The United States Supreme Court issued a unanimous judgment affirming the Ninth Circuit’s finding for the debtor in the case of United Student Aid Funds, Inc. v. Espinosa on March 23, 2010.  Espinosa, a Chapter 13 debtor, sought to discharge the interest that had accrued on his student loan while paying the principle via the payment plan. He had included the student loan as part of his plan rather than initiating an adversary proceeding to determine undue hardship. The student loan creditor received actual notice of the plan, but did not object to the partial payment. The bankruptcy court confirmed the plan, the debtor honored it and was discharged in 1997. After several years had passed, USAF tried to collect the unpaid interest on the loan. Espinosa appealed to the bankruptcy court to enforce the discharge. USAF responded with a motion to void confirmation of the plan under Federal Rules of Civil Procedure, 60(b)(4). The Supreme Court found that Rule 60(b) relieves a party of a final judgment only in the rare circumstance that the “judgment is premised either on a certain type of jurisdictional error or on a violation of due process that deprives a party of notice or the opportunity to be heard.” The Court began its analysis with the finding that the statutory requirements of undue hardship and the initiation of an adversary proceeding are not jurisdictional. The issue then, was whether USAF received adequate notice to satisfy due process. The Court found that the existence of actual notice, albeit not the type of notice proscribed by the bankruptcy rules, was sufficient to satisfy due process.

The Court addressed USAF and the Amicus, U.S. government’s, argument that the bankruptcy court’s order is void because it went beyond the court’s power. The Court did find that the failure to comply with §§ 523(a)(8) and 1328(a) before confirming the plan was a “legal error.” But the Court went on to note that the error did not rise to the level necessary to void a final judgment. This was particularly true in this case since the creditor had actual notice and was not allowed to “sleep on its rights.”

The Court did not agree with a facet of the Ninth Circuit’s decision: the one stating that a bankruptcy court could confirm a plan which would discharge a student loan without an adversary proceeding so long as the creditor did not object.

If you have any questions and live in Denver, Aurora, Arvada, Boulder, Brighton, Broomfield, Commerce City, Englewood, Golden, Highlands Ranch, Lakewood, Lafayette, Littleton, Northglenn, Westminster, Wheat Ridge, Colorado please feel free to contact me. Kevin D. Heupel, Colorado Bankruptcy lawyer, 303-955-7570, COBankruptcyHelpEmail, free-consultation form.

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On Monday, March 22, 2010, the United States Supreme Court heard oral arguments related to the Hamilton v. Lanning Bankruptcy Case. In October 2006, Stephanie Kay Lanning filed for bankruptcy suggesting a monthly payment plan of $144, based on her current income and expenses. Jan Hamilton, Lanning’s bankruptcy trustee, objected to her proposal, saying that Lanning’s “projected disposable income” exceeded $1,000 per month. The U.S. Bankruptcy Court for the District of Kansas overruled the objection and approved Lanning’s plan. The court found that, while Hamilton’s calculation of “projected disposable income” based on Lanning’s income from the prior six months was correct under Form 22C, the results were inequitable because Lanning’s income was artificially inflated for two months because of a buyout from her prior employer. The Bankruptcy Appeals Panel and the Tenth Circuit Court of Appeals both affirmed the decision. Hamilton argues that the plain language of the statute mandates his “mechanical” approach, while Lanning argues that her “forward-looking” approach avoids unreasonable results. The Supreme Court’s decision in this case will provide clarity to a statutory term that has flummoxed the lower courts, while simultaneously affecting the flexibility of bankruptcy judges. This case addresses the extent of a bankruptcy court’s flexibility in determining the “projected disposable income” of a debtor under 11 U.S.C. § 1325(b)(1)(B).  The question that the U.S. Supreme Court will decide is whether bankruptcy courts in determining the amount a debtor must pay to creditors may consider changes in the debtor’s income and expenses after the pre-filing period.

If you have any questions and live in Denver, Aurora, Arvada, Boulder, Brighton, Broomfield, Commerce City, Englewood, Golden, Highlands Ranch, Lakewood, Lafayette, Littleton, Northglenn, Westminster, Wheat Ridge, Colorado please feel free to contact me. Kevin D. Heupel, Colorado Bankruptcy lawyer, 303-955-7570, COBankruptcyHelpEmail, free-consultation form.

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Throughout the week I have been reviewing the issues covered in the Bankruptcy Basics Pamphlet, today I will present the remaining sections. The next topic covered is the Servicemembers Civil Relief Act (SCRA). The purpose of this act is to protect service members during their military service by providing for the temporary suspension of judicial and administrative proceedings and transactions that may adversely affect service members. Among other things, the SCRA allows for reduced interest on certain obligations incurred prior to military service, and default judgments against service members and rental evictions of service members and all their dependents are restricted. The SCRA applies to all members of the United States military on active duty, and to U.S. citizens serving in the military of United States allies in the prosecution of a war or military action. The provisions of the SCRA generally end when a servicemember is discharged from active duty or within ninety days of discharge, or when a servicemember dies. For more details about the SCRA refer to page 61 of the Bankruptcy Basics Pamphlet.

The following and final section covers the Securities Investor Protection Act. The act covers the case when a brokerage firm fails and investors need to be protected. The initial purpose of the act was to encourage investor confidence. For more information on this Act refer to page 65 of the Bankruptcy Basics Pamphlet.

At the end of the pamphlet is a glossary that is written in accessible language. If you are in the process of filing bankruptcy you may want to review some of these terms. They may help clarify the bankruptcy process as you progress through it.

If you have any questions and live in Denver, Aurora, Arvada, Boulder, Brighton, Broomfield, Commerce City, Englewood, Golden, Highlands Ranch, Lakewood, Lafayette, Littleton, Northglenn, Westminster, Wheat Ridge, Colorado please feel free to contact me. Kevin D. Heupel, Colorado Bankruptcy lawyer, 303-955-7570, COBankruptcyHelpEmail, free-consultation form.

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Here is a brief discussion of the remaining two chapters in the Bankruptcy Basics Pamphlet. On Friday my coverage of the material in the pamphlet will be completed.

Chapter 9 is referred to as the Municipality Bankruptcy. The purpose of Chapter 9 is to protect a municipality that is having financial difficulty from its creditors while it develops and negotiates a plan for adjusting its debts. The term “municipality” is defined in the Bankruptcy Code as a “political subdivision or public agency or instrumentality of a State.” 11 U.S.C. § 101(40). The definition includes cities, counties, townships, school districts, and public improvement districts. It also includes revenue-producing bodies that provide services which are paid for by users of the services rather than by general taxes-for example bridge authorities, highway authorities, and gas authorities.

Reorganization of the debts of a municipality is typically accomplished either by extending the maturity of the debt, reducing the amount of principal or interest, or refinancing the debt by obtaining a new loan. Chapter 9 is significantly different from other Chapters in that there is no provision in the law for liquidation of the assets of the municipality with intent to distribute the proceeds to creditors.

Severe limitations are placed upon the power of the bankruptcy court in Chapter 9 bankruptcy cases which are required by the Tenth Amendment and the Supreme Court’s decisions in cases upholding municipal bankruptcy legislation.  Due to these severe limitations, the bankruptcy court generally is not as active in managing a municipal bankruptcy case as it is in corporate reorganizations under Chapter 11. The functions of the bankruptcy court in Chapter 9 cases are generally limited to approving the petition (if the debtor is eligible), confirming a plan of debt adjustment, and ensuring implementation of the plan. As a practical matter, however, the municipality may consent to have the court oversee many of the traditional areas of court jurisdiction in bankruptcy.

And finally there is Chapter 15 which is related to the Ancillary and Other Cross-Border Cases. Chapter 15 is a new Chapter added to the Bankruptcy Code by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The purpose of Chapter 15, and the Model Law on which it is based, is to provide effective mechanisms for dealing with insolvency cases involving debtors, assets, claimants and other parties in interest involving more than one country.

This general purpose is realized through five objectives specified in the statute:

1. to promote cooperation between the United States courts and parties in interest and the courts and other competent authorities of foreign countries involved in cross-border insolvency cases;

2. to establish greater legal certainty for trade and investment;

3. to provide for the fair and efficient administration of cross-border insolvencies that protects the interests of all creditors and other interested entities, including the debtor;

4. to afford protection and maximization of the value of the debtor’s assets; and

5. to facilitate the rescue of financially troubled businesses, thereby protecting investment and  preserving employment.

For more information about Chapter 15 you may refer to the Bankruptcy Basics Pamphlet or to Title 11 U.S.C. § 1501.

If you have any questions and live in Denver, Aurora, Arvada, Boulder, Brighton, Broomfield, Commerce City, Englewood, Golden, Highlands Ranch, Lakewood, Lafayette, Littleton, Northglenn, Westminster, Wheat Ridge, Colorado please feel free to contact me. Kevin D. Heupel, Colorado Bankruptcy lawyer, 303-955-7570, COBankruptcyHelpEmail, free-consultation form.

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The Bankruptcy Basics Pamphlet discusses Chapter 13 and Chapter 11 over the next twenty-one pages. Since I have covered those two Chapters in detail in previous blogs I will refer you to those. The next seven pages of the pamphlet cover Chapter 12. Chapter 12 is referred to as the Family Farmer or Family Fisherman Bankruptcy. The Bankruptcy Code provides that only a family farmer or family fisherman with “regular annual income” may file a petition for relief under Chapter 12. The purpose of this requirement is to ensure that your annual income is stable enough to permit you to make payments under a Chapter 12 plan. But Chapter 12 does make allowances for situations in which family farmers or fishermen have income that is seasonal in nature. Under the Bankruptcy Code, “family farmers” and “family fishermen” fall into one of two categories: 1) an individual or individual and spouse, or 2) a corporation or partnership.

A Chapter 12 bankruptcy case begins by filing a petition with the Bankruptcy Court-Colorado District or where the corporation or partnership debtor has its principal place of business or principal assets. Unless the court orders otherwise, you also should file:

• schedules of assets and liabilities,
• a schedule of current income and expenditures ,
• a schedule of executory contracts and unexpired leases, and
• a statement of financial affairs. Federal Rules of Bankruptcy Procedure 1007(b).

In order to complete the Official Bankruptcy Forms which make up the petition, statement of financial affairs, and schedules, the debtor will need to compile the following information:

• A list of all creditors and the amounts and nature of their claims;
• The source, amount, and frequency of the debtor’s income;
• A list of all of the debtor’s property; and
• A detailed list of the debtor’s monthly farming and living expenses, i.e., food, shelter, utilities, taxes, transportation, medicine, feed, fertilizer, etc.

When a Chapter 12 petition is filed, an impartial trustee is appointed to administer the case. In some districts, the U.S. trustee appoints a standing trustee to serve in all Chapter 12 cases. The trustee both evaluates the case and serves as a disbursing agent, collecting payments from the debtor and making distributions to creditors. Filing the petition under Chapter 12 “automatically stays” (stops) most collection actions against the debtor or the debtor’s property. The stay arises by operation of law and requires no judicial action. As long as the stay is in effect, creditors generally cannot initiate or continue any lawsuits, wage garnishments, or even telephone calls demanding payments. The bankruptcy clerk gives notice of the bankruptcy case to all creditors whose names and addresses are provided by the debtor. Chapter 12 also contains a special automatic stay provision that protects co-debtors. Unless the bankruptcy court authorizes otherwise, a creditor may not seek to collect a “consumer debt” from any individual who is liable with the debtor. Consumer debts are those incurred by an individual primarily for a personal, family, or household purpose. Between 20 to 35 days after the petition is filed, the Chapter 12 trustee will hold a “meeting of creditors.” If the meeting is scheduled at a place that does not have regular U.S. trustee or bankruptcy administrator staffing, the meeting may be held no more than 60 days after the debtor files. During the meeting both the trustee and creditors may ask questions of the debtor who is under oath. The debtor must attend the meeting and answer questions regarding his or her financial affairs and the proposed terms of his or her repayment plan. The parties involved typically resolve problems with the plan either during or shortly after the creditors’ meeting. After the meeting of creditors, the debtor, the Chapter 12 trustee, and interested creditors will attend a hearing on confirmation of the debtor’s Chapter 12 repayment plan. The debtor will receive a discharge after completing all payments under the Chapter 12 plan that has been confirmed in the hearing.

If you have any questions and live in Denver, Aurora, Arvada, Boulder, Brighton, Broomfield, Commerce City, Englewood, Golden, Highlands Ranch, Lakewood, Lafayette, Littleton, Northglenn, Westminster, Wheat Ridge, Colorado please feel free to contact me. Kevin D. Heupel, Colorado Bankruptcy lawyer, 303-955-7570, COBankruptcyHelpEmail, free-consultation form.

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In today’s blog I will continue with the Bankruptcy Basics Pamphlet offered by the United States Bankruptcy-Colorado District.  The next seven pages of the pamphlet discuss Chapter 7 bankruptcy. Most of the issues presented in those pages can be found in a prior blog discussing Chapter 7 bankruptcy issues.

In the pamphlet there is a discussion about the basis for denying a discharge in a Chapter 7 case.   

Some of the reasons that the court may deny you a discharge are if it finds that you:

• failed to keep or produce adequate books or financial records;
• failed to satisfactorily explain any loss of assets;
• committed a bankruptcy crime such as perjury;
• failed to obey a lawful order of the bankruptcy court;
• fraudulently transferred, concealed, or destroyed property that would have become property of the estate;
• or failed to complete an approved instructional course concerning financial management.    11 U.S.C. § 727; Fed.  R. Bankr. P. 4005.

Another method of counteracting the discharge besides a denial is via a reaffirmation of the debt. After a discharge is granted secured creditors may retain some rights to seize property securing an underlying debt. In such an instance you may keep certain secured property if you reaffirm your debt. There is an explanation of a reaffirmation agreement in my November 11^th blog. Title 11 section 524 c of the Bankruptcy Code also discusses the terms of the reaffirmation agreement.

If you have any questions and live in Denver, Aurora, Arvada, Boulder, Brighton, Broomfield, Commerce City, Englewood, Golden, Highlands Ranch, Lakewood, Lafayette, Littleton, Northglenn, Westminster, Wheat Ridge, Colorado please feel free to contact me. Kevin D. Heupel, Colorado Bankruptcy lawyer, 303-955-7570, COBankruptcyHelpEmail, free-consultation form.

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The next section in the Bankruptcy Basics Pamphlet covers bankruptcy discharge. In prior blogs I have already written extensively about bankruptcy discharge. In this blog, I will present a thumbnail sketch of the five pages in the pamphlet.

A bankruptcy discharge releases you from liability for certain specified types of debts. The time that the discharge occurs depends upon the type of bankruptcy case. (For a discussion of the specific timeline refer to the Chapter 7, 13, or 11 blog.) The bankruptcy court may deny you a discharge in a Chapter 7 or 13 case if you fail to complete a financial management course. The Bankruptcy Code does allow for limited exceptions to the course requirement. You will usually automatically receive a discharge, unless there is litigation objecting the discharge. The Federal Rules of Bankruptcy Procedure provide for the clerk of the bankruptcy court to mail a copy of the order of discharge to: all creditors, the U.S. trustee, the trustee, you, and your attorney. The notice informs your creditors that the debts owed to them have been discharged and that they no longer may attempt to collect from you. Only some of your debts are dischargeable. The debts considered dischargeable vary under each chapter of the Bankruptcy Code. Section 523(a) of the Code specifies the exceptions to dischargeable debt.

In chapter 7 bankruptcy cases, you do not have an absolute right to a discharge. An objection to your discharge may be filed by a creditor, by the trustee in the case, or by the U.S. trustee. Creditors receive a notice shortly after the case is filed that includes the deadline for objecting to the discharge. To object to your discharge, a creditor must file a complaint in the bankruptcy court before the deadline. Filing a complaint starts a lawsuit referred to in bankruptcy as an “adversary proceeding.” The court may deny a Chapter 7 discharge for any of the reasons described in section 727(a) of the Bankruptcy Code. If the issue of your right to a discharge goes to trial, the objecting party has the burden of proving all the facts essential to the objection. The court will deny a discharge in a later Chapter 7 case if you received a discharge under Chapter 7 or Chapter 11 in a case filed within eight years before the second petition is filed. The court will also deny a Chapter 7 discharge if you have received a prior discharge in a Chapter 12 or Chapter 13 case filed within six years before the date of the filing of the second case unless (1) you paid all “allowed unsecured” claims in the earlier case in full, or (2) you made payments under the plan in the earlier case totaling at least 70 percent of the allowed unsecured claims and your plan was proposed in good faith and the payments represented your best effort.

In Chapter 12 and Chapter 13 cases, you are usually entitled to a discharge upon completion of all payments under the plan. You are not eligible for a discharge in a Chapter 13 bankruptcy case if you received a prior discharge in a Chapter 7, 11, or 12 case filed four years before the current case or in a Chapter 13 case filed two years before the current case. Unlike Chapter 7, creditors do not have standing to object to the discharge of your Chapter 12 or Chapter 13 bankruptcy case. They may object to confirmation of the repayment plan, but cannot object to the discharge if you completed making plan payments.

The court may revoke a discharge if, for example, a trustee, creditor, or the U.S. trustee request that the court revoke your discharge in a Chapter 7 case based on certain allegations. Typically, a request to revoke your discharge must be filed within one year of the discharge or, in some cases, before the date that the case is closed. The court will decide whether such allegations are true and, if so, whether to revoke the discharge. In a Chapter 11, 12 and 13 cases, if confirmation of a plan or the discharge is obtained through fraud, the court can revoke the order of confirmation or discharge.

If you have any questions and live in Denver, Aurora, Arvada, Boulder, Brighton, Broomfield, Commerce City, Englewood, Golden, Highlands Ranch, Lakewood, Lafayette, Littleton, Northglenn, Westminster, Wheat Ridge, Colorado please feel free to contact me. Kevin D. Heupel, Colorado Bankruptcy lawyer, 303-955-7570, COBankruptcyHelpEmail, free-consultation form.

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In my last blog I promised to summarize the seventy-eight page Bankruptcy Basics Pamphlet supplied by the United States Bankruptcy Court - District of Colorado. Let’s begin with the four- page Introduction.

The Bankruptcy Code, which is codified as title 11 of the United States Code, and the Federal Rules of Bankruptcy Procedure (aka Bankruptcy Rules) set forth the legal procedures for dealing with the debt problems of individuals and businesses. Each of the ninety judicial bankruptcy districts in the country has a bankruptcy court. Each state has one or more district. The bankruptcy judge, the court official with decision-making power over federal bankruptcy cases, may decide any matter connected with a bankruptcy case. But a lot of the bankruptcy process is administrative and is conducted away from the courthouse. In cases under Chapters 7, 12, or 13, and sometimes in Chapter 11 cases, this administrative process is carried out by a trustee who is appointed to oversee the case. Your involvement with the bankruptcy judge is usually very limited. In a typical Chapter 7 bankruptcy case you will not appear in court and will not see the bankruptcy judge unless an objection is raised in the case. In a Chapter 13 bankruptcy case you only may have to appear before the bankruptcy judge at a plan confirmation hearing. Usually, the only formal proceeding at which you are required to appear is the meeting of creditors, which is usually held at the offices of the U.S. trustee. This meeting is informally called a “341 meeting” because section 341 of the Bankruptcy Code requires that you attend this meeting so that creditors can question you about debts and property.

A fundamental goal of the federal bankruptcy laws is to give you a financial “fresh start” from burdensome debts. This is accomplished through the bankruptcy discharge, which releases you from personal liability from specific debts and prohibits creditors from ever taking any action against you to collect those debts.

Six basic types of bankruptcy cases are provided for under the Bankruptcy Code:

• Chapter 7, entitled Liquidation
• Chapter 13, entitled Adjustment of Debts of an Individual With Regular Income
• Chapter 11, entitled Reorganization, ordinarily is used by commercial enterprises that desire to continue operating a business and repay creditors concurrently through a court-approved plan of reorganization
• Chapter 12, entitled Adjustment of Debts of a Family Farmer or Fisherman with Regular Annual Income
• Chapter 9, entitled Adjustment of Debts of a Municipality
• Chapter 15, entitled Ancillary and Other Cross-Border Cases, is to provide an effective mechanism for dealing with cases of cross-border insolvency.

In addition to the basic types of bankruptcy cases, the pamphlet provides an overview of the Service members’ Civil Relief Act, which provides protection to members of the military against the entry of default judgments and gives the court the ability to stay proceedings against military debtors.

If you have any questions and live in Denver, Aurora, Arvada, Boulder, Brighton, Broomfield, Commerce City, Englewood, Golden, Highlands Ranch, Lakewood, Lafayette, Littleton, Northglenn, Westminster, Wheat Ridge, Colorado please feel free to contact me. Kevin D. Heupel, Colorado Bankruptcy lawyer, 303-955-7570, COBankruptcyHelpEmail, free-consultation form.

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The website of the United States Bankruptcy Court - District of Colorado supplies a free Bankruptcy Basics PDF pamphlet that I thought might interest some of my readers. The pamphlet presents basic information to debtors, creditors, court personnel, and the media on various facets of the federal bankruptcy laws. In addition, it is designed for individuals who may be considering bankruptcy and need a basic explanation of the different chapters involved in bankruptcy cases. It is intended to answer commonly asked questions about the bankruptcy process.

Note the disclaimer on one of the introductory pages: “While the information presented is accurate as of the date of publication, it should not be cited or relied upon as legal authority. It should not be used as a substitute for reference to the United States Bankruptcy Code (title 11, United States Code) and the Federal Rules of Bankruptcy Procedure, both of which may be reviewed at local law libraries, or to local rules of practice adopted by each bankruptcy court. Finally, this publication should not substitute for the advice of competent legal counsel.”

Since the pamphlet is seventy-eight pages long, I will summarize several of the topics for you in the next couple of blogs that I write. Hopefully, this will be helpful to those of you who do not have the time or inclination to wade through that much material.

If you have any questions and live in Denver, Aurora, Arvada, Boulder, Brighton, Broomfield, Commerce City, Englewood, Golden, Highlands Ranch, Lakewood, Lafayette, Littleton, Northglenn, Westminster, Wheat Ridge, Colorado please feel free to contact me. Kevin D. Heupel, Colorado Bankruptcy lawyer, 303-955-7570, COBankruptcyHelpEmail, free-consultation form.

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It might be useful to some of you who are considering filing bankruptcy to have access to information about state exemption laws. The ExemptionsExpress website is a guide for bankruptcy attorneys that provides exemption information that might be of value to you.

The stated purpose of the website is:
“1. to determine what exemptions (federal, state, or both) are available to a debtor;
  2. to determine what, if any, territorial limitations there may be on use of those exemptions; and
  3. to provide statutory and case law in support of those determinations.”

If you have any questions and live in Denver, Aurora, Arvada, Boulder, Brighton, Broomfield, Commerce City, Englewood, Golden, Highlands Ranch, Lakewood, Lafayette, Littleton, Northglenn, Westminster, Wheat Ridge, Colorado please feel free to contact me. Kevin D. Heupel, Colorado Bankruptcy lawyer, 303-955-7570, COBankruptcyHelpEmail, free-consultation form.

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