There seem to be debtors everywhere who think they can file bankruptcy without an attorney. Of course, in many, many cases, debtors only end up causing themselves greater problems. A case out of the Eastern District of Pennsylvania proves my point.

The debtor in that case got his case dismissed because he did not received the requisite credit counseling. The case was filed on Valentines Day of this year, and along with his petition, the debtor filed a statement of “Exigent Circumstances” to excuse his failure to comply with the credit counseling requirement. The debtor represented that he was facing a foreclosure sale.

On February 20, the court ordered him to file by the 29th a Supplement to the Certification to enable the court to determine whether the requirements of Section 109(h)(3) had been satisfied. Debtor didn’t. Instead, the debtor filed his Certificate of Credit Counseling on the 28th. The case was dismissed. Debtor filed a motion for reconsideration.

Bankruptcy Code Section 109(h)(3) has at least requirements for establishing that there are Exigent Circumstances justifying a failure to obtain prepetition credit counseling. First, there must be some emergency compelling the filing before the counseling was obtained. Second, the debtor has to have tried to obtain credit counseling before filing the case but was unable to get it within the 5 day period prior to filing. The pro se debtor did not provide any information on this second requirement.

The case got dismissed. Hopefully, when the debtor again files bankruptcy (since he was facing foreclosure, I am assuming he did or will), he will have a lawyer. One of the first things he’ll have to do is seek an extension of the automatic stay because he will then be a repeat filer.

In re Kaufman, No. 08-11087 (Bankr.E.D.Pa.)

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Posted by Bill McLeod at 7:03 PM | Permalink | Comments (0) | TrackBacks (0)

There has been so much written about BAPCPA and the creditors who practically wrote the law and got it passed. While I cannot doubt that creditors – such as the good folks at MBNA (which was bought out by Bank of America), paid their lobbyists millions of dollars for years to get the Bankruptcy Code changed, a recent case perhaps rightly suggested that lenders had good reason to seek a change in the law. The case, decided in February, came out of the Northern District of Alabama.

The husband and wife debtors filed their case in October 2006. It was the wife’s seventh bankruptcy case (no that’s not a typo....that's 7) and the husband’s fifth (and again, not a typo....that's 5). As the October filing was their second case within a year, they filed a motion to seek an extension of the automatic stay. Since 2005, if a debtor has had a case pending within the year prior to the case being filed, the stay expires 30 days unless the court orders otherwise. The hearing of the motion must be held within the 30 day period. The debtors needed the stay to prevent a foreclosure on their home.

Continue reading "Poster Children for Bankruptcy Reform" »

Posted by Bill McLeod at 7:16 AM | Permalink | Comments (0) | TrackBacks (0)

People own businesses: corporations, LLCs or other types of formal or informal business entities. When those people need to file bankruptcy, does the automatic stay that takes effect immediately upon filing also extend to those wholly-owned companies? The Bankruptcy Court in the Southern District of New York ruled on that issue on February 8, 2008.

That debtor filed for relief under Chapter 13 and was self-employed as a general contractor. He was the sole member of an LLC. Under Chapter 13, there exists a co-debtor stay, and this debtor wanted to ensure that the co-debtor stay extended to his LLC.

The Court noted that the LLC was not eligible to be a Chapter 13 debtor since it was a business entity, and not an individual. Chapter 13 is limited to individuals only. In addition, the co-debtor stay applies specifically to consumer debts, not commercial or business debtors. On his petition, the debtor noted that the debts were primarily consumer debts. And finally, there was nothing in the Bankruptcy Code allowing an individual and a business to be joint debtors. The request to extend the stay to the LLC was denied.

It is important to note that this is the bright line rule. There are circumstances that might permit a court to extend the stay to a non-debtor business entity in Chapter 13, but whether that can occur is really determined on a case by case basis. For example, if there is a claim against a non-debtor, and the debtor is a guarantor, not extending the stay could have an adverse economic consequence on the debtor’s ability to reorganize. The extension of the stay to non-debtors has been limited to those claims that “threaten serious risk to a reorganization of debtor’s estate in the form of immediate adverse consequences.”

The case is In re McCormick, 381 BR 594 (Bankr.S.D.N.Y. 2008).

Posted by Bill McLeod at 10:19 AM | Permalink | Comments (0) | TrackBacks (0)