in fact. Finally, the attorney must certify that a Chapter 7 petition is not an abusive filing. At the same CLE, Judge Cyganowski suggested that a debtor’s attorney will now have the obligation to examine every bill and every utility statement to ascertain the accuracy of the debtor’s budget.

The penalties for violating any of the new liability provisions can be strict and can include fee disgorgement, actual damages, attorney’s fees and costs, and possible civil penalties. These new responsibilities, combined with attorney liability, will likely cause many lawyers to leave the consumer bankruptcy practice, and will result in an increase in fees charged by those who stay.

New Mandatory Disclosures and Advertising. As a debtor’s attorney, you are now required to make numerous disclosures about the nature of legal services offered, the consequences of filing for bankruptcy, and the obligation to provide truthful information in the petition, with such disclosures being made no later than three days after you first offer legal services to the client. Failure to do so can mean additional sanctions.

If you advertise bankruptcy legal services you must now identify yourself as a “Debt Relief Agency” in any advertisement and contain a disclosure essentially stating that you help people file for bankruptcy.

Revising Your Legal Fees. As a result of the additional amount of time that you will need to spend with each bankruptcy matter, combined with the added potential attorney liability, many attorneys are anticipating that they will end up doubling their existing fees. Legal fees of $2,000 to $3,000 for Chapter 7 cases and $3,500 to $5,000 for Chapter 13 cases may become the norm, although it is too early to determine. In addition, many bankruptcy attorneys will probably charge two separate fees: one to cover the several hours worth of work that will be involved with the means test, and another to cover the remainder of the bankruptcy including preparation of the petition and representation in court. After all, it will often be difficult to recommend filing Chapter 7 until a substantial amount of time is devoted to reviewing all aspects of the case and then performing the means test.

Are You Ready for All of This? If all of the above does not sound intimidating enough, even the most experienced attorneys, trustees and judges are experiencing high degrees of angst because no one seems to know how the new laws will pan out. Finally, if you decide to continue your bankruptcy practice, be prepared to spend a substantial amount of time reviewing the new laws, attending seminars and workshops, and re-adjusting your perspective as to how bankruptcy works. As Judge Bernstein stated, “It will be an evolutionary process for everyone.”

 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 te October 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.

For seven straight years, Congress has come exceedingly close to enacting sweeping bankruptcy legislation that would make it much more difficult for consumers to discharge their debts. These bankruptcy amendment bills have either passed the House or the Senate, or both. For various reasons they have died before being signed into law. Yet, as analogized in a recent Christian Science Monitor article, the proposed bankruptcy legislation is like a mythical vampire: it constantly dies, yet comes back to life to haunt us the following year, often for underlying political reasons.

Most bankruptcy attorneys hope that Congress will put a stake through the heart of the proposed legislation. Yet the bankruptcy bill will probably return to haunt us again next year. The reason is simple. Banks, credit card companies and financial institutions have huge incentives to supply big money to Congressional lobbyists and have given generously to the re-election campaigns of members of Congress, especially those Republicans who support the bills. Opponents of bankruptcy reform argue that it is designed to boost profits for consumer lenders by making it tougher for troubled families to get any relief in bankruptcy. Last year credit card companies racked up about $30 billion in profits.

Nevertheless, it is unlikely that we will see any new bankruptcy legislation this year – an election year. President George W. Bush, who previously announced that he would immediately sign any bankruptcy amendment bill that was placed in front of him (one can infer that he would not even bother to read it), will certainly not want to incur the wrath of a large number of middle Americans who have lost their jobs and are considering bankruptcy relief.

The President is not the only one who does not want to become unpopular at election time with the enactment of a bankruptcy amendment bill. The mostly Republican members of Congress who support the bill and who are seeking election do not want to lose potential votes either. Yet, in all likelihood, we will see more proposed bankruptcy reform legislation emerge from the dead again next year, especially if President Bush is re-elected.

President Bush, while campaigning, delivers his constant message on the economy: “We are turning the corner and we are not going back. In another four years, the economy will be better.” Despite this rosy rhetoric, millions of families currently need bankruptcy protection, especially the middle class.

Here are some statistics. Bankruptcy filings are way up and at an all-time high. Personal bankruptcies peaked in 2003 with a record 1.6 million cases filed - a rate of 185 an hour. That annual total is nearly double the 812,898 filings in 1993.

Last year, Elizabeth Warren, a Harvard University bankruptcy law professor co-authored “The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke,” and last month, the Wall Street Journal featured a page-one article: “New Group Swells Bankruptcy Court: The Middle-Aged.” The Journal story focused on “an emerging class of middle-age, white-collar Americans who make the grim odyssey from comfortable circumstances to going broke.” Among the villains of this disturbing piece are the unstable job market and staggering amounts of personal debt.

That article quoted a passage from Professor Warren’s book: “This year, more people will end up bankrupt than will suffer a heart attack. More adults will file for bankruptcy than will be diagnosed with cancer. More people will file for bankruptcy than will graduate from college. And, in an era when traditionalists decry the demise of the institution of marriage, Americans will file more petitions for bankruptcy than for divorce.”

It is clear that the middle class, the middle-aged, and middle America, require the ability to obtain bankruptcy relief. Let’s hope that the Vampire’s days are over.

About the Author.  Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a frequent columnist for the Nassau Lawyer, the official publication of the Nassau County Bar Association in New York. This article appeared in the October 2004 issue of the Nassau 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.

Nowadays, those who are most likely to file for bankruptcy are middle-class families of the baby-boomer generation. In other words, the typical Long Island family. We previously considered middle-class families as a stereotypical group noted for their financial stability and for the vitality they provide to the American economic system. It is the middle-class family, however, that now has become the stereotypical bankruptcy filer.

I have observed this phenomenon in my consumer bankruptcy practice. Aside from some truly destitute clients that I represent on a pro-bono basis as part of the Nassau-Suffolk Legal Services Project, most of my clients are somewhat educated and hold, or have held, typical jobs, often “white collar,” that fuel the Long Island economy. Most of them are not young.

Yet, bankruptcies were once the primary domain of the young and struggling, or the lesser-educated who would spend their money recklessly, or those with young families who did not have savings cushions to carry them through lean times. However, it appears that we must now discard these stereotypes of bankruptcy debtors. More and more, even families with many years of positive financial experience, retirement nest eggs, home ownership, and perfect credit are finding themselves in financial holes that they cannot dig themselves out of.

Last month, the Wall Street Journal featured a front-page article: “New Group Swells Bankruptcy Court: The Middle-Aged.” The Journal story focused on “an emerging class of middle-age, white-collar Americans who make the grim odyssey from comfortable circumstances to going broke.”

It now appears that the demographic group with the highest rate of personal bankruptcies in the U.S. is no longer people with little education in the youngest employment bracket (age 25-34), but rather middle class, educated, white-collar workers in the 35-44 and 45-54 age brackets, representing an important shift from a decade ago.

The increase in middle-aged, middle-class people filing for bankruptcy is largely attributable to soaring medical costs, an unstable job market and years of easy money from aggressive credit-card marketing. Also, today’s baby boomers are not as frugal as their Depression-era parents, perhaps largely the result of being driven by societal pressure and temptation to finance the American dream by purchasing and spending beyond their means. This has all led to staggering amounts of personal debt which many middle-class families are becoming increasingly unable to handle, especially when the household becomes overextended. Many middle-aged individuals who have borrowed heavily have brushed off concerns, saying they expect to live longer and work longer.

Written by Craig D. Robins, Esq.

In my previous two columns, I addressed many common problems that come up at the Meeting of Creditors. In this last part of the three-part series I will cover some additional issues and dilemmas.

Problem No. 16: The U.S. Trustee Decides to Participate Also. As mentioned in a previous article, the Office of the United States Trustee has placed greatly increased priority in its Civil Enforcement Initiative Program. This means that there is a chance that the U.S. Trustee’s Office may red-flag a case for “substantial abuse” and then send one of its attorneys or paralegals to participate in the Meeting of Creditors and ask questions. If this happens, plan for your case to be called out of order, expect a much longer meeting, and fully cooperate. Try to use this opportunity to point out anything which will establish the debtor’s good faith. This usually means demonstrating that the debtor’s budget is reasonable or that a relatively large amount of debt was reasonably incurred.

Problem No. 17: A Creditor Shows Up. It is relatively rare these days for any creditor to appear at the Meeting of Creditors. However the following types of creditors are much more likely to appear: a local individual creditor who may have given a personal loan to the debtor, a separated or divorced spouse who is owed maintenance and support, or a business creditor whose account the debtor personally guaranteed. Such creditors may show up on their own, or with counsel who is not familiar with bankruptcy procedure, or with very experienced bankruptcy counsel. Most creditors who show up are unsophisticated and under the mistaken notion that they are required to appear.

If a creditor appears at the meeting, they are entitled to ask the debtor questions about the debtor’s assets and liabilities. They are not permitted to cross-examine the debtor as if the trustee was a judge. If the creditor (or their inexperienced counsel) asks improper questions or becomes argumentative, you should direct your client not to respond and admonish the creditor or counsel as to the proper scope of questioning. The trustee will probably do so as well. Also, a creditor cannot use the meeting as a fishing expedition to ask the debtor very general questions. Although a creditor has the exact right to do that, it is done pursuant to a Bankruptcy Rule 2004 exam, and not at the meeting of creditors, where time is very limited.

Problem No. 18: The Chapter 13 Trustee Wants to Adjourn the Meeting Because the Trustee Never Received Certain Documents. The Local Rules require all Chapter 13 debtors to provide the trustee, at least ten days prior to the Meeting of Creditors, with certain documents including the last two years of tax returns, one months worth of pay stubs, a real estate valuation if the plan pays unsecured creditors less than 100%, copies of real estate leases, tenants affidavits, affidavits of contribution, and affidavits of changed circumstances. (See Local Rule LR-2003-1). If you neglect to do this, the trustee will refuse to examine the debtor, you will look foolish in front of your client, and you will be told to return. Always make sure you provide the Chapter 13 trustee with the documents in advance. The Chapter 13 trustees are not too sympathetic with attorneys who neglect this rule.

Problem No. 19: There are Pages Missing From the Photocopies of the Petition. All photocopy machines will skip a page or two from time to time. If you sit down for your hearing and realize that all photocopies of the petition are missing an important schedule, you can apologize to the trustee, request a ten minute break, and then run down to the clerk’s office to print out the missing pages, assuming that you filed a full electronic copy.

Problem No. 20: The Debtor has Trouble Understanding English. If the trustee becomes frustrated trying to understand the debtor’s responses in broken English, the trustee will adjourn the hearing and make you re-appear with an interpreter. Therefore, you should anticipate in advance whether the debtor will have difficulty being examined in English. If so, you should arrange for a disinterested interpreter to accompany the debtor to the Meeting of Creditors.

The interpreter can usually be a friend, relative or spouse. However, the trustee has the right to object to the interpreter if the trustee believes the interpreter may be biased or interested. Consider calling the trustee in advance to advise him that an interpreter will be used and to make sure the particular interpreter will not be a problem. At the meeting, the trustee will swear in the interpreter and have them pledge that they will fully and truthfully translate the questions and answers.

If, in your office, the debtor previously seemed to be able to fully communicate without an interpreter, it is possible that the debtor is nervous or that the trustee may be talking too fast. If you sense this, ask the trustee’s indulgence to be patient because the debtor is nervous, and ask the trustee to talk more slowly. I have had some trustees talk so fast that I, myself, needed an interpreter!

Problem No. 21: The Debtor Appears to Be Wearing a Million Dollars Worth of Jewelry. Common sense dictates that out of respect for the proceeding, the debtor should not wear any flashy jewelry, even if it may be worthless rhinestone costume jewelry. If the debtor is wearing expensive-looking jewelry, expect the trustee to ask about it, which is like opening a can of worms. Advise your clients to avoid dressing in an overly flashy manner. It is best to leave all jewelry at home except for the wedding band.

Problem No. 22: You Observe the Debtor Lying Under Oath or Answering Incorrectly. If you observe the debtor answer a question, and you know the answer is incorrect, you have an affirmative duty to speak up. Sometimes the debtor innocently didn’t understand the question, or the trustee asked a series of yes-no questions too quickly. Worse, it may appear that the debtor is fabricating an answer. In any event, counsel should immediately interject, “the debtor might not have understood the last question,” and ask the trustee to ask that question again. You certainly do not want to get into a situation where the debtor can be labeled a perjurer because you didn’t speak up quickly. Even though a trustee’s questions can seem repetitive, you must always pay keen attention.

Debtors must pay close attention also and counsel must be sufficiently prepare them for the examination. For example, a frequent problem is that a trustee will ask a debtor about bank accounts and the debtor will answer in the negative because the debtor does not view a checking account as a “bank account.” All seasoned bankruptcy practitioners should know verbatim just about every possible question a trustee may ask. It is your responsibility to adequately prepare your client for the meeting by reviewing the potential questions with the debtor in advance.

Problem No. 23: The Debtor Has Difficulty Explaining a Complex Situation. Sometimes a trustee may ask the debtor to explain a complicated pre-petition transaction and the debtor has difficulty giving a sufficient answer. When that happens with my clients, I will often interject and offer to provide the trustee with the facts. Most trustees will appreciate this. However, you need to approach this carefully as some trustees will downright resent such efforts and will view it as counsel testifying for the debtor. Try to get a feeling as to how your particular trustee will respond and then consider asking the trustee if he would like you to “clarify” the matter.

Problem No. 24: There is a Snow Storm: Will the Hearing Go On? Is Court Open? On severe weather days the Court will close and is supposed to indicate this on a recording when you call the Court or log onto the Court’s web site. However, many attorneys have been frustrated because this information was not made available until mid-morning or early-afternoon, when it is already too late. Consider calling the trustee’s office. If the weather looks ominous the day before the meeting, make special arrangements with your client to communicate the next morning. Then, if the weather is relatively bad the morning of the meeting, and you cannot confirm whether the meeting will go forward or not, you may decide to tell your client not to go, in which case, you should be able to call the trustee’s office a day later and get an adjourned date. If there are several inches of snow on the roads, and you cannot confirm whether the meeting will go on, counsel can hardly be faulted for not appearing, but you should avoid an embarrassing situation where your client shows up and you do not.

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 June 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.

Adversary Proceedings. Even what appears to be the simplest Chapter 7 consumer bankruptcy filing may result in an adversary proceeding which is basically a federal lawsuit brought within a pending bankruptcy proceeding. The Bankruptcy Rules provide that certain contested matters in bankruptcy proceedings must be litigated in this way. Bankruptcy Rule 7001 sets forth ten such matters. They include objections to discharge; determination of the validity, priority, or extent of a lien or interest in property of the estate; actions to recover property of the estate; and proceedings to sell property in which the debtor is only a part owner. Bankruptcy Rule 7001 et. seq., sets forth all of the rules applicable to adversary proceedings.

Proceedings to Determine The Dischargeability of a Debt. These are by far the most common adversary proceedings that the consumer bankruptcy practitioner may encounter. With the proliferation of consumers seeking to discharge credit card debt through bankruptcy, many credit card companies, banks and other lenders are actively reviewing petitions and credit usage histories to determine if the debtor obtained the debt by way of any fraudulent or improper means. Under code section 523, a creditor can contest the dischargeability of a particular debt that was incurred through false pretenses, fraud, use of false financial statements, embezzlement, or larceny.

Contesting the Entire Discharge. Bankruptcy code section 727 allows an interested party to contest the entire discharge for intentional concealment, transfer or destruction of property; unjustified failure to keep books and records; dishonesty in connection with the bankruptcy code; or failure to explain loss of assets. If a trustee requests a debtor to provide documents at the meeting of creditors and the debtor is uncooperative, the trustee will bring an adversary proceeding under this section.

Federal Rules Govern. Virtually all of the Federal Rules of Civil Procedure regarding litigation apply to adversary proceedings. These rules are especially tailored to bankruptcy proceedings by Bankruptcy Rules 9001 et. seq. Leave your C.P.L.R. at home and get a copy of the Federal Rules. Sometimes the general practitioner is at a slight disadvantage because of an unfamiliarity with Federal law.

How Adversary Proceedings Are Commenced. The creditor or trustee will draft a complaint, setting forth the facts and allegations which the plaintiff believes justify the granting of relief against the debtor, and stating the relief requested. All adversary proceedings must be filed electronically through the court’s E.C.F. system. The court will also assign an adversary proceeding case number to the matter, which is different from the original bankruptcy case number. All adversary proceeding documents filed with the court must contain the full adversary proceeding caption, both case number and adversary proceeding case number, the type of chapter, and the name of the judge. The debtor can be referred to as either “debtor” or “defendant.”

Service. Most adversary proceedings are served pursuant to Bankruptcy Rule 7004(b) by first class mail upon both the debtor and his or her attorney, although service can be completed by other means as well. Service must also be made within 10 days of the summons date. Bankruptcy Rule 7004(f).

Be Aware of the Bar Date. In Chapter 7 proceedings, the court sets a statute of limitations for creditors to file objections to discharge. The bar date is 60 days from the date set for the first scheduled meeting of creditors. Bankruptcy Rules 4004 and 4007. Adjournment of the meeting of creditors does not affect the bar date. Failure to timely file a dischargeability adversary proceeding by the bar date will forever bar the creditor from objecting to discharge.

Written by Craig D. Robins, Esq.

In my column last month, I addressed some common problems that come up at the Meeting of Creditors. This month I will focus on additional problems involving the trustee. Many problems can be reduced or eliminated by making sure that you and your client are prepared, by preparing the petition correctly, and by making sure that you and your client are considerate and respectful towards the trustee.

Problem No. 8: The Trustee Thinks the Debtor Is Being Disrespectful. Advise your clients to avoid any sarcasm or joking at the hearing. What may be taken as amusing by one trustee, may be seen as disrespectful and annoying by another. If the trustee reacts in a negative or hostile way towards the debtor for any reason, try to immediately neutralize the situation, perhaps by interjecting that the debtor is nervous and didn’t mean to come across the way that they did.

Problem No. 9: The Trustee Wants to Adjourn the Meeting Because the Trustee Never Received a Copy of the Petition. With the advent of Electronic Case Filing, the debtor’s attorney is obligated to immediately mail a hard copy of the petition to the trustee which should contain the signatures of the debtors and their counsel. If the trustee does not receive a copy sufficiently in advance of the meeting, the trustee may adjourn the hearing and make you come back. Always make sure you timely mail a copy of the petition to the trustee. (Note that you are also required to mail a hard copy to the U.S. Trustee). If the trustee wants to send you home, consider pleading for sympathy and offer the trustee your copy.

Problem No. 10: The Trustee Announces That the Debtor Must Turn Over an Asset. This situation almost only arises when the debtor’s attorney is not a regular bankruptcy practitioner. Counsel must be familiar with the concept of exemptions and how local practice and procedure treats them. For example, if a debtor has a car that contains a large amount of non-exempt equity, it becomes property of the estate and the trustee is theoretically entitled to take possession of it. Almost all trustees will seek to negotiate a settlement to enable the debtor to keep the non-exempt asset. However, if the car is not insured, the trustee may not even let the debtor drive it away. If you have to file a petition in a case where there are significant non-exempt assets, make sure your client knows what to expect. You should review with your client any assets that may not be totally exempt, such as liquid assets and entitlement to tax refunds, pending accident cases or causes of action, and the right to inherit from a pending estate.

Problem No. 11: The Trustee is Going Crazy Because the Debtor Is Speaking Too Softly. All hearings are recorded. The debtor must talk loud enough to make sure his or her voice is being recorded. The debtor must also talk clearly. If the trustee asks a yes-or-no question, the debtor must answer vocally, rather than just nod the head. You should tell your client in advance to speak up, answer all questions, and speak clearly.

Problem No. 12: The Trustee Wants to Adjourn the Meeting and Have Debtor Return to Be Re-Examined. Some debtor situations can be rather complex, and may involve businesses, pre-petition transfers of real estate or other assets, or preferential payments. In such instances, the trustee may want to investigate the information just provided, or may request additional information. If the trustee directs the debtor to re-appear for an adjourned Meeting of Creditors, consider fully cooperating with the trustee by expeditiously providing any additional documents. Then call the trustee a few days prior to the adjourned date to see if the trustee will consider waiving appearances for the adjourned date.

Problem No. 13: The Trustee Announces That He Is Making a “707(b) Referral” to the U.S. Trustee. If a trustee feels that a debtor has filed a petition in bad faith or that the filing is an abuse, the trustee does not have the power to take any further action other than to refer the matter to the Office of the United States Trustee for further review. Sometimes the trustee may tell you, after examining the budget or the amount of debt, that he is making a “707(b) referral.” If that happens, expect to receive a receive a detailed request from the U.S. Trustee to audit and investigate the case.

Problem No. 14: The Trustee is on the War Path. Trustees are human too and can be in a bad mood for a variety of reasons. I have witnessed many trustees in a bad mood, sometimes compounded by frustration caused by recalcitrant debtors or slow-moving calendars. If the trustee is in a bad mood, it is vital not to tick the trustee off. Many a trustee has yelled at attorneys for talking in the hearing room. If you need to talk, take your client or fellow attorney outside the room. Be considerate and use common sense.

Problem No. 15: The Trustee Does Not Like the Way You Prepared the Petition. This is another situation that almost exclusively arises when the debtor’s attorney is not a regular bankruptcy practitioner. Trustees expect a certain level of professionalism. If the petition is sloppily prepared, lacks necessary information or contains incorrect information, contains incorrect exemption statutes, or is not properly prepared, the trustee may direct the attorney to re-do it, and may even refuse to examine the debtor until the petition is done correctly. The trustee can also refer the attorney to the U.S. Trustee’s Office to be investigated, as that office is responsible for maintaining the professionalism of the bankruptcy bar. Remember, one of the purposes of the Meeting of Creditors is for the trustee to check the accuracy of the information in the petition. The bottom line: If you file a petition, make sure you know what you are doing, and do it right. Then proof-read it before having the debtor execute it.

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 May 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.