Why does the @#$% Trustee … (fill in the blank)?

20121220-104718.jpgThe answer to the question, “why does the @#$% Trustee…?”, is almost always going to be “because the Bankruptcy Code or the U.S. Trustee requires it.”  I believe all bankruptcy practitioners should be aware of the website containing the Private Trustee Handbooks and Reference Materials, which includes the Chapter 7 Trustee Handbook and the Chapter 13 Trustee Handbook. Review the information and you will see why your trustees do what they do. Although much of the information is devoted to trustee internal controls and accounting, many provisions concern trustees’ interactions with debtors.

The website contains a list of questions trustees are required to ask at 341 Meetings. Do I really think the 88 year old great-grandmother pays a Domestic Support Obligation? Not really, but you never know, and I am required to ask the question. The  reference materials also suggest other questions that may be appropriate under certain circumstances. Check it out. The Handbooks explain what types of debtor identification are acceptable and what documents may be used to prove a debtor’s social security number.  They provides guidance to trustees on how to detect potential criminal conduct and provide a list of potential bankruptcy crimes that must be reported if criminal conduct is suspected.  The Handbooks also contain discussions of debtor audits, bad faith and abuse, and determinations of “primarily secured debt.”  Most everything you need to know about a trustee’s duties is found in the Private Trustee Handbooks and Reference Materials.

Debtor FAQ – Can I Keep My Stuff?

free stuff

A debtor entitled to Mississippi exemptions may retain certain tangible personal property, not to exceed $10,000.00 in cumulative value:

1. HOUSEHOLD GOODS. “Household goods” includes clothing, furniture, appliances, one (1) radio, one (1) television, one (1) firearm, one (1) lawn mower, linens, china, crockery, kitchenware and personal effects (including wedding rings) of the debtor or dependents; however, works of art and items acquired as antiques are not “household goods.”

Personal observation: I wonder if anyone owns a “radio” these days. If so, what is it worth? Could you give it away? Maybe the TuneIn Radio or Pandora App converts an iPhone or computer into a radio. Let’s hope so, because under Mississippi law a computer may not be exempt.  Also, the term “crockery” did not evoke a clear image in my mind, so I queried an online dictionary and found that I was not alone in my ignorance. Another web dictionary user felt the need to comment on the definition:

[M]y roommate’s doing her homework and we wanted to know if a mug counted as crockery. I didn’t even know this was a word, but I plan on using it whenever I see a hideous china set: “What is this crockery?”

Now the word “crockery” brings to mind dishes my grandmother got with Green Stamps or pulled from a box of laundry detergent.

2. WEARING APPAREL.

3. BOOKS.

4. ANIMALS OR CROPS.
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5. MOTOR VEHICLES. The Mississippi exemption statute does not define a “motor vehicle.” Certainly cars and trucks you see traveling on roads are included.  The Northern District Bankruptcy Court (Hon. Neil P. Olack) examined the definition of motor vehicle under other Mississippi statutory provisions, including Miss. Code Ann. §63-3-103 (Motor Vehicle and Traffic Regulation-Definitions), Miss. Code Ann. §27-19-3 (Motor Vehicle Privilege Taxes-Definitions) and Miss. Code Ann. §27-19-56 (License Plates) and found that a motorcycle is a “motor vehicle” under the Mississippi exemption scheme. In re Clemons, 441 B.R. 519 (Bankr. N.D. Miss. 2010).   The broadest interpretation of “motor vehicle” is predictably found in Miss. Code Ann. §27-19-3, which includes all vehicles subject to privilege tax. Under this broad definition, hauling trailers, including boat trailers, are “motor vehicles.”   “Electric personal assistance mobility devices” are specifically excluded.

6. IMPLEMENTS.

Personal observation: I don’t know what this means.

7. PROFESSIONAL BOOKS OR TOOLS OF THE TRADE.   

Personal observation: I cannot conceive of a profession or job for which a basic computer would not be a “tool of the trade.”

8. CASH ON HAND.   What is cash on hand?

9. PROFESSIONALLY PRESCRIBED HEALTH AIDS.

prothesis

Personal observation: I’ve been a trustee for almost 10 years and I have seen debtors arrive at §341 meetings in wheel chairs and I have observed debtors with prosthetic limbs and portable oxygen machines, but I have never reviewed a set of schedules that included those items as assets on Schedule B. Even so, I have never raised the issue.   A “professionally prescribed health aid” seems more like an extension of the person than a separate “asset” with value apart from the person.

10. ANY ITEM OF TANGIBLE PERSONAL PROPERTY WORTH LESS THAN $200.00 EACH. 

stuff

WHAT A DEBTOR REALLY WANTS TO KNOW:

New Exemption 8-31 dropbox copy 2.018

DISCLAIMER

The Stern Saga Continues

The Ninth Circuit Court of Appeals weighed in on Stern v. Marshall in the case of Executive Benefits Ins. Agency, Inc. v. Arkison (In re: Bellingham Ins. Agency, Inc.), Case No. 11-35162, D.C. No. 2:10-cv-00929-MJP.  In brief, the Court ruled:

1.         A non-Article III Bankruptcy Judge lacks the constitutional authority to enter a final judgment in a fraudulent conveyance action against a non-claimant to the bankruptcy estate. The Court’s rationale focused on the fact that the defendant in the fraudulent transfer action had not filed a claim in the case, and the trustee could only recover a fraudulent conveyance by initiating a legal action.   The claim against the non-creditor would not be resolved in the course of allowing or disallowing claims against the bankruptcy estate;

2.         The Bankruptcy Court has the power to hear fraudulent conveyance cases and to submit proposed findings of fact and conclusions of law to the District Court.  (This ruling is in conflict with the Seventh Circuit case of Ortiz v. Aurora Health Care, Inc. (In re: Ortiz), 665 F.3d 906 (7th Cir. 2011), which implied that Bankruptcy Courts cannot issue proposed findings of fact and conclusions of law in  §157 core proceedings); and

3.         Notwithstanding the lack of constitutional authority, the parties consented to the non-Article III Bankruptcy Judge hearing and deciding the fraudulent conveyance case.  The Court ruled implied consent is sufficient.

DISCLAIMER

5 Reasons Debtors Should Disclose Contingent Claims

A debtor’s duty to disclose his assets and liabilities is an affirmative, continuing duty that cannot be overemphasized. 11 U.S.C. §521(a)(1); In re Coastal Plains, Inc., 179 F. 3d 197 (5th Cir. 1999); Reed v. City of Arlington, 650 F.3d 571 (5th Cir. 2011); Kane v. National Union Fire Ins. Co., 535 F. 3d 380 (5th Cir. 2008); In re Superior Crewboats, Inc., 374 F.3d 330 (5th Cir. 2004); In re Beaubouef, 966 F.2d 174 (5th Cir. 1992).

A debtor must disclose all contingent and unliquidated “plaintiff” claims as assets, including, for example, class action drug claims, personal injury and wrongful death claims, EEOC claims and oil spill claims.  A debtor does not have to know or understand the legal basis for a claim to trigger the duty to disclose – he does not even have to know all of the facts that might give rise to a claim.   If a debtor has enough information to know that he “may” have a claim, he has a duty to disclose the potential cause of action. Coastal Plains, at 207-08 (citations omitted).

Notwithstanding the unwavering disclosure imperative, affirmed, reaffirmed and restated dozens of ways by many courts over many years, debtors still routinely fail to disclose potential causes of action in their bankruptcy schedules.

I believe debtors’ attorneys should press their clients about the existence of potential claims and explain that such claims are assets that must be disclosed. Debtors must understand that undisclosed lawsuits always surface.  Most plaintiffs’ lawyers check PACER for bankruptcy filings to make sure they are dealing with the “real party in interest” before disbursing settlement funds.  Defense attorneys also check PACER for bankruptcy filings for possible judicial estoppel defenses.

Lawyers can give their debtor clients 5 good reasons to disclose potential and existing causes of action:

1.         The debtor will avoid prison. http://www.justice.gov/ust/r05/docs/general/press/2009/pr20091106.pdf.

2.         The willful failure to disclose assets is fraud and could result in the denial or revocation of the debtor’s discharge. In re Sholdra, 249 F.3d 380 (5th Cir. 2001); In re Beaubouef, 966 F.2d 174 (5th Cir 1992); In re Chalik, 748 F.2d 616 (11th Cir. 1984).

3.          Under the doctrine of judicial estoppel it is unlikely that the debtor will ever prevail in the pursuit of the cause of action.   Judicial estoppel operates sort of like an admission. Failure to disclose a cause of action is treated as if the debtor admitted that it did not exist.  Reed v. City of Arlington, 650 F.3d 571 (5th Cir. 2011); Kane v. National Union Fire Ins. Co., 535 F. 3d 380 (5th Cir. 2008); In re Superior Crewboats, Inc., 374 F.3d 330 (5th Cir. 2004); In re Coastal Plains, Inc., 179 F. 3d 197 (5th Cir. 1999).  (More on judicial estoppel in future posts)

4.         The debtor could receive a surplus distribution after creditors’ claims are satisfied.  Although the debtor may have scheduled numerous unsecured creditors, only creditors who file Proofs of Claim are entitled to a distribution from the bankruptcy estate.

5.         If the debtor owes taxes or has non-dischargeable debts, he will benefit from distributions made by the bankruptcy trustee.

DISCLAIMER