"The Bassel Wilcox Report"
  • PRO-RATA PAYMENTS
    9/12/2011 12:00:00 AM by Pam Bassel

        The term "pro-rata" is used in a Chapter 13 Plan to describe how a creditor will be paid. What it means is delay in getting paid as a secured creditor.  All priority claims, administrative claims and claims listed as being paid in a specific amount will be paid ahead of the pro-rata secured creditor. This could mean the debtor’s attorney’s fees, the I.R.S. and domestic support obligations, among others, could be paid in full before the secured creditor gets any disbursement post-confirmation. Except in the Southern District of Texas (see below), if you are listed to be paid pro-rata, it generally means that the debtor’s attorney will be paid, in full, before you get any disbursement at all as a secured creditor. In these difficult economic times, many debtor’s attorneys are getting little or no down payment on their fees and most of those fees are paid through the Plan, creating a lengthy delay before payments to creditors begin. You are entitled to equal payments beginning month one after the Plan is confirmed which you ...  see more at The Bassel Wilcox Report
  • COLLATERAL SURRENDERED, BUT NOT TURNED OVER
    12/2/2011 12:00:00 AM by Pam Bassel

    This is a frustrating problem for you. You get a Plan or a Plan modification that states that the debtor is going to surrender your collateral. After the Plan is confirmed or the modification is approved, you find out the vehicle was wrecked or impounded and is now worthless or that there are repair or storage charges against your vehicle and it is not cost effective to take possession of it because you won’t recoup your costs in a sale or that the debtor gave/sold your collateral to someone else and will not tell you where the vehicle is located. What do you do in this situation?

    We recommend filing an objection to the Plan or the Modification when you do not know who has your vehicle and it has not been turned over to you. The objection, pre-confirmation, is that the Plan should not be confirmed unless the vehicle is delivered to you, the creditor. Post-confirmation, object to the modification on the grounds that it should not be approved unless the debtor delivers the vehicle to you and, also, that the debtor pays you the remaining balance owed on your allowed sec...  see more at The Bassel Wilcox Report

  • The New Requirement for Proof of Claim
    12/9/2011 12:00:00 AM by Stephen Wilcox

    Generally, in order to be paid in a bankruptcy case, you have to file a proof of claim. Bankruptcy Rule 3001 sets out the specific requirements for a proof of claim. This Rule was amended effective December 1, 2011. Not only did the requirements for what must be included in a proof of claim change, but the rule also provides for bad things to happen if you don’t do it right. The new requirements apply in cases where the debtor is an individual, even in a Chapter 11 proceeding.

    First, a proof of claim "shall conform substantially to the appropriate Official Form." The official form is available at www.uscourts.gov and the official proof of claim form is form B-10. If the claim is based on a writing, then a copy of the writing (such as the note and deed of trust or certificate of title) must be attached to the proof of claim.

    If you are claiming amounts other than the principal amount of the debt, like interest or attorney...  see more at The Bassel Wilcox Report

    

The Automatic Stay

This is the heart of any bankruptcy proceeding. It does not matter whether the debtor files a case under Chapter 7, 11, 12 or 13 - once the case is filed, the automatic stay goes into effect (there is an exception if the debtor files multiple cases- see below). The automatic stay is an injunction and it prevents a creditor from exercising its collection rights like repossession, posting for foreclosure, demanding payment, and sending notification of default unless the bankruptcy court enters an order allowing the creditor to proceed. This means that a creditor cannot continue normal collection activities. There are some exceptions to the automatic stay, but they do not apply to routine collection matters. Here is a partial list of things you cannot do:

Send letters or make phone calls to demand payment or even make payment arrangements;

Repossess collateral, even if it is not insured and you aren't getting paid;

Keep collateral you repossessed before the bankruptcy was filed (perhaps even if it was voluntarily surrendered to you);

Sell collateral you repossessed before the bankruptcy was filed (even if it was voluntarily surrendered to you);

Continue an automatic draft on a bank account for monthly payments (or any other kind of payment);

Pick up leased equipment;

Evict a debtor who is your tenant;

Foreclose on real estate the debtor has an interest in; or

Sue the debtor or even continue a lawsuit filed before the bankruptcy was filed.

This is not a complete list. If there is the slightest question about whether something is permitted or not, it is best to get legal advice before continuing because...

IGNORING THE AUTOMATIC STAY IS RISKY BUSINESS

If you violate the automatic stay, the debtor has the right to ask the bankruptcy judge to make you stop what you are doing AND (1) pay his lawyer's legal fees for enforcing the automatic stay AND (2) pay for any actual damages you have caused the debtor (like loss of the use of his vehicle and the work he missed because he could not get there or the job he couldn't take because you repossessed his equipment) AND, (3) if the judge thinks you deserve it, pay punitive damages as a punishment for doing something the law says you can't do. To continue with collection and repossession activites, you must have a bankruptcy court order saying that you can. But you have to have a good reason...

A LIST OF GOOD REASONS

A creditor or lessor can file a motion asking the bankruptcy judge to allow it to repossess collateral, foreclose property or recover leased assets, but there has to be a good reason. The most common ones include:

There is no insurance on your collateral or leased assets;

You are not being paid as you should be once the case is filed; or

Your collateral or leased assets are being abused or vandalized or are at risk in some other way.

Even if some or all of these conditions exist, you still have to get court permission first before you can reposses collateral or post property for foreclosure or pick up leased equipment. The way this is done is the filing of a motion with the bankruptcy court. In Texas, these motions generally end with the debtor agreeing either that the creditor/lessor can repossess and sell collateral or leased assets, take over leased premises, or post property for foreclosure OR agreeing to an order which sets out what the debtor must do to keep the property. Most of the time, agreed orders require the debtor to make payments going forward and keep assets insured and, if appropriate, stay current on property taxes. If the debtor does not do whatever is agreed upon, the creditor/lessor can repossess and sell collateral or take back its leased equipment or premises. Every once in a while, the parties cannot reach an agreement. In those cases, the bankruptcy judge decides what rights the debor and the creditor/lessor will have.

SERIAL FILINGS

Every once in a while, and usually with Chapter 13 cases, you run across a debtor that has actually had two bankruptcy cases which were dismissed within a year and is now filing a third case. In this situation, the automatic stay does not go into effect unless the debtor asks the court to impose it. As a secured creditor/lessor, you have a right to object to that. It ususally happens very early in a case, so this is a right you have to assert very quickly. If you do not object, the bankruptcy court will generally impose the automatic stay.

ONE LAST THOUGHT

Occasionally, a debtor will claim he has an interest in property and the creditor/lessor will not agree. Maybe a vehicle was purchased in a corporate name and the owner of the corporation is claiming it as his own. Maybe your customer was the husband, but his wife got your collateral in a divorce settlement and she has now filed bankruptcy. Maybe a debtor claims he owns real estate and the creditor disagrees that the debtor is the owner. These are difficult cases, but the law is that if the debtor has an arguable claim that he has an interest in an asset, the automatic stay applies until the bankruptcy court can determine everyone's rights. The creditor generally does not get to make that decision - the judge does - and a creditor who tries to take action without court approval may be violating the automatic stay.

THE CO-DEBTOR STAY

If you have a co-buyer on your contract or note and the debtor is in a Chapter 12 or 13, that person may be protected by the co-debtor stay. If the debt you are owed is a consumer debt (and that is a broad category) and your co-buyer is a person, you have to get an order from the bankruptcy court first before you start or continue collection efforts against the co-buyer.