Tag: chapter 13

Automatic stay and bankruptcy protection

All About the Automatic Stay, the Ultimate Bankruptcy Protection

All About the Automatic Stay, the Ultimate Bankruptcy Protection

What is the Automatic Stay definition or meaning?

Automatic stay is the bankruptcy protection when a new petition is filed with the court. It protects against starting or continuing any debt collection. It’s a powerful provision, and stops all collection activity, maintaining the status quo on the day the bankruptcy papers are filed. Failure to respect the bankruptcy protection can lead to sanctions against the collecting creditor.

The Automatic Stay definition from the text of Section 362(a)

The official definition of the bankruptcy automatic stay is in 11 USC 362. Section 362(a) says:

“…a petition filed under section 301, 302, or 303 of this title… operates as a stay, applicable to all entities of:

  • the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title;
  • the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case under this title;
  • any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate…”

The section goes on, but the quote above is where most of the action in bankruptcy protection comes from.

Interpreting the automatic stay meaning in simple terms

Let’s break down what the meaning of the automatic stay is in plain English. Section 362 says that the mere filing of a what?  A petition that’s either voluntary, involuntary, or joint  (301-303).  That pretty much covers most bankruptcy filings. Then what? It stops (stays) the start or continuing most every collection, including enforcing a judgment or trying to take anything from you.

Bankruptcy protection automatic stay is like a dome over a city
The bankruptcy protection of the automatic stay is like a magical dome or enchanted shield over you & your stuff

That’s really broad, and covers almost anything you can think of.  It’s like a protective shield around you, your things, and your life against all your debts doing anything to you, the person who filed bankruptcy.  Or, to use another simile, the automatic stay is like a dome over a city, where the sun only shines and the birds sing, but outside the shield it’s stormy and dangerous.

There are a few limits to it, which I explain below.

When does the Automatic Stay begin?

The automatic stay is tremendous in that it begins the second the bankruptcy is filed. Why? It’s automatic. File a bankruptcy case, and boom, you’re safe. The fact that the bankruptcy protection starts the moment you file bankruptcy is extraordinary, in a sense.

“It is elementary that the automatic stay comes into existence automatically and immediately upon the filing of a petition in bankruptcy.” Webb Mtn, 414 B.R.308 (Bankr Ct, Tenn, 2009).

Normally, in law, if you want something to stop, you have to request that separately. Think of a temporary restraining order. That requires work, time, a justification, and approval. But bankruptcy protection, because it’s automatic, that is, no additional papers need to be filed to get it to kick in, it’s one of the rare exceptions in law.

You get all the benefits of safety, protection, and peace of mind at the beginning of this legal process. Your creditors have to file lawsuits, wait months or years, get the judgment, and then try to execute on the judgment to take action against you and your stuff. You merely have to begin the bankruptcy legal case before they can finish theirs against you. This is a huge time advantage for the debtor filing bankruptcy.

How long does the Automatic Stay last?

The automatic stay starts when you file bankruptcy, and typically lasts for the duration of the case.

What can end the bankruptcy protection?

There are a few things that can end the automatic stay:

  • Discharge: When a normal case ends successfully, the debtor gets a bankruptcy discharge and the case is usually closed soon after that.  When the discharge is entered, the stay is over.
  • Dismissal: If a bankruptcy case ends unsuccessfully, the automatic stay is over also. The magic dome of sunshine disappears, and the storm clouds come right back.  For that reason, dismissal is usually bad.
  • Motion for Relief of the Automatic Stay (MRS or RFS): Creditors have rights also, and if the stay is hurting them unfairly, they can make it go away. Repeat after me: “There is no free car or free house in bankruptcy.” If you stop paying for the house, the mortgage can get through the automatic stay and take your house. Or put differently, if there is a house or car or something you’re financing and you want to keep it, stay current with the payments.

Wait, back up. After bankruptcy discharge, the stay ends and creditors can collect against me?

Yes, and no. It’s true that the automatic stay ends when the case concludes with a discharge. The bankruptcy discharge triggers a few legally significant events. First, the discharged debts are no longer legally your obligations. Second, if you had a bankruptcy attorney help you, their representation, per contract, is likely ended. They completed their task and are no longer your lawyer.  Third, the automatic stay is also ended, as there is no more active or open bankruptcy case.

However, the good news is there is something powerful replacing the terminated automatic stay. This new protection is the Order of Discharge.

Section 524(a) says that a discharge in bankruptcy:

operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived

The court order that says your debts are gone, and any attempt to collect a discharged debt is a violation. It’s not a violation of the automatic stay, but instead, a violation of a court order. You can and should inform the creditor of this, and if they don’t back off, reopen the bankruptcy and seek sanctions for a discharge violation.

Violation of the Automatic Stay

Definition of an Automatic Stay Violation

A violation of the automatic stay is when a creditor willfully collects after they knew of the bankruptcy protection. The creditor has to have known of the bankruptcy and the automatic stay, or else they can claim as a defense that they had no notice. For this reason, it’s important to document notice of the automatic stay. When the collection company claims they didn’t know of the bankruptcy — and they will — you’ll need to have ample and abundant evidence that they did know, and that they didn’t care and collected against you anyway.

What if the Creditor doesn’t have Intent to Violate the Automatic Stay?

Creditor, after being caught with its hand in the cookie jar, may claim that golly, it didn’t intend to violate the automatic stay.  The Ninth Circuit Court of Appeals has said, too bad, you intended to do the act.  Intent to violate the automatic stay isn’t a requirement. Intent to do the act that violated the stay is all that’s needed. In re Pinkstaff, 974 F.2d 113 (9th Cir, 1992), quoting In re Bloom, 875 F.2d 224, 227 (9th Cir, 1989), In re Pace, 67 F.3d 187 (9th Cir, 1995).

Examples of Automatic Stay Violations

Filing a Lawsuit

One example of violating the automatic stay is where you file bankruptcy, serve the creditor notice of the automatic stay, and maybe even a letter for good measure. Then, three months later, the creditor files a lawsuit against the debtor.

The lawsuit is the commencement of a judicial proceeding against the debtor that could have been commenced before the commencement of the case  or to recover a claim against the debtor that arose before the commencement of the case under this title. Slamdunk violation of the bankruptcy protection.

Starting a Wage Garnishment

Another example of an automatic stay violation is where the creditor has already sued the debtor and won in court. Now, armed with a judgment, they’re closing in on collecting. The debtor files bankruptcy, and provides notice of the automatic stay to the debt collector. Next, the collection agent contacts debtor’s employer and starts garnishing the wages.

In this case, the wage garnishment is an enforcement, against the debtor and against property of the estate (the paycheck), of a judgment obtained before the commencement of the case.  Again, another obvious and textbook violation of the automatic stay.

Foreclosing on a home

Finally, let’s say the debtor has fallen behind on his or her mortgage. The home loan company is getting cranky, and finally files a Notice of Default and Notice of Sale. Next thing you know, there’s a scheduled foreclosure sale. Debtor then files a Chapter 13 bankruptcy to repay the mortgage arrearages, and provides notice of the automatic stay to the lender. Mortgage company goes ahead with the foreclosure sale, and someone buys the house.

The home foreclosure is an act to obtain possession of property of the estate (the house) or to exercise control over property of the estate.  Straight violation of Section 362 of the Bankruptcy Code. Check and mate, house lender. Automatic stay violation.

Effect of the Automatic Stay on Acts that Violate it

In that last example, the home has already been sold to someone else at a foreclosure sale. But it was the result of a stay violation. What is the effect of the sale?

In California, stay violations are void. The Ninth Circuit Court of Appeals has said that “actions taken in violation of the bankruptcy stay are void.” In Re Gruntz, 202 F.3d 1074, 1081-82 (9th Cir, 2000).  Not voidable, void. In re Schwartz, 954 F.2d 569 at 571 (9th Cir, 1992). No action is required by debtor to undo the act. Id. 

The law imposes an affirmative duty on creditors to remedy stay violations by restoring the status quo, and also to establish administrative safeguards to prevent stay violations from occurring in the first instance.  In re Dyer, 322 F.3d 1178, 1192 (9th Cir. 2003).

What if the Stay Violation happens Before Notice is Received

Knowledge of bankruptcy sufficient for stay; notice doesn’t have to be official

There is no requirement that a creditor be given an official Court-issued notice or form regarding the bankruptcy case.  “[A] party with knowledge of bankruptcy proceedings is charged with knowledge of the automatic stay.” In re Dyer, 322 F.3d 1178, 1191 (9th Cir. 2003).

Seizing the property doesn’t make it yours

Now that we have established stay violations are void, what if creditor didn’t know when they violated it? Courts have clearly answered: Petition date controls, not notice.

The U.S. Supreme Court has ruled that property seized prepetition to collect a debt doesn’t transfer ownership, and it must be returned, pursuant to Section 542(a), even if seized by the IRS.  United States v Whiting Pools, Inc, 462 U.S. 198 (Sup Ct 1983).

Even property taken by the mighty IRS before filing must be returned. With that backdrop, let’s look at cases where property is wrongfully taken after filing, but before creditor had notice of the filing.

Keeping property seized after filing but before notice is a stay violation

In the Ninth Circuit, the Bankruptcy Appellate Panel ruled that retention of repossessed car after receiving notice of stay is a willful violation of the automatic stay. “[R]epossession of the debtors’ automobile, while initially inadvertent, became a willful violation of the automatic stay when appellees failed to take any reasonable steps to remedy their violation upon learning of the debtors’ bankruptcy.” In re Abrams, 127 B.R. 239 (B.A.P. 9th Cir, 1991).

The Ninth Circuit also has held that the knowing retention of estate property violates § 362(a)(3).  In re Del Mission Ltd., 98 F.3d 1147, 1151 (9th Cir.1996)(citing Abrams). The appellate court rejected the argument that creditor had no obligation to turn over the property until specifically requested.  Id. at 1152.

“When a creditor lacks notice of a debtor’s bankruptcy, acts in violation of the stay may be inadvertent; however, such acts become willful stay violations when the creditor learns of the debtor’s bankruptcy but fails to take reasonable steps to remedy the violation.” In re Calloway, No. 08-18561SSC, 2009 WL 1564207, (Bankr. D. AZ. 2009) (citing Abrams)

Other courts outside the Ninth Circuit agree

Other bankruptcy courts have ruled that even if the creditor didn’t have knowledge, it must take steps to void the violation or face damages. Just to pick one: “Despite having this knowledge, Hunt deliberately refused to cooperate in voiding the sale and reconveying the Trenton property to the Debtor at any time after this date.

Clearly, these actions were willful and constitute a violation of the automatic stay for which the imposition of damages is appropriate under § 362(k).”   In re Tyson, 450 B.R. 754 (Bankr Ct, Tenn, 2011), where buyer of home sold at foreclosure had no notice of automatic stay at time of foreclosure sale, failed to return home, and violated stay and paid damages.

Wrongful repo cases: repossession after filing without notice violates stay

A wrongful repo happened after a case was filed but before the repo company had notice. What it did next is what matters: “Rather than comply with its affirmative duty to remedy its stay violation and restore the status quo, Arizona Fleet chose to remain non-responsive, took no steps to confirm or inquire as to the pendency of this bankruptcy case, filed nothing with this Court requesting any form of stay relief, sent the Debtor a notice that it intended to sell the Vehicle, wrongfully continued to maintain possession of the Vehicle, and, without merit, continues to maintain that it was incumbent upon the Debtor to retrieve his wrongfully repossessed Vehicle.” In re Altamirano,  Case No. 4:20-bk-11836-BMW (Bankr Ct, AZ, 2022).

In re Carrigg, 216 B.R. 303 (B.A.P. 1st Cir, 1998), where the repo happened after the bankruptcy was filed without the creditor knowing about it, but creditor failed to return repossessed vehicle after notice of case.  The creditor was sanctioned with a willful violation of stay, even though creditor had no had notice of case when vehicle was repossessed.

Chicago v Fulton, and the Automatic Stay

What 362 Giveth, Fulton Taketh Away

It used to be that if someone took something to collect a debt, filing bankruptcy created an obligation for them to return it. All that changed in 2021 when a case percolated up through the courts. The City of Chicago makes quite a pretty penny on impounding vehicles. One person lost their car, filed bankruptcy, and asked for the car back. Chicago didn’t budge. Automatic stay violation? In many places, including here in California and the Ninth Circuit, until now, yes. The Sup Court read the statute, and limited the scope and power of the automatic stay.

The car repossession taken before filing

The above repo cases involve a car taken after the case was filed. However, if the car was taken before the case was filed, from now on, it doesn’t have to be returned upon as a possible violation of the automatic stay with notice of the bankruptcy.  Chicago v Fulton (In re Fulton), 141 S Ct. 585 (2021).

In Fulton, the Court said that mere retention, to exercise control, of the property taken before filing (prepetition), without some act that would disturb the status quo, is not a violation of the automatic stay. This means that retention of the car (in this case) isn’t a stay violation, and that something else has to be done to get it back. The Court suggests that Section 542 (turnover) is invoked for an adversary proceeding for turnover of the property. The problem with that is that can take months to resolve.  Justice Sotomayor, in a concurrence focusing on simple motions instead, writes that “bankruptcy courts may find it prudent to expedite proceedings or order preliminary relief requiring temporary turnover.” Fulton at 594.

Not just cars: other seized property falls under Fulton

When the Supreme Court first decided the case in early 2021, there was the thought (hope?) that maybe Fulton was limited to cars seized by tow yards. That it would be a limited, narrow exception which wouldn’t really impact us here with Los Angeles bankruptcy cases in California and the Ninth Circuit.  That’s turning out to not be the case.

Bank Levy of Accounts and Fulton

Later in 2021, we saw a court extend it to bank accounts. In Pennsylvania, a lender sued a debtor, won a judgment, and filed a pre-petition attachment lien on bank accounts of the debtor. Debtor filed bankruptcy and then demanded creditor withdraw the attachment as a violation of the stay. A key difference is that, unlike Fulton, creditor was not in possession of property of the estate. No matter. The court said that Fulton requires an act that disrupts the status quo to find a stay violation when it wrote, “the Court finds that Defendants’ refusal to withdraw the valid state court pre-petition attachment of the Penn East Accounts does not violate §362(a)(3). Defendants admittedly took no post-petition affirmative action as to the garnished accounts.” In re Margavitch, 5:19-05353 MJC (Bankr Ct, MD 2021).

The Ninth Circuit BAP followed Margavitch when it had a bank levy case of its own. The facts were similar: a prepetition lawsuit, and a writ of garnishment on three bank accounts. Later, debtor filed bankruptcy and demanded the creditor instruct the bank to release the funds. After a refusal, debtor claimed it was a violation of the stay. The BAP found that the city’s inaction that merely maintains the status quo does not violate the automatic stay. In re Stuart, 632 BR 531 (9th Cir BAP, 2021).

The BAP made the point again in 2022 when it said that a lien that existed on petition date where an order granted postpetition about summary judgment regarding it did not disturb the status quo and thus, did not violate Section 362(a)(3). In re Censo, 638 BR 416 (9th Cir BAP, 2022).

Wage Garnishments and Fulton

While Stuart above was a bank account case, the BAP said in footnote 12 that, if it were a wage garnishment case where the creditor captured funds postpetition, the result would be different and a stay violation.  Stuart v City of Scottsdale, 632 BR 531 (9th Cir BAP, 2021), citing In re LeGrand, 612 BR 604 (Bankr Ct EDCA, 2020).

Chapter 13 Codebtor Stay

What is the Co-debtor Stay?

Chapter 13 has a codebtor stay, while Chapter 7 doesn’t. Section 1301 and its co-debor stay protects the person who may owe on a debt without that other person having to file bankruptcy. For this reason, Chapter 13 can protect a non-filing spouse better than a Chapter 7 bankruptcy.

Community liability: you both owe the debts of the marriage

California’s Family Code 910 says:

Except as otherwise expressly provided by statute, the community estate is liable for a debt incurred by either spouse before or during marriage, regardless of which spouse has the management and control of the property and regardless of whether one or both spouses are parties to the debt or to a judgment for the debt.

 

Further, Calif Family Code 914 says:

…a married person is personally liable for the following debts incurred by the person’s spouse during marriage …a debt incurred for necessaries of life of the person’s spouse before the date of separation of the spouses.

Translating that, because California is a community property state, both spouses owe a debt during the marriage, regardless of who is managing the budget, or racking up the debt. You’re in this together.

So, if one half of a married couple incurred a lot of debt and files bankruptcy in Chapter 13, the other innocent spouse is protected by an automatic codebtor stay. In Chapter 7, the innocent spouse can still be called and harassed and risk losing any separate property (if any) to the spouse’s collecting creditors. Why? FC 914(b) says that the “separate property of a married person may be applied to the satisfaction of a debt for which the person is personally liable pursuant to this section.”

Section 1301 Co-debtor stay to the rescue

Now we know that a spouse (or other person who may owe on a debt) is liable for debts during a marriage, even though they didn’t incur them or even have any credit cards. If the spending spouse files bankruptcy, the innocent spouse may be left hanging in Chapter 7. But Chapter 13 has a solution.

Section 1301 says

creditor may not act, or commence or continue any civil action, to collect all or any part of a consumer debt of the debtor from any individual that is liable on such debt with the debtor

There it is. A creditor may not act, start or keep doing something to someone liable on a debt with a debtor. In California, that’s typically a spouse. Automatic stay for the nonfiling spouse in the form of the co-debtor stay is a big benefit to Chapter 13 bankruptcy.

The hitch: creditors claim to not know about spouses & the codebtor stay

Amazingly, with all their fancy computers, creditors and their collection companies don’t have a way to know about or track nonfiling spouses. If John Doe files bankruptcy, they’ll flag his account, but they don’t know about Jane Doe, even though she’s listed as a Codebtor in the bankruptcy paper’s Schedule H. They do a scrub or routine check but will say they don’t know Jane’s SSN as a way to flag her, too. So they keep collecting against her, which pressures John, but golly, it’s just an accident.

This can require “educating” the creditor with notice of the stay before bringing an action for violation of the stay against them for harassing the spouse, in our example, Jane.  The fallback position of the fancy slick credit card company will default to becoming Barney Fife. The billion-dollar corporation will morph into bumbling inept two-bit outfit in court who just didn’t know about the spouse and therefore didn’t have notice or any way to possibly avoid this and and thus will seek mercy from the bankruptcy judge for its incompetence. Thus, more notice, more evidence that the creditor knew about the spouse and the bankruptcy, will help you bring your violation of codebtor stay action and prevail.

Damages: the Penalty for Automatic Stay Violations

The automatic stay is one of the few areas in bankruptcy where debtors can get their attorney fees paid by the creditor. The Bankruptcy Code provides at Section 362(k) that:

an individual injured by any willful violation of a Stay provided by this section shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.

Let’s look at these one at a time.

Compensatory: Actual Damages

Costs

Actual damages comes in a couple different flavors. First, it’s whatever the debtor is truly, actually out-of-pocket as a result of the violation of the automatic stay. Judges typically want to see receipts. It can include as mundane things as copying costs, doctor visit copays, and so on.

Attorney Fees

In addition, the statute explicitly calls for the debtor getting reimbursed by the creditor for attorney’s fees. The lodestar method for attorney compensation is used in the Ninth Circuit bankruptcy cases. In re Yermakov, 718 F.2d 1465, 1471 (9th Cir. 1983). Lodestar compensation is “strongly” presumed to be reasonable. Burgess v. Klenske, 853 F.2d 687, 691-92 (9th Cir. 1988). The only limit on attorney’s fees is if the work was unnecessary or plainly excessive. The Ninth Circuit Court of Appeals, sitting en banc, concluded that Section 362 authorizes an award of attorney fees incurred in prosecuting an action for damages under the statute, limited by unnecessary or plainly excessive fees. In re Schwartz-Tallard, 803 F.3d 1095, 1101 (9th Cir 2015)(en banc), overturning Sternberg v Johnston, 595 F.3d 937 (9th Cir, 2010).

Emotional Distress

Emotional distress damages are available in the Ninth Circuit “if the individual provides clear evidence to establish that significant harm occurred as a result of the violation.” In re Dawson, 390 F3d 1139, 1148-1149 (9th Cir, 2004).

Punitive Damages

The statute calls for punitive damages in appropriate circumstances. The definition of “appropriate circumstances” varies by judicial circuit. Here in the Ninth Circuit, it means that punitive damages for violations of the Automatic Stay require “some showing of reckless or callous disregard for the law or rights of others.” In re Bloom, 875 F.2d 224, 227 (9th Cir., 1989).

The dreaded Wells Fargo case

Wells Fargo is notorious for their national policy of administrative freeze or holds, officially called “temporary administrative pledges” (which I wrote about in my list of 12 crucial things to do before filing bankruptcy). This is where someone files bankruptcy and has money on account at Wells Fargo. Then the bank freezes the account so the debtor can’t buy groceries. One would think this is a violation of the automatic stay, but it’s not an attempt to collect a debt, but to protect assets of the estate.

The Ninth Circuit BAP ruled that because defendant exercised control of debtor’s assets postpetition, debtors “have standing to seek sanctions against Wells Fargo pursuant to § 362(k) for willful violation of the stay with respect to their interest in estate property.”  In re Mwangi, 432 BR 812, 825 (9th Cir BAP, 2010). But on appeal, the Ninth Circuit Court of Appeals said that the property, while exempt, is property of the estate, but somehow does not immediately revest to the debtor, but must wait 30 days for the FRBP 4003(b)(1) exemption objection time period to lapse. In re Mwangi, 764 F3d 1168 (9th Cir, 2014).

The court analyzed it as a 362(a)(3) situation (control of property), but if it were the more common commencement or continuance of an action of 362(a)(1), the result likely would’ve been different. So, the Wells Fargo case is not an erosion of the automatic stay.

Conclusion

The automatic stay is a powerful tool to protect your client in a bankruptcy. However, you must enforce it, and have proper documentation of evidence. I’ve successfully brought actions against major credit cards for violating the stay; it can be done. if you found this helpful and are faced with a stay violation issue, consider hitting the figurative tip jar. Regardless, thank you for reading, and never stop fighting for your client and the debtor’s rights. You have significant tools and bankruptcy protections here, and you should not hesitate to hold the creditor accountable for flaunting them.

 

Remote 341(a) meeting of creditors

Remote 341(a) Meeting & Zoom: What to Expect, post-COVID (2022)

Remote 341(a) Meeting of Creditors by Zoom: What to Expect in 2022

Los Angeles Bankruptcy lawyer explains remote 341(a) meetings post-COVID

Post-COVID, a remote 341(a) Meeting of Creditors in bankruptcy is becoming the standard, instead of in-person. Here’s what to expect. They can be terrifying, nerve-wracking, and unpredictable. As someone who has attended thousands of these in person (after coaching my clients with my list of prefiling do’s and don’ts), I answer your 341(a) questions and share with you what to expect at your 341(a) meeting in a post-COVID pandemic world where Zoom 341(a) meetings are more common.

What is the 341(a) Meeting of Creditors?

The 341a Meeting of Creditors is a requirement in every bankruptcy where the debtor (you) gets put under oath and is required to answer questions truthfully about your assets and financial condition. It’s a gathering, like a conference call. While it’s called a 341(a) meeting, it’s not really a meeting, but more like a polite, professional, semi-aggressive grilling.

Who attends the 341a Meeting?

You, the debtor, must attend the 341a meeting. Also, there will be a bankruptcy trustee. And of course, all of your creditors will get notified about it. Let’s break it down.

First, of course you must show up at your 341 meeting, which post-pandemic will likely be a remote 341(a) meeting. Again, this is done by telephone, Zoom, or some other technology. This choice is at the discretion of your Chapter 7 trustee. It varies trustee to trustee, so that’s why this is general; there is no one uniform set way how a trustee runs his or her 341(a) meeting.

Second, the Chapter 7 trustee will attend. It’s their show, and they will aggressively pursue assets you have or used to have, within the boundaries of the law. They run the meeting, which is more or less like a court deposition, with 20-40 other people able to hear or watch you on the phone or Skype.

bankruptcy 341(a) meeting of creditors sign
Bankruptcy 341(a) Meeting of Creditors sign back in the old days pre-2020 when 341a meetings were held in person instead of remote 341(a) by Zoom

Third, creditors can attend. These are the people to whom you owe money, and they have every right to show up, dial in or call and grill you under oath.

Fourth, the United States Trustee may call in or attend your remote 341(a) meeting of creditors.  The Office of the US Trustee (UST or OUST) is the arm of the Department of Justice responsible for administering bankruptcies fairly and justly. They work with the FBI in the DOJ to investigate bankruptcy crimes, like hiding assets. The goal of the UST is to ensure that justice is being done, and  everyone seeking relief is the “honest but unfortunate debtor.” If the US Trustee shows up at your Zoom 341(a), there’s a suspicion of mischief, such as moving your stuff around, lying about income, or some other thing where maybe you’re not entitled to a Chapter 7 bankruptcy discharge… or worse.

Fifth, other debtors will be waiting their turn for their remote 341(a) meetings. There will be about 30 people or so, all listening in, waiting their turn, trying to learn the standard 341(a) questions.

Finally, your bankruptcy attorney (and a bunch of other bankruptcy lawyers) will be there. This is probably (hopefully!) the only time in your life where you’ll be testifying under oath, with penalty of perjury. You can wing it and hope for the best, but you really want a lawyer who’s personally handled thousands of 341(a) meetings to be with you.

Do my creditors actually show up at the 341(a) Meeting?

Generally, your creditors won’t attend. This is because they know the bankruptcy trustee is representing their interests, and will ask you all the questions they would have asked.  But they might. They know about the meeting because you have an obligation to list in your bankruptcy petitions or schedules (the bankruptcy papers) every debt you owe, or even might owe. You listed their addresses. When you filed the bankruptcy papers, the court clerk sent them all a notice.  It’s each one’s choice if they want to show up and ask you questions under penalty of perjury.

So, who is the bankruptcy trustee who will be asking me questions?

In Chapter 7 bankruptcy, the trustee is an attorney, accountant, or other professional who is appointed by the Department of Justice to seek assets of yours they can take for the benefit of your creditors.  They are bound by duty to follow the US Trustee handbooks and reference materials.

Wait, they can take my stuff?

You bet. That’s the trustee’s primary goal, and what Chapter 7 bankruptcy is all about. You read about “Liquidation bankruptcy” on boring websites, but that’s the whole idea. They can liquidate (fancy word for “sell”) your assets (fancy word for “stuff”), if those assets are beyond the exemptions in your state.

Then I’ll just give away or sell that thing to a good friend or relative.

You don’t want to do that. Transfers before a bankruptcy are often fraudulent transfers, and can end up causing a lawsuit for your friend or family, and you’ll lose the thing anyway.

Where is the 341(a) Meeting of Creditors?

Ever since the 2020 pandemic, you can usually attend your 341(a) meeting remotely by phone or Zoom.

So this could be just a phone call. This is super easy.

Don’t let the format deceive you. The remote 341(a) meeting should be treated like a formal court hearing, as if you’re under oath standing in front of a federal judge.  Because if things go wrong, you very well might be.

How do they even know it’s me?

The bankruptcy trustee verifies your identity with two forms of identification. When 341(a) meetings were done in person, you would physically hand the trustee or their administrator your unexpired original photo ID and a Social Security card. Now that the hearings are done remotely, you or your bankruptcy attorney will have to provide a copy of these documents (picture ID and proof of SSN) to the trustee. When you go on Zoom, they’ll ask you or your bankruptcy attorney if these are really your documents.

What do I have to do before a 341(a) meeting?

Because the meetings are now done remotely, it’s not so simple anymore as just handing over documents. You now have to get the papers and identification to the bankruptcy trustee beforehand. They’ll typically email your bankruptcy attorney how and where to upload the documents. If you gambled and filed bankruptcy without a lawyer, you’ll likely get something in the U.S. mail.  Most Chapter 7 trustees use an online portal where documents are uploaded, though it’s possible some will accept them by email.

What documents do I have to provide to the bankruptcy trustee?

You already know you need to get proof of your identity to the bankruptcy trustee, one with a picture of your face, and another that verifies your Social Security number. Most bankruptcy trustees have a bankruptcy debtor’s questionnaire. Back when the 341(a) meetings were done in person, you’d fill it out while sitting and waiting your turn. Now that we have remote 341a meeting of creditors, you’ll need to complete this in advance, and return it to the trustee. You also must provide your tax return for the last year filed. Many Chapter 7 trustees want to see your bank statements for all accounts for the months prior to filing. It’s possible the bankruptcy trustee will ask you for more documents like mortgage or car loan statements, property deeds, closing statements from refinances or sales you did years ago, etc. so be prepared for some homework.

What happens at the 341(a) Meeting?

On the day of the 341(a) hearing, you’ll connect to the Zoom 341(a) meeting of creditors, or phone in. You’ll mute your line so it’s not chaos and noisy. They call your name, they swear you in, the trustee then questions you like at a deposition, then invites your creditors who attended if they wish to examine you under oath. They often conclude your meeting, but sometimes continue it to a different date so that the trustee can get more documents or information as he or she does due diligence.  Oh, and just in case you forgot already: mute your line until your name is called.

What does a US Trustee 341(a) Meeting Room look like?

The US Trustee 341(a) Meeting room is a room with chairs facing forward with this Department of Justice seal prominently in the room. This should impress upon you the seriousness and solemnity of the event. Because you’re attending the 341(a) meeting in your pajamas in the comfort of your own home you may be led to believe this is a very casual process. It is not. Look at the seal below. Now, imagine getting a formal letter from the Department of Justice with this picture at the top of it mailed to your house, with a deadline, because of something you said at the 341(a) meeting or put in (or left out) of your bankruptcy papers.  This is a serious formal proceeding. Tell the truth about everything.

DOJ seal for bankruptcy 341(a) meeting rooms
DOJ seal displayed at bankruptcy 341(a) meeting rooms

What are the questions they ask at a 341(a) Meeting of Creditors?

There are questions every person must answer at a remote or Zoom 341(a) Meeting, and often the questions are custom-tailored to you and your situation. When it’s your turn, they call your name. You then and only then unmute yourself. First, they’ll tell you to raise your right hand and then ask, “Do you solemnly swear or affirm to tell the truth, the whole truth, and nothing but the truth?”

The bankruptcy trustee will then ask some of the following questions. This is not intended to be a complete list, but just to give you an idea of what you may be asked.

“State your name. Is the address on the petition your current address?”

Did you sign the petition, schedules, statements, and related documents and is the
signature your own? Did you read the petition, schedules, statements, and related
documents before you signed them?

“Are you personally familiar with the information contained in the petition, schedules, statements and related documents? To the best of your knowledge, is the information contained in the petition, schedules, statements, and related documents true and correct? Are there any errors or omissions to bring to my attention at this time?”

“Are all of your assets identified on the schedules? Have you listed all of your creditors on the schedules?”

“Have you previously filed bankruptcy?

“What is the address of your current employer?”

“Is the copy of the tax return you provided a true copy of the most recent tax return you filed?”

“Do you have a domestic support obligation, and to whom?”

Have you read the Bankruptcy Information Sheet provided by the United States Trustee?

Do you own or have any interest whatsoever in any real estate?

“Have you made any transfers of any property or given any property away within the last four years?”

“Have you been engaged in any business during the last six years?”

Note that business can be as small as that side gig you have selling things on Ebay or Etsy, or driving for Lyft. If you do have a business or business income, that opens up other questions. You’ll also get other questions if you own a car, own real estate, bitcoin, life insurance proceeds, claims against anyone, and so on. 

Always tell the truth, and again, even if you think you have nothing to hide, you really want to have an attorney representing you when you’re put under oath, and in any legal proceeding such as bankruptcy.

How do I prepare for a Meeting of Creditors?

You already know the bankruptcy petition, schedules, and statement of affairs, as it’s all about you, your life, and your financial condition. And of course, it’s all truthful and complete, listing all your assets, debts, and income. Because of that, there’s nothing to memorize.

You’ll want to get a good night’s sleep, and get to bed early so you’re well-rested.  Before you go to bed, have the Zoom meeting number and password (or phone number and pin pass code) the chapter 7 trustee provided you ready so you’re not scrambling in the morning.

Also, read the bankruptcy information sheet. It’s often called the green brochure, green sheet, or green pamphlet, since back in the days of covered wagons when we were in person, that’s what it looks like.

Do I have to tell the truth at the 341(a) meeting?

I know what you’re thinking.

What?

You’re wondering about maybe telling a couple of little white lies and not disclosing assets or income or that one debt to see if you can beat the system.

Maybe.

That’s not going to work. You’re under oath in a federal legal proceeding. Tell the truth, and the full truth.

Yeah but how will they know if I don’t?

The bankruptcy trustee has government resources, databases, and records, and the UST and Dept of Justice have a budget and resources far greater than yours.

Also, FBI agents like this investigate bankruptcy crimes.

FBI agents investigating bankruptcy crimes, maybe.
FBI agents busy investigating a bankruptcy crime, maybe.

I was just kidding anyway.

Just tell the truth, about everything.  Do you want to go to jail for bankruptcy crimes like Boris Becker?

No.

Then there’s your answer.

What about Chapter 13 Bankruptcy 341(a) Meeting of Creditors?

The Chapter 13 bankruptcy 341(a) Meeting of Creditors is similar, but there’s an entirely different focus than the Chapter 7 kind described above. This is because Chapter 13 bankruptcy is different. A Chapter 13 is administered by a (you guessed it) Chapter 13 trustee. Since the purpose of this chapter is to repay debts in a sort of federally-run debt consolidation program, there’s an emphasis on your cash flow, your budget, and your ability to repay. The 341a questions will be similar, but much of it will focus on your paystubs, number of people in your household, employment, and monthly spending. You will almost certainly get a to-do list when the meeting is complete. This punchlist must be completed if your case will get through to confirmation.

Is a bankruptcy trustee the same as the bankruptcy judge?

No, they serve different roles. A bankruptcy trustee is an administrator of sorts, and much more closely aligned with your creditors and debts. They are not your attorney, nor advocating for you.  Your attorney is of course zealously fighting for you and your rights, and to help you get the best result with the facts presented to them. The bankruptcy judge — and each case is assigned to a bankruptcy judge — is a neutral person whose job is to decide disputes between your attorney and the trustee (or creditors).

I read that I don’t need an attorney for bankruptcy.

This is true. Just because you can file bankruptcy without an attorney, it doesn’t mean that you should. Same goes for self-surgery. Please strongly consider retaining one to help you with every step of this process. At the very least, arrange a consultation with an experienced bankruptcy lawyer.

Summing up 341(a) Meetings

Remote 341(a) Meeting of Creditors are new, and have their own sets of traps, especially in that it appears so casual and deceptively easy. With these tips and pointers, I hope this helps you navigate the terrain a little bit better.

And if you already have filed your case, relax, answer the Zoom 341(a) meeting questions honestly, and I hope the process works out for you and that you get the bankruptcy discharge you deserve.

Thank you for reading.

chapter 13 debt limits

Chapter 13 Debt Limits (2022 update)

Chapter 13 Debt Limits (2022 update)

Debt Limits in Chapter 13 Bankruptcy

June 2022 Update: The President has just signed into law changes which, among other things, increases the Chapter 13 debt limit to $2.75 million dollars, for secured and unsecured debt combined. This is about double what the Chapter 13 debt limits had been, and is extremely helpful for Los Angeles residents who have a second property and mortgage debt that exceeds $1.5 million. These changes are temporary and intended to sunset in 2024.

March 2022: The Senate has introduced a bipartisan bill which would increase the Chapter 13 debt limits significantly if it passes. S3823, the Bankruptcy Threshold Adjustment and Technical Corrections Act (BTATCA) would almost double the amount of debt you can have in Chapter 13.

Chapter 13 debt limits limits who can seek relief in Chapter 13 bankruptcy. These eligibility figures are set by law and are adjusted regularly, and restrict which cases can be in Chapter 13 bankruptcy. As you might know, Chapter 13 bankruptcy involves repaying some or all of your debt. People will sometimes ask, “do I qualify for chapter 13?” The answer, like to many legal questions is, “it depends.”

The purpose is so that the Chapter 13 trustee doesn’t administer cases that are too large and burdensome. At some point, the line is drawn, and let’s face it, in Southern California where this Los Angeles bankruptcy attorney practices, the secured Chapter 13 debt limit is inadequate. If someone has a rental property, they’re probably over the line and don’t qualify, which is hardly fair.

To qualify for Chapter 13 bankruptcy, the reorganization bankruptcy, a few things have to be looked at. First, a good Los Angeles bankruptcy attorney will examine your cash flow. That is, can you afford to repay your debts? Or are you struggling to keep your lights on?

Unsecured and Secured: the Chapter 13 Debt Limits

Second, you have to compare your debts against the debt limits. These numbers constantly change. And to be honest, we bankruptcy lawyers have to look them up, since in most cases they’re not a factor. And just when we learn them, they change again.

2022 Updated Chapter 13 Bankruptcy Debt Limits

Note: the following is superseded by temporary changes in the law effective June 2022 described at the top of this page.

So, as of April 1, 2022, the Chapter 13 debt limits are

  • Unsecured debt: $465,275 (up from $419,275)
  • Secured debt: $1,395,875 (up from 1,257,850)

These values are effective 4/1/2022, and seem to be still be the most current. Normally, you’d check a government website for updated values. However, as of this writing, even the courts are still listing the chapter 13 debt limits that are from before 2019. Other sites, though, seem to be more current.

Some Blurred Line Debt Limit Examples

Even this is oversimplifying things, because where do lawsuits against you fall? That is, if someone has taken you to court, is it a secured debt or an unsecured one? What if you think you’ll win: does it count as a debt at all?

Another issue arises with student loans, particularly if you cosigned as a parent plus loan and it’s not really your debt. Or is it?

Further, tax debt is another tricky one. Is it unsecured, secured  or both? And what if it’s priority, can it also count against the unsecured debt? What if you dispute it?

There are a lot more issues that can arise, so you’ll want to consult with a skilled Los Angeles bankruptcy attorney who specializes in Chapter 13 bankruptcy. I’d be honored to work with you.

Contact us for a consultation

If you’re in the Los Angeles County area, contact us and let’s arrange for a no-obligation Zoom consultation to see how bankruptcy would help you, and to determine your Chapter 13 eligibility.


    cdcbaa logo

    cdcbaa Moderator Hale Antico Hosts Chapter 13 Trustee Panel

    cdcbaa Moderator Hale Antico to Host Panel for Chapter 13 Trustees

    Program to focus on Variances, Particularly in the Age of Covid

    chapter 13 antico
    Chapter 13 Trustees’ Counsel Share A Lighter Moment with cdcbaa President Attorney Antico

    Post-Seminar Update: It was a fun, two-hour cdcbaa program, and the Chapter 13 trustees’ attorneys were very open with their policies. For instance, the panel shared a lot of information in an engaging format. Also, one of the trustee lawyers said it helped to have them share information; they learned a more efficient way to do things. Finally, the bankruptcy lawyer attendees were very involved, asking questions and even bantering with the Chapter 13 trustees’ lawyers.

    Hale Andrew Antico has been keeping busy being a cdcbaa moderator or host of the bankruptcy association programs. On 9/18/2021, cdcbaa President Hale Andrew Antico will moderate a panel with attorneys for Los Angeles bankruptcy Chapter 13 trustees.  The two-hour talk will focus on policy changes during the COVID-19 pandemic. Further, the focus will be ontrustee variances between the offices. This will help bankruptcy attorneys know how to best work with each respective office.

    Chapter 13 Trustees and cdcbaa Coordination

    In March 2020, the coronavirus pandemic started causing quarantines and lockdowns. Many people in Chapter 13 bankruptcies couldn’t continue making their payments. This caused a lot of concern. This caused the Chapter 13 trustees to have to adjust their policies. The trustees’ offices started developing policies about suspending payments, or keeping tax refunds. That’s the good news.

    The challenge came from each trustee’s office doing things differently. The policies were difficult to track.  So, one benefit of a free-ranging panel discussion is to learn which office expects what. Consequently, This will allow attorneys to better anticipate what’s needed or expected. Also, it will make the trustee’s offices operate more efficiently.

    During the two years as president of the group of Los Angeles bankruptcy attorneys, Hale Antico has hosted over a dozen webinars. These information sessions have featured prominent bankruptcy lawyers, trustees, and judges. As cdcbaa moderator, Mr. Antico also takes questions from the group’s members, and tries to stir helpful discussion.

    If you’re not a member of cdcbaa, you can buy tickets for Saturday’s program from the lawyers’ association website.

     

    save home

    Chapter 13 can Stop House Foreclosure

    Chapter 13 bankruptcy can Stop  House Foreclosure

    Save your Home and Catch up on the Mortgage

    by Hale Andrew Antico, Esq.

    In August 2005, just before the bankruptcy laws changed, I wrote in this space that there was a perfect storm brewing for the average consumer.  Since then, the bankruptcy laws have changes (in the name of reform), and indeed, it is harder — but not impossible — to get a fresh start.

    One area where we can get into debt trouble and feel a financial squeeze is with regard to mortgage payments.  The past few years, property values have been soaring here in Southern California.  This has led to many people to refinance their homes and take “cash out” — in essence using their house as an ATM.  The result of this is that it leads to less equity and a higher mortgage payment.

    What happens if these homes with tapped out equity drop in value?  We’re conditioned to believe that property values only go up Up UP! in Southern California.  However, in 1989-1991, the real estate market peaked, leading to dropping property values.  The result is that many people were “upside down” in their homes, meaning that that they owed more than it was worth.  We expect this from a car loan since a car almost always depreciates faster than we can pay it off.  But with a house?  Yikes.

    Some experts believe that history may be repeating itself. Recently, economics experts are looking at reliable benchmarks like Price-to-Income Ratios and Price-to-Rent ratios and noting that home value are much higher than normal levels.  Even houses in your neighborhood are no longer selling within the same week they’re listed with someone offering $10,000 over the listing price.  Instead, we’re seeing “Reduced!” signs nailed onto those For Sale signs, and reading advice like that in the Los Angeles Daily News suggesting that you list your home in the lower 25% as related to the comparable homes in the neighborhood.  Is there a real estate bubble which will shortly burst, or is the housing market temporarily resting before it continues upwards and onwards?  No one knows for sure.

    If you find yourself in the awful situation where you fall one or two payments behind on the mortgage, there is still hope to stop foreclosure.  A Chapter 13 bankruptcy might be the solution.  This option allows you to get some “breathing room,” stop the collection calls and headaches, and even stop a foreclosure.  People can fall a few months behind, they want to catch up but the lender won’t accept anything but a massive lump sum payment that the troubled homeowner doesn’t have.  A Chapter 13 case can allow you to catch your breath as you demonstrate how you will catch up on your past due mortgage payments, but on a schedule you can actually stick to and afford.  This very helpful type of bankruptcy allows you to reorganize your debt and save your house in Southern California and stop foreclosure.

    Even for people who don’t have a home, a Chapter 13 bankruptcy can provide a light at the end of the tunnel.  It can provide a way to pay what you can afford, and in return, stop lawsuits, wage garnishments, collection headaches and yes, even foreclosures. And then, yes, you can be debt-free in three or five years.  That time will tick off the calendar either way… why not be out of debt in that span?

    So, just because you’re a payment or three behind on that car or home and don’t think you can stop the house foreclosure, don’t lose faith.  There is a way to get some space and time to catch your breath.  You can be out of debt and most importantly, save your home.  Sometimes, bad things happen to good people.  We don’t intend for things to work out the way they do.  But when “life happens” and there is an unanticipated debt problem, when you’re ready to solve it then a Chapter 13 bankruptcy can be the solution to your problem.

    CONTACT US FOR A CONSULT NOW

    Hale Andrew Antico (aka Attorney Antico) is an attorney who specializes in consumer finance.