What Nevada Homeowners Needs to Know About Removal of Cases to the Federal Court

30 Saturday Aug 2014

Posted by BNG in Banks and Lenders, Case Laws, Case Study, Federal Court, Foreclosure Defense, Judicial States, Non-Judicial States, Pro Se Litigation, Your Legal Rights

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A 2013 Nevada Supreme Court Certification created a legal dilemma for the Banks and purchasers of deeds of trust.

Removal to U.S. District court may not be an option in residential wrongful foreclosure actions for banks and other purchasers of trust deeds, and their eviction counterparts, after the Nevada Supreme Court’s recent en banc opinion in Chapman v. Deutsche Bank Nat’l Trust Co., 129 Nev. Adv. Op. 34 (May 30, 2013).

Typically, in Nevada, when a residential borrower defaults, the mortgage servicer will initiate a nonjudicial foreclosure. After completing Nevada’s mandatory foreclosure mediation program, the nonjudical foreclosure will proceed to a trustee’s sale. Often, borrowers will continue to improperly occupy the property, forcing the purchaser at the trustee’s sale (typically the bank or servicer) to begin eviction proceedings in state justice court. In response, and in an effort to stay eviction proceedings, borrowers will often file a separate lawsuit in state district court for wrongful foreclosure/quiet title, among other claims.

At this point, if the defendant purchaser of the property can establish diversity or federal question jurisdiction, it will usually seek removal of the borrower’s lawsuit to U.S. District court. The purchaser’s eviction proceedings remain in state justice court and are either completed before the borrower’s lawsuit is adjudicated or the eviction proceedings are stayed pending the outcome of the lawsuit in U.S. District court. In any event, a purchaser could at least rest assured that its lawsuit would proceed in U.S. District court and not be remanded to state court.

Chapman has changed all of that in that it significantly impairs the federal court removal option under this typical scenario. Accordingly, banks and other purchasers of trust deeds will have to alter how they deal with evictions and nonjudicial foreclosures in Nevada to reduce Chapman’s affect.

Chapman is the result of two questions certified to the Nevada Supreme Court by the Ninth Circuit Court of Appeals in Chapman v. Deutsche Bank Nat’l Trust Co., 651 F.3d 1039 (9th Cir. 2011). The Ninth Circuit asked the Nevada Supreme Court:

Is a quiet title action under Nevada Revised Statutes § 40.010, which is premised on an allegedly invalid trustee’s sale under Nevada Revised Statutes § 107.080(5)(a), properly characterized under Nevada law as a proceeding in personam, in rem, or quasi in rem?
Is an unlawful detainer action under Nevada Revised Statutes § 40.255(1)(c) properly characterized under Nevada law as a proceeding in personam, in rem, or quasi in rem?

Id. at 1048.

The Nevada Supreme Court answered these questions by determining that eviction and quiet title actions are both properly characterized as proceedings involving a property interest. To be precise, the Court chose not to make a distinction between in rem and quasi in rem proceedings, but held that eviction and quiet title actions are not in personam. At first glance, this holding seems rather benign, but the practical effects are far reaching because of the typical scenario explained above. If the bank first files an eviction proceeding, and while the eviction process is still open, the borrower files a separate action in state court contesting ownership to the property, under Chapman, removal of the borrower’s action to U.S. District court is prevented under a doctrine known as the prior exclusive jurisdiction doctrine.

Under this doctrine, “when one court is exercising in rem jurisdiction over a res, a second court will not assume in rem jurisdiction over the same res.” Marshall v. Marshall, 547 U.S. 293, 311 (2006). Accordingly, where parallel state and federal court proceedings seek to “‘determine interests in specific property as against the whole world’ (in rem), or where ‘the parties’ interests in the property … serve as the basis of the jurisdiction’ for the parallel proceedings (quasi in rem), then ‘the doctrine of prior exclusive jurisdiction fully applies.’” Chapman, 651 F.3d at 1044 (internal citations omitted).

Hence, if an eviction proceeding was first filed and remains open while a second quiet title lawsuit is filed by a borrower, removal of the quiet title action is now precluded in Nevada by the prior exclusive jurisdiction doctrine. If one does remove the second matter, a swift and likely successful motion to remand can now be expected. In order to avoid this situation, and to protect a party’s ability to litigate in U.S. District court, there are a few options worth considering.

First, if a bank has an ongoing eviction proceeding in state justice court, and then is served with a quiet title action in state district court, a trust deed purchaser may move on an expedited basis to transfer the eviction proceeding to where the quiet title action was filed, and then remove to U.S. District court. Because the right to remove is governed by statute, 28 U.S.C. §1441(a), and in the normal case a defendant has only 30 days to remove after being served, 28 U.S.C. § 1446(b), the bank will need to be extra vigilant in moving to transfer the eviction proceeding to state district court and then timely remove the case to U.S. District court. A second option is to voluntarily dismiss the eviction action without prejudice, then remove the quite title proceeding to U.S. District court. The bank can then move in the U.S. District court to evict. In the appropriate case, a trust deed purchaser can initiate a quiet title action in U.S. District court and seek injunctive relief to remove a borrower from the trustee deed purchaser’s property.

The Chapman case will certainly change the way the financial services industry and other purchasers of trust deeds handle eviction proceedings in Nevada. Chapman does not preclude removal, but banks and other purchasers of trust deeds will have to carefully consider the timing and method by which it removes borrowers from property that has been foreclosed upon.

When Homeowner’s good faith attempts to amicably work with the Bank in order to resolve the issue fails;

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Why Mortgage Foreclosure is on the Rise Again in Nevada

30 Saturday Aug 2014

Posted by BNG in Banks and Lenders, Case Laws, Case Study, Foreclosure Crisis, Judicial States, MERS, Mortgage Laws, Non-Judicial States, State Court, Your Legal Rights

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Recent Study and filing records shows that mortgage notice of default and foreclosure is on the rise in the State of Nevada within the past few months.

Some of the causes of the rise resulted from the Fall 2012 decision where the court upheld MERS in foreclosure proceedings.

The Nevada Supreme Court validates the use of the Mortgage Electronic Registration System, Inc. (MERS), allowing foreclosures to proceed. On September 27, 2012, the Nevada Supreme Court issued Edelstein v. Bank of New York Mellon, 128 Nev. Adv. Op. 48 (Sept. 27, 2012), clarifying and establishing rules affecting the transfer of real property interests. Prior to this decision, judges in Nevada struggled with the effect of MERS as a nominee or beneficiary of a deed of trust. This holding abolishes the repeatedly asserted claim that MERS, as a nominee or beneficiary, invalidates the security interest and prohibits foreclosure. This landmark decision eliminates a major stumbling block faced by lenders and servicers defending wrongful foreclosure claims.

The primary holding of Edelstein establishes that designating MERS as a nominee and beneficiary does not irreparably “split” the promissory note from the deed of trust and, so long as the note and deed of trust are ultimately reunited in the same party, a trustee’s sale can proceed. Edelstein validates MERS’s use and legitimacy for the financial services industry in Nevada. Under Edelstein, the parties in interest have the opportunity to cure potential assignment and transfer irregularities that may have occurred during the life of the mortgage paper, so long as the foreclosing party has possession of both the note and deed of trust upon foreclosure. In owner-occupied residential property, however, a borrower in default may elect to mediate under the state-run foreclosure mediation program. If chosen, the amended foreclosure mediation rules require the beneficiary, or its agent, to bring certified copies of the note and deed of trust and any assignments thereof. See FMR 11. Similarly, after the passage of AB 284, an affidavit accompanying all notices of default filed after July 1, 2011 requires the trustee, beneficiary or agent to verify information concerning the note, deed of trust and assignments. Nevertheless, in a litigation context, Edelstein should prove invaluable in providing the financial services industry with the tools it needs to successfully protect its interests.

The Court noted that planned “separation” of the note and deed of trust does not render either instrument void. Although both the note and deed of trust must be held together in some combination of either the beneficiary and noteholder being the same entity or sharing an agency relationship, nothing requires them to be unified at a time prior. In essence, their being held by different entities as the result of securitization, for example, prior to foreclosure has no effect on a subsequent foreclosure in the name of a holder then in possession of both.

In Edelstein, the Nevada Supreme Court also adopted the Restatement (Third) of Property (Mortgages) § 5.4 (1997), which states that a mortgage note and deed of trust are automatically transferred together, unless the parties agree otherwise. Accordingly, if a foreclosing entity can demonstrate an assignment of either the note or the deed of trust, that alone is sufficient to establish authority to foreclose. Nevertheless, the Nevada Supreme Court found that the deed of trust and note were “split” in this case because at inception, MERS was the “beneficiary” under the deed of trust, while the original lender was the noteholder. Admittedly, this aspect of the holding creates a certain degree of confusion, because the Court also found that MERS was the agent of the holder of the note and, that where an agent of a secured party has actual possession of a note, the secured party has taken actual possession. In light of its express adoption of the Restatement (Third) of Property (Mortgages) § 5.4 (1997) that the security follows the note—and vice versa—the Court certainly could have omitted the notion that the note could be “split” from the deed of trust as a matter of law.

Notwithstanding, Edelstein’s utility remains, because the Nevada Supreme Court’s holding that MERS’s recording of the assignment of the deed of trust containing express language that the deed of trust was assigned “together with the note or notes,” properly transfer both the deed of trust and note to the assignee, here, Bank of New York Mellon. In accepting that language in a recorded assignment as sufficient to affect a transfer of both the deed of trust and note, the burden of proof on a foreclosing beneficiary is substantially minimized. At least, in the non-bankruptcy context, foreclosing beneficiaries and their agents can now rely upon this holding to validate the effectiveness of similar language included in assignments, thus demonstrating a proper assignment of the note through a recorded document, rather than by testimonial evidence.

The Court further clarified the definition of “agency” among lenders, beneficiaries, servicers and trustees, by expressly recognizing various agency relationships. The Court held that MERS, designated as a “nominee,” is an agent for a lender, or its successors and assigns. The Court acknowledged that a servicer is also an agent for the lender or beneficiary and, found that, although helpful, the production of a servicing agreement is not required by Nevada law or the Foreclosure Mediation Program Rules in order to establish a servicer’s authority to foreclose. The Court further confirmed that a trustee is an agent for the lender or beneficiary and, thus, the lender or beneficiary is entitled to enforce a note even when its trustee is in possession of the note. Expressly acknowledging the reality that foreclosure is based on several entities working together as agents, Edelstein is favorable to beneficiaries as it validates these relationships and reduces the burden in establishing these agents’ relationships and authority to act on behalf of the beneficiary.

Although not without certain inconsistencies, the Edelstein opinion overall provides helpful guidance regarding establishing foreclosure authority in defending wrongful foreclosure, quiet title and other real property claims in both consumer and commercial finance litigation and in interrelated non-judicial foreclosure proceedings.

When Homeowner’s good faith attempts to amicably work with the Bank in order to resolve the issue fails;

Why Unsophisticated Homeowners Are Losing Their Homes

29 Friday Aug 2014

Posted by BNG in Banks and Lenders, Foreclosure Crisis, Judicial States, Non-Judicial States, Scam Artists, Your Legal Rights

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Many homeowers who suddenly found themselves in foreclosure situation often wonder why me? The situation most homeowners found themselves is directly related to the word “Mortgage”.

It is a total ruse that a house with a mortgage is an investment. It is a liability!

It’s amazing how moronic the advise some homeowners get when purchasing a home. In many cases homeowners prefer to believe in “bad advise” as the norm.

Think about this, if the people start trusting and borrowing from each other, (Seller Financing), thereby cutting out the middle man, none of these would have happened.

This post is designed to show you why Equity, Down Payments and Principal Payments Are For The Financially Uneducated.

Do you Think equity, down payments and principal payments are a good idea?

Are you like most Americans who’ve been brainwashed by the media propaganda paid for and perpetuated by the banks and think that unless you have a substantial down payment, you aren’t qualified to own a home?

Do you honestly believe that it’s somehow “American” to put down money on a home and pay down a mortgage?

Let’s examine reality…..

Before we begin, tell me how much you’d like to invest in this wonderful investment:

You get to pay a substantial amount in cash for the investment but don’t own anything
Your money is 100% at risk of loss and there’s nothing you can do to prevent the loss (e.g., no stop loss order)
Your money is illiquid
Your money generates a negative rate of return (yes, negative which sort of disqualifies it as an investment)
Your money is only accessible through a loan costing you several points and fees and subject to strict underwriting guidelines which do not allow you to access all of your money, or through divestiture of the underlying investment thereby subjecting you to taxable income
Your money placed in the investment has cost you a tax deduction thereby increasing your taxes
You get to continually add to this investment with forced financial contributions monthly that further expose you to financial risk, generate a negative rate of return and continually increase your tax liability

What is this wonderful investment and where can you get one?

It’s called a mortgage and you invest in it when you put down a down payment or when you pay down principal balance on a mortgage.

In short, the banks have perpetuated the myth that a greater down payment better qualifies someone to own a home which is preposterous.

A greater down payment is a greater insurance policy for the bank in the event you default and they have to foreclose. It has nothing to do with your qualifications or ability to repay a loan.

It’s all about risk mitigation…………..for the banks, not for you.

Likewise, when you pay down principal on a fully amortized mortgage, you’re steadily increasing the insurance policy of the bank, not increasing anything for your own benefit for all the reasons cited above.

Paying down principal actually makes it take longer for you to pay off a mortgage because you lose the compounding effect the investment could yield in an interest or income bearing investment.

In most instances, your equity isn’t asset protected or shielded thereby exposing you to loss via judgments and tax liens.

The money you do pay down generates a negative rate of return. Assuming it appreciates, the property generates the exact same rate of return regardless of how much is owed.

Beyond that, due to the Federal Reserve’s stated policy of continual devaluation of the dollar, the money used as a down payment or principal balance payment is losing value and buying power……..daily.

You NEVER want to put money down or pay down a mortgage. It’s moronic and goes against the grain of every solid financial, wealth creation and asset protection plan.

Rather than pay down the mortgage, it’s better to use the down payment and money you would have paid down in principal payments and place them in an interest or income bearing investment that has the ability to compound or precious metals if compounding is less important and insurance is of greater importance.

As many Americans saw in states like California, Arizona, Nevada and Florida when the housing bubble burst, equity evaporated overnight. The degree of equity someone had and the number of consecutive on time monthly payments had zero impact on their loss of equity, property value or the banks desire or ability to foreclose. Many Americans learned the hard way that down payments, principal balance reduction and equity were for the financially uneducated.

Equity, down payments and principal payments are diametrically opposed to wealth creation and actually inhibit your abilities for generating investment income.

They limit or eliminate your cash reserves and thereby decrease or eliminate your ability to leverage OPM (Other People’s Money) for other investments. With each down payment or principal payment, you move one step closer to a default because you’re expending liquid capital that could be used in the event of an emergency or cash flow crunch.

Why would you voluntarily slow or stop your ability to generate returns, invest in other properties and make yourself unnecessarily illiquid and risk default?

For the sake of equity?

Hello, McFly?

In the current market climate, conventional mortgages require a down payment for most loan products. The key here is to either arrange owner financing and avoid the down payment requirement altogether or minimize the down payment you’re required to put down if you absolutely must use conventional financing.

So, it begets the logical question, what’s the benefit? You be the Judge!

When Homeowner’s good faith attempts to amicably work with the Bank in order to resolve the issue fails;

What Homeowner Can and Cannot Do Before Seeking Bankruptcy Protection

27 Sunday Jul 2014

Posted by BNG in Bankruptcy, Federal Court, Foreclosure Defense, Fraud, Judicial States, Non-Judicial States, Pro Se Litigation, Your Legal Rights

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Many times, homeowners are often confused as to what they can or cannot do before filing Bankruptcy, this post is designed to advise you of what you can legally do and cannot do before filing your Bankruptcy.

So If the wolves are circling, but you aren’t sure that you will have to file bankruptcy, there are some Dos and Don’ts which may protect some of your property if you do eventually have to file.

DO continue making payments on vehicles which you intend to keep. Creditors secured by a car or truck can usually repossess the vehicle without notice to you anytime you are in default in your payments. It will ordinarily take longer for other creditors (including those secured by other property) to act on a debt that is in default.
Note: If your car has been repossessed but not yet sold, you may be able to get it back if you file Chapter 13 immediately.

DON’T borrow from or withdraw 401k, IRA, and ERISA qualified savings and retirement plans to pay bills. Early withdrawal of these funds makes you liable for penalties and taxes which may not be discharged in bankruptcy. ERISA and 401K funds are exempt from creditors in bankruptcy, as are IRA funds in certain States, e.g Arizona. (Check Your State Statutes) Except deposits made within one hundred twenty days before filing) and many other states. If you don’t use these funds, you are very likely to have them to draw on after bankruptcy. If you are in Arizona see for example [ARS 33-1126.C]

DON’T borrow money on your home to pay bills. In Arizona for example, you can claim up to $150,000 equity in your home as exempt. (Many other states have similar exemptions.) This means you can go through bankruptcy, and still have this equity. If you take out a second mortgage on your home, you may be converting debt which would have been discharged in bankruptcy into debt which you will still have to pay in order to keep your home. These additional payments could be high enough to cause you to lose your home.

DO give “friendly” creditors a security interest in non-exempt property. If you have to borrow money from a friend or relative you could give that creditor a security interest in the property which you own. For example, if you have a car which is not exempt and you are borrowing money from a relative, he or she could take a security interest in the car for the loan. This will reduce your equity in the car, and the likelihood that the trustee will take the car. It will also protect your relative by insuring that they will be paid from the proceeds if the trustee does take the car since he must pay off creditors secured by property which he takes.

Caution: The loan must be a legitimate transaction (you must actually receive the money), and the security interest must be granted at the time the loan is made. You cannot give a security interest for a previous loan. Giving a security interest for an existing loan could be a transfer of a property interest in fraud of other creditors which could result in a denial of your discharge. [727].

DON’T pay $600 or more back to relatives or business associates who have lent you money. Payment of a total of $600 or more to an “insider” (which includes relatives and business associates) within one year before you file bankruptcy is a “preference.” The trustee may recover preferences from the person that was paid and divide the money between all of your creditors. In Chapter 13, you may have to increase the amount of your plan payments to cover the preference. (Payment of $600 or more to any other unsecured, non-priority creditor within 90 days before the case is filed may also be a preference.) [547].

DON’T put property you own into someone else’s name to avoid it being taken by creditors or the trustee. That kind of transfer is a fraud on creditors and can result in your discharge being denied [727] In addition, the trustee can take the property from the person to whom it was transferred [548].

DO reduce the amount of future income tax refunds. Federal and state tax refunds are routinely taken in Chapter 7 cases, and may affect plan payments in Chapter 13. If you expect to get an income tax refund, reduce your withholding so that you do not get refund. If much of the refund is due to Earned Income Tax Credit, apply to get that refund as a part of your regular pay. (Complete Form W-5, Earned Income Credit Advance Payment Certificate, available at http://www.irs.gov.

Caution: Don’t reduce the withholding for tax so much that you will have a big tax bill to pay!

When Homeowner’s good faith attempts to amicably work with the Bank in order to resolve the issue fails;

FYI: What Homeowners Already in Bankruptcy Needs to Know

27 Sunday Jul 2014

Posted by BNG in Bankruptcy, Federal Court, Foreclosure Defense, Judicial States, Non-Judicial States, Pro Se Litigation, Your Legal Rights

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Q: What if I get behind on my mortgage payments while in bankruptcy?

A: If you are in a Chapter 7 bankruptcy and plan to keep your home, you will need to bring the payments current immediately. Otherwise, the mortgage company may file legal paperwork with the bankruptcy court called a Motion for Relief from Automatic Stay asking the court for permission to foreclose on your home.

If you are in a Chapter 13 bankruptcy, the impact of getting behind on payments to the mortgage company will depend on when your bankruptcy was filed.

If you filed prior to July 1, 2009 and get behind on your house payments, the mortgage company will file a Motion for Relief from Automatic Stay for permission from the court to proceed with foreclosure. In some cases you, through your attorney, may be able to work out a repayment plan with the mortgage company for the amount you have fallen behind since filing your bankruptcy. However, there are no guarantees this will be possible. The bankruptcy court must approve the repayment plan agreement, known as a Consent Order.

If you filed on or after July 1, 2009, your house payments are included in the Chapter 13 plan payment. The only exception would be a home equity line of credit (HELOC). If you get behind on your Chapter 13 payments to the Trustee, the Trustee will likely file a Motion to Dismiss or Modify your bankruptcy. If your case is dismissed, the mortgage company may proceed with the foreclosure of your home.

Q: What happens if I get behind on my car payment while in bankruptcy?

A: If you get behind on your car payment while in Chapter 7 bankruptcy, the finance company may file a Motion for Relief from Automatic Stay requesting that the bankruptcy court allow the finance company to repossess the car. In most Chapter 13 bankruptcy cases, your car payments will be included in your payments to the Chapter 13 bankruptcy Trustee if you are purchasing the vehicle. If you are leasing the vehicle, you will make lease payments directly to the finance company. If you get behind in your payments to the Chapter 13 bankruptcy Trustee or to the finance company for leases, the finance company may file a Motion for Relief from Automatic Stay requesting that the bankruptcy court allow them to repossess the car.

Q: What is a Motion for Relief from Automatic Stay?

A: A motion for relief from automatic stay is filed by one of your creditors after the bankruptcy has been filed. It is the legal process of the creditor requesting the court’s permission to proceed with legal action against you. This is filed by secured creditors such as a mortgage company or auto finance company, if you are not making payments to the Chapter 13 bankruptcy Trustee in a Chapter 13 bankruptcy.

Q: What if I want to refinance my house while in bankruptcy?

A: It is possible to refinance your home while in bankruptcy, but you will need to obtain the bankruptcy court’s permission. You may want to start the process by seeking preliminary financing from a bank or mortgage company. At that point you should contact your attorney about filing the motion with the court to obtain permission. Keep in mind that most mortgage companies require Chapter 13 debtors to show a minimum of 12 months timely and consecutive payments to your mortgage company or companies and Chapter 13 bankruptcy Trustee before granting preliminary approval.

Q: What if I need to sell my house or car during bankruptcy?

A: You will need to obtain court permission to sell your home or car during the bankruptcy process. This will require a motion to be filed with the court and an order signed by the judge. You should contact your attorney to discuss the process and time frame for obtaining court approval.

Q: What if my car or truck is destroyed in an accident?

A: Whether the vehicle is being purchased or leased will have some impact on the answer. However, it is important you contact your bankruptcy attorney’s office right away to determine how you will need to proceed. If you are in a Chapter 13 bankruptcy and need to obtain a new vehicle, you will need to work with your attorney to complete the paperwork necessary to obtain the Chapter 13 bankruptcy Trustee or court’s approval.

Q: What if I lose my job during my bankruptcy?

A: If you lose your job while in a Chapter 13 bankruptcy, you should contact your attorney to discuss the likelihood of securing another job soon, whether you are receiving unemployment or other income. The attorney can provide options to you given your specific situation.

Q: What if I am sick for an extended period of time, in an accident, or on disability or workers compensation while I am in bankruptcy?

A: It may be possible to modify your Chapter 13 bankruptcy plan payments or file a Motion for Moratorium depending on the amount of time you will be out of work or on a reduced income. Unfortunately, not all clients may be eligible for a modification. Your attorney will work with you to identify the option(s) that will work best for you.

Q: I have heard I may be eligible for a moratorium on my payments, how does that work?

A: If you filed prior to July 1, 2009, it may be possible to file a Motion for Moratorium and obtain the court’s permission to stop making Chapter 13 bankruptcy Trustee payments for a few months. This is a short break to give you time to get back to work. It is possible your Chapter 13 bankruptcy plan payments will need to increase once you begin making payments again, since this is not necessarily a forgiveness of those payments but basically a deferment. If you filed on or after July 1, 2009, it is less likely that your creditors and the Court will agree to a moratorium on your payments.Q

Q: What if I have a claim including workers compensation or personal injury that is settled while I am in bankruptcy?

A: Workers Compensation and person injury settlements are exempted in North Carolina under the General Statutes. However, you will need to file a motion with the court to obtain approval to settle the claim on the workers compensation or personal injury settlements.

Q: Why would the Trustee increase my payments after I’ve been in bankruptcy for a year or more?

A: Your payments are usually increased when you have failed to make payments to the Trustee, the mortgage company increases your house payments due to a change in your interest rate or escrow and/or you have additional claims filed in your bankruptcy. Additional claims may be for taxes you have failed to pay to the city, county, state or Internal Revenue Service after filing your bankruptcy.

In addition, the Trustee will pay attorney fees for items outlined in the Disclosure to Debtor(s) of Attorneys Fee and approved by the Court. This schedule was part of the bankruptcy contract and also included in your bankruptcy filed with the Court.

Q: How can I find out what I owe on my bankruptcy?

A: To obtain an estimate of the amount owed in your bankruptcy you may register with the National Data Center. You will be able to obtain a login and password that allows you to access your account. Should you need an “official” payoff, you must obtain that through your attorney’s office.

Q: What if I get behind on domestic support obligations (child support or alimony) after filing bankruptcy?

A: The courts made the payment of child support and alimony a high priority in the 2005 bankruptcy law. If you get behind on your payments after filing bankruptcy, the family law court has the right to take all actions available to them including summoning you to court and even incarcerating you. You may not be eligible for a discharge from bankruptcy if you are not current on your domestic support obligations.

Q: What DOES IT MEAN TO CONVERT CHAPTER 7 BANKRUPTCY TO CHAPTER 13 BANKRUPTCY?

A: If you discover while in a Chapter 13 bankruptcy that you can no longer afford to make payments to the Chapter 13 bankruptcy Trustee due to the loss of employment, change in income, etc., you may qualify to voluntarily convert your Chapter 13 bankruptcy to a Chapter 7 bankruptcy. You may also decide to convert your Chapter 13 bankruptcy to a Chapter 7 bankruptcy if you decide you no longer want to keep your home or car. You should contact your attorney to discuss whether you are eligible to convert to a Chapter 7 bankruptcy. Under certain circumstances, the Chapter 13 bankruptcy trustee may recommend that your case be involuntarily converted to a Chapter 7 bankruptcy.

Q: Can I convert a Chapter 7 bankruptcy to a Chapter 13 bankruptcy?

A: If you get behind on house or car payments while in a Chapter 7 bankruptcy and risk losing the property, you may convert your Chapter 7 bankruptcy to a Chapter 13 bankruptcy as long as you meet the qualifications to file a Chapter 13 bankruptcy, primarily having sufficient income to make the plan payments under Chapter 13 bankruptcy.

When Homeowner’s good faith attempts to amicably work with the Bank in order to resolve the issue fails;

How Homeowners Can Effectively Reduce Their Chapter 13 Bankruptcy Payments

27 Sunday Jul 2014

Posted by BNG in Bankruptcy, Federal Court, Foreclosure Defense, Judicial States, Non-Judicial States, Pro Se Litigation, Your Legal Rights

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Seeking to lower your plan payments makes sense when your financial situation has changed but you still have “disposable income” – in other words, money left over after you deduct your reasonable, necessary expenses from whatever you earn. Lowering your plan payments requires you to modify your Chapter 13 plan, because you are changing one of its key terms.

Bankruptcy law imposes essentially the same requirements to modify a Chapter 13 plan as it does to confirm a plan in the first place.

Among other things, the modification must conform with the following:

Priority Debts

To be confirmed, a Chapter 13 plan must provide for full payment of all priority claims (unless their holders agree to take less). A modified plan likewise must cover all priority claims, including child and spousal support, fees owed to your counsel and the Chapter 13 trustee, and subject to specified time limits, back taxes.

Secured Debts

In most Chapter 13 cases, the primary secured claims are home mortgages and automobile loans. A plan modification generally does not excuse you from making monthly payments on home and auto loans. You also must continue to pay arrearages and other defaults that you promised to cure under your original plan so you could keep your home or car.

Unsecured Debts

The bankruptcy court will not confirm a Chapter 13 plan – or let you modify it – unless you meet the “best interests of creditors” test. The “best interests of creditors” test requires debtors to pay holders of general unsecured claims at least as much as they would receive in a Chapter 7 liquidation. In most liquidations, unsecured creditors receive little or nothing, so you can usually reduce your plan payments without violating the “best interests” test.

Feasibility

Your plan, as modified, must be feasible – or in other words, workable. You must show that you have dealt with your financial problems and can make the new, lower monthly payments through the balance of your plan term.

Your options in bankruptcy court depend upon the circumstances. If you can turn the situation around within a few months, you can seek a temporary moratorium on plan payments.

If you are dealing with a long-term change but still have”disposable income,” you can ask the bankruptcy court to allow you to modify your plan and lower your monthly payments on a permanent basis.

How Long Will Your Chapter 13 Repayment Plan Last?

In general, unless you are paying back all of your debts (including nonpriority unsecured claims) in a shorter amount of time, your Chapter 13 plan must be at least 36 months (three years) long. But it can’t exceed 60 months (five years). Whether you can propose a three-year plan or if you must be in Chapter 13 bankruptcy for five years depends on whether your average income for the six-month period preceding your bankruptcy is above or below your state’s median income for a similar household.

If your income is below median, your plan can usually be anywhere from 36 to 60 months long. Keep in mind that proposing a 60-month plan can reduce your monthly payment amount by stretching your payments over a longer period of time. If you have above median income, you typically have to be in a 60-month plan (but some courts allow above median debtors to propose a shorter plan if they have no disposable income).

You can find the median income in your state on the U.S. Trustee’s website at www.justice.gov/ust (Choose “Means Testing Information,” choose the correct date range, and then choose “Median Family Income Based on State/Territory and Family Size.”)

Figuring Out Your Minimum Monthly Payment

Certain debts must be paid back in full through your repayment plan. This means that you must propose a plan that pays off all of these debts within 60 months regardless of your income and expenses. These debts include:

Priority Debts

Congress has decided that certain obligations, called priority debts, are too important to be discharged in bankruptcy. Common examples of priority debts include back child support, alimony, and certain taxes. If you file for Chapter 13 bankruptcy, you must pay off these debts in full through your repayment plan. Enter the amount of all your priority debts in the calculator where indicated.

Mortgage Arrears

If you are behind on your mortgage and you want to keep your house, you must pay off all your arrears (existing at the time of your filing) through your repayment plan. Enter all applicable mortgage arrears in the calculator where indicated.

If you plan to surrender your house, you don’t have to pay back the arrears in your bankruptcy. In addition, if you are only behind on your second mortgage (or other junior lien) and you intend to eliminate that lien in your Chapter 13 through lien stripping, don’t include those arrears in your payment calculation.

Be aware that certain jurisdictions require you to make your regular mortgage payment through your Chapter 13 bankruptcy. In these jurisdictions, your plan payment may be very large but you would not have to make a separate mortgage payment directly to the lender.

Car Loans or Other Secured Debts You Want to Pay Off Through Your Plan

In most jurisdictions, if you are behind on your car loan (or another secured debt other than your mortgage) and want to catch up on your missed payments, you typically have to pay off the entire loan (not just the arrears) through your plan. Keep in mind that in certain jurisdictions, you may be required to pay off your car loans through your Chapter 13 plan regardless of whether you are behind on your payments or not.

Unless you intend to surrender the property or pay off these secured debts outside of bankruptcy (and your jurisdiction allows you to do so), enter the amount of your car loans and other secured debts in the calculator where indicated.

If you qualify to cram down your car loan or other secured debt, you only need to pay the lender the replacement value of the property through your repayment plan (not the entire loan balance). So include only the value of the vehicle (or other property) in your calculation for all secured debts you intend to cram down.

Administrative Fees and Interest Charges

Chapter 13 trustees get paid by taking a percentage of all amounts they distribute to creditors through your repayment plan. This percentage varies depending on where you live but can be up to 10%. In addition, you typically have to pay interest on secured claims you are paying off through your plan. The required interest rate can vary depending on the type of claim and the rules in your jurisdiction. But in general, you can expect to pay the national prime rate plus 1% to 3%.

Making Regular Monthly Payments on Loans

Keep in mind that if you want to keep your home, car, or other secured debts, you’ll have to keep making your regular monthly payments during your plan period (unless the court requires you to pay off the entire balance through your plan). As mentioned above, some courts might require you to make these monthly payments through your plan.

When Your Plan Payment Will Be Higher: Disposable Income and Nonexempt Property

So far we have only discussed debts you are required to pay off in your repayment plan regardless of your income, expenses, and nonexempt property. The debts discussed above are used in calculating your minimum Chapter 13 plan payment.

However, if you have disposable income or nonexempt assets, you will also have to pay back some or all of your nonpriority unsecured debts such as credit cards and medical bills. Depending on how much you have to pay your nonpriority unsecured creditors, your monthly plan payment can be significantly higher than the minimum payment calculated above.

How to Calculate Your Disposable Income

As part of your Chapter 13 paperwork, you must complete Form 22C — Chapter 13 Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income. This form is also referred to as the Chapter 13 means test and is used to determine how long your plan will last (discussed above) and how much you must pay nonpriority unsecured creditors in your bankruptcy. Visit the U.S. Court’s website at www.uscourts.gov to find the most recent version of Form 22C.

If your average income for the six months preceding your bankruptcy is less than the median income for a similar household in your state, you are not required to fill out the entire form and will typically pay little or nothing to nonpriority unsecured creditors in your plan. However, if your income is above median, you must follow the instructions on the form to determine whether you have enough disposable income to pay back some of your nonpriority unsecured debts.

After completing the Chapter 13 means test, if you end up with a positive monthly disposable income figure, add that to your minimum plan payment calculated above because you must pay this amount towards your nonpriority unsecured debts each month.

What Happens If You Have Nonexempt Property?

Chapter 13 bankruptcy requires you to pay your nonpriority unsecured creditors at least as much as they would have received if you had filed a Chapter 7 bankruptcy. This essentially means that you must pay an amount equal to the value of your nonexempt property. If you can’t exempt all of your property, divide the value of the nonexempt portion by the number of months in your repayment plan and add it to the minimum monthly payment calculated above.

HOW THEN CAN THE PAYMENTS BE LOWERED?

Let me Repeat this Again Here as I had said earlier under “Feasibility” Above.

“Your options in bankruptcy court depend upon the circumstances. If you can turn the situation around within a few months, you can seek a temporary moratorium on plan payments”

“If you are dealing with a long-term change but still have”disposable income,” you can ask the bankruptcy court to allow you to modify your plan and lower your monthly payments on a permanent basis”.

A Plan Moratorium: Temporary Relief From Having to Make Plan Payments

A plan moratorium gives you a break, usually for no longer than 90 days, from having to make monthly payments to the Chapter 13 trustee. The bankruptcy court may allow a plan moratorium, for example, if you face:

a short-term gap in employment
a temporary injury or disability, or
significant, unanticipated expenses that keep you from being able to make one or more plan payments.

Moratoriums Don’t Change Plan Terms

A moratorium does not change the terms of your plan. A plan moratorium just gives you a temporary break until you can bounce back from a short-term financial problem. Once the moratorium ends, you have to pick up from wherever you left off and resume making plan payments on a monthly basis. If you had 24 payments due under your plan when your moratorium began, for example, you still have 24 payments to make until your moratorium ends.

You Must Complete Payment Within Five Years

Regardless of the length of the moratorium, you must complete all payments under your plan within five years of the date that you started making them. Generally, you have to start making plan payments within 30 days of filing bankruptcy. This means that in most cases, you have about 61 months from the date that you filed bankruptcy to make up any plan payments deferred during a moratorium. If you can’t make up your missed installments within the five-year period, you must obtain court approval for other relief, such as modifying your plan to lower your required payments.

Modifying Your Plan to Lower Required Payments: Permanent Changes

To lower monthly payments over the long term, you have to ask the bankruptcy court to modify your plan. Cause for modifying your plan to lower your monthly payments includes:

having to take a lower-paying job
for self-employed debtors, losing key customers or incurring unanticipated business expenses
suffering a serious injury or disability that permanently interferes with your ability to work, and
having to pay health insurance premiums for yourself or your dependents that were previously covered by your employer.

How to Ask for a Moratorium or Modification

To obtain a plan moratorium or modification, you must file a motion, either on your own or through counsel, with the bankruptcy court. You also must give notice of the motion to the Chapter 13 trustee, creditors, and other parties in interest in accordance with the local rules for the district where you live. Depending on the local rules and practice in your district, the court may set a hearing when you file the motion, or only if a creditor or the trustee objects to it.

As the moving party, you have the burden of proof and must demonstrate to the bankruptcy court why your motion should be granted. If the court agrees, it will grant your motion in an order approving your requested plan moratorium or modification.

You Can Also Convert to Chapter 7

In some cases, it may be best to convert your bankruptcy to a Chapter 7 and eliminate the monthly payments altogether.

When Homeowner’s good faith attempts to amicably work with the Bank in order to resolve the issue fails;

What Homeowners in Foreclosure Need to Know About Bankruptcy Jurisdiction

20 Sunday Jul 2014

Posted by BNG in Appeal, Bankruptcy, Federal Court, Foreclosure Defense, Judicial States, Litigation Strategies, Non-Judicial States, Pro Se Litigation, Your Legal Rights

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Many Homeowners in foreclosure that are considering filing for Bankruptcy, often wonder how the court system and jurisdiction is structured. This post is designed to get homeowners familiarized with the bankruptcy Jurisdiction.

Bankruptcy courts are the only venue in which bankruptcy cases may be heard in the United States. These specialized courts are subunits of the federal district courts, as established by Congress in 1979. Understanding the system of bankruptcy courts is essential to a clear picture of possible the avenues which your bankruptcy case may take.

How Bankruptcy Jurisdiction is Structured

Unlike the other federal courts, such as the United States District Courts, bankruptcy courts are legislatively created. This means that the courts were established by Congress under its legislative authority to create courts under Article I of the Constitution. Under the federal statute 28 U.S.C. 1334, bankruptcy courts have exclusive jurisdiction over bankruptcy cases. This means that a bankruptcy case cannot be filed in state court. The reason behind this law is that a uniform bankruptcy system requires cases to be filed in a uniform federal system, instead of in different state courts, which may have different rules and regulations.

How Bankruptcy Judges Were Appointed

Bankruptcy judges are appointed for 14 year terms by the United States Court of Appeals for the particular federal circuit in which the bankruptcy court resides. Thus, unlike federal district court and appellate judges, whom are appointed for life, the term of a bankruptcy judge must be renewed every 14 years by the appellate court. It is therefore quite possible for an appellate court to not renew a bankruptcy judge’s term if it is unhappy with his or her performance.

How the Appeal System Works in Bankruptcy

Although all initial bankruptcy matters are handled by a bankruptcy court, appeals of orders, decisions, and judgments on these matters are handled by appellate courts. Some circuits have what is known as a bankruptcy appellate panel. The appellate panel consists of bankruptcy judges from the same circuit who hear bankruptcy appeals. Even in circuits which have a bankruptcy appellate panel, an appellant may choose to have his appeal heard by the local federal district court. The next level of appeal is the United States Court of Appeals for the particular circuit in which the bankruptcy court sits. For example, an appeal from the bankruptcy court in San Francisco will eventually move up to the Ninth Circuit Court of Appeals. The final level of appellate review is the Supreme Court of the United States.

Federal Rules of Bankruptcy Procedure

The proceedings in a bankruptcy courts are governed by the Federal Rules of Bankruptcy Procedure. As the name suggests, these rules govern the procedural aspects of bankruptcy proceedings and trials, such as the time within which you must file your bankruptcy schedules. In large part, the bankruptcy rules of procedure mirror and incorporate the Federal Rules of Civil Procedure, which govern litigation in other federal courts. Thus, litigation in bankruptcy court is very similar to litigation in federal district courts.

How Homeowners Can Find Bankruptcy Courts

If you are considering filing for bankruptcy, it is important to identify and locate the appropriate bankruptcy court. According to federal statute, you must file your bankruptcy case in the federal district in which you were domiciled, had a principal place of business, or principal assets in the United States, within the 180 days prior to filing. Your domicile is your primary residence in which you live. For example, if you have a summer home in Texas, but live nine months of the year in California, your domicile is likely California and not Texas. Once you have determined your domiciled city, go to the US Courts Website. http://www.uscourts.gov/court_locator.aspx. Click your domiciled state on the colored map, then, click “Advanced Search.” Click “Search by Circuit,” choose “Bankruptcy Court” in the drop down menu. Choose your federal circuit according to the colored map and click “Locate.” Find the geographically closest bankruptcy court. Many states have multiple bankruptcy courts. Contact one of the courts to ensure that you choose the proper court.

When Homeowner’s good faith attempts to amicably work with the Bank in order to resolve the issue fails;

How Homeowners in Bankruptcy Can Benefit Using Adversary Proceeding

18 Friday Jul 2014

Posted by BNG in Bankruptcy, Federal Court, Foreclosure Defense, Judicial States, Litigation Strategies, Non-Judicial States, Pleadings, Pro Se Litigation, Trial Strategies, Your Legal Rights

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Homeowners in foreclosure who suspects fraud in their mortgage loan transaction may opt to use the Bankruptcy Adversary Proceeding to pursue their pretender lenders.

An adversary proceeding is filed and prosecuted by a plaintiff against a responding defendant. The procedural rules and requirements for adversary proceedings are set forth in the Federal Rules of Bankruptcy Procedure. Local rules of court may provide additional sources of guidance and instruction.

Procedurally, an adversary proceeding commences through filing of a complaint by the plaintiff. The complaint is served upon the defendant, who must respond to allegations of the complaint by filing an answer. There are filing and service fees required of the plaintiff to initiate an adversary proceeding. A case number is assigned to the matter once the court receives the plaintiff’s filed complaint. The parties often engage in written and other types of discovery, such as depositions prior to the adversary proceeding being set for trial.

Adversary proceedings may be filed by the debtor, creditors, trustee (standing or panel), or U.S. Trustee’s Office. A creditor might file an adversary proceeding to lodge an objection to a debtor receiving a discharge. Creditors may also bring adversary proceedings to seek an exemption of the debt owed to them by the debtor from a debtor’s pending discharge because the debt was the by-product of fraud, hindering conduct, malfeasance, willful injury, malicious injury, or personal injury. Creditors may seek a dismissal of the bankruptcy or loss of discharge for debtor due to bad faith in the conduct of debtor.

There are many Reasons Homeowners May Wish to File Adversary Proceeding

Debtors bring adversary proceedings against creditors for violations of automatic stay protections when creditors pursue collection remedies against debtors despite bankruptcy code’s prohibitions. Debtors bring adversary proceedings to seek hardship discharges from student loans and to attempt to strip, avoid, or extinguish liens

Trustees file adversary proceedings to protect their interests. A standing trustee might file an adversary proceeding against a debtor to expose inaccurate bankruptcy filings or fraudulent records. Trustees file adversary proceedings against creditors to avoid preferences or fraudulent transfers in instances where a creditor received funds or property from debtor inappropriately, and the trustee seeks to undo the transaction and recoup funds. The U.S. Trustee files adversary proceedings to compel debtors in Chapter 7 to convert to Chapter 13 if there is bad faith in the filing, ineligibility for liquidation, and/or an ability to repay creditors through a plan. U.S Trustees also bring suits to dismiss debtor cases filed in abuse of the bankruptcy system

In many ways, adversary proceedings are like other civil lawsuits. It is the trustee’s job to make sure all assets are collected and creditors are treated equally and fairly. There are many situations that may give rise to an adversary proceeding, but some of the more serious reasons are accusations of fraud by an administrator or creditor or violations of the bankruptcy rights by creditors.

Because adversary proceedings are unusual and require a significant amount of legal work, the client’s attorney fees are not included in the normal price of a bankruptcy. As a result, homeowners can either hire an Attorney that will handle the Adversary Proceeding side of the Bankruptcy who will then be included in the Bankruptcy plan for payment of his fees, or the homeowner may represent themselves in the Adversary Proceeding.

The most common use of adversary proceedings is where the Debtor sues one of their creditors for violating their bankruptcy protection. Examples include wage garnishments or repossessions after the case is filed or continued debt-collection efforts by the creditor after becoming aware of the bankruptcy. While the debtor generally does not have an obligation to pay attorney fees out-of-pocket, the damages received in the case are usually given over to the Trustee for the benefit of the creditors and the violating creditor pays the attorney fees. It is not like “winning the lottery” but adversary proceedings are effective in penalizing creditors who trample on the rights of our clients.

While rare, the Trustee of your bankruptcy case may wish to file a fraudulent transfer proceeding if you transferred money or property within the two years before you filed for bankruptcy. Or, the Trustee can file a preferential transfer adversary complaint if you repaid any creditor to whom you were not related more than $600 during the 90 days before bankruptcy. Similarly, this type of complaint may be filed if you repaid a relative more than $600 during the year before filing for bankruptcy.

A trustee or a creditor may file a complaint to initiate adversary proceedings to deny your discharge if there is an allegation that you incurred a debt fraudulently or filed for bankruptcy fraudulently. Examples of fraud include lying in the information on your bankruptcy petition or lying to the trustee or judge during hearings. Someone who does these things can be convicted of fraud, have his or her discharge denied, or be sentenced to prison. The administrator also can ask the court to deny your discharge if they allege you did not comply with court orders.

People often file an adversary proceeding related to a home during bankruptcy. For example, a landlord may file a complaint asking to lift a stay so that he can evict a tenant if the tenant is using illegal drugs on the property or otherwise endangering it.

People seeking Chapter 13 bankruptcy also can file an adversary proceeding related to mortgages on a home. If you have multiple mortgages, of which one or more junior mortgages are not fully secured by the property, you can ask the court to strip the mortgages that are not secured. To qualify, the home must be worth less than the senior mortgage. For example, if a debtor has a house worth $150,000 and owes $151,000 on their first mortgage and $30,000 on their second mortgage, the second mortgage may be stripped because there is no equity in the house for it to attach to. On the other hand, it is all-or-nothing. If a $150,000 home has a $149,000 first mortgage, then there is some equity for the second mortgage to attach to so it will not be stripped. If the court agrees, it will strip the junior mortgages and treat them as unsecured claims, like medical or consumer debt.

If you own a nonexempt property with somebody else, and a trustee needs to sell it to pay off creditors, the trustee can file an adversary complaint to sever your interests. This action can force the co-owner of your property to sell the property.

If it is true that you are looking to file a bankruptcy eventually then it might be the time now to move forward with it. If your home continues to rise in price you will eventually have equity in your home again. But this equity in your home could create problems for your bankruptcy filing. If the equity rises past your ability to protect it with the allowable bankruptcy exemptions then your home may be in jeopardy if you file bankruptcy. This is because the trustee could take it and sell it for the equity in it. If you move quickly before this happens then you can usually protect your equity.

Now, Let’s Look at How Adversary Proceedings are Handled in Various Chapters of Bankruptcy

1) Adversary Proceedings In Chapter 13

Most adversary proceedings in a personal bankruptcy filed under any chapter of the Bankruptcy Code involve questions of dischargeability. Most adversary complaints are filed by creditors challenging the discharge of a specific debt or the entire discharge. A few are filed by debtors, usually to obtain a determination of the dischargeability of tax debts or student loans.

11 U.S.C. § 523(a) contains the complete list of nondischargeable debts in personal Chapter 7, 11, and 12 bankruptcies. However, the list does not apply to debtors that are not individuals, typically businesses.

Chapter 13, which is only available to individual debtors because of § 109(e), has an interesting complication because there are two ways to get a Chapter 13 discharge(1): under § 1328(a) after plan completion, and under § 1328(b) if the debtor successfully moves the court for a hardship discharge without having completed the plan.

The list of exceptions to discharge in §523(a) applies to the § 1328(b) hardship discharge because of §1328(c)(1). However, the list of nondischargeable debts in a § 1328(a) discharge is found in § 1328(a), and does not include some of the § 523(a) exceptions.

For example, debts for willful and malicious harm to property are dischargeable in a § 1328(a) discharge (cp. § 523(a)(6) and § 1328(a)(4)). There is another important difference between the wording of § 523(a)(6) and § 1328(a)(4): § 523(a)(6) refers to “willful and malicious” whereas §1328(a)(4) refers to “willful or malicious.” Therefore, while the object of the harm is narrower in § 1328(a)(4), the burden of proof is less stringent.

Other types of debts that are dischargeable under § 1328(a) are noncriminal fines (cp. § 523(a)(7) and § 1328(a)(3); e.g., in California parking penalties are civil rather than criminal penalties pursuant to Cal. Veh. Code § 40203.5), and the kinds of debts listed in § 523(a)(10)-(19).

In particular, debts incurred as part of a separation agreement or divorce decree that are not domestic support obligations are dischargeable in a § 1328(a) discharge. This fact alone leads to acrimonious Chapter 13 litigation— though not always in the form of an adversary proceeding.

One final note on dischargeability: if a debtor is in a Chapter 13 and then converts to Chapter 7, any debts incurred during the pendency of the Chapter 13 case are dischargeable in the Chapter 7 — subject, of course, to § 523(a) — because of § 348(b) combined with § 727(b)

___________________________________________

(1) A Chapter 13 debtor must satisfy the debt ceilings of 11 U.S.C. § 109(e) to be eligible to file. And a Chapter 13 debtor who has had a previous relatively recent bankruptcy is not eligible for a discharge at all.See§ 1328(f) for details

________________________________________

II. Debtor Initiated Adversary Proceedings

Fed. R. Bankr. Proc. 4007(a) states: “A debtor or any creditor may file a complaint to obtain a determination of the dischargeability of any debt.”

A. Chapter 7

Chapter 7 debtors rarely have the resources to fund an adversary proceeding, so debtor – initiated adversary proceedings are rare. Therefore, unless the case is done on a pro bono basis, or a wealthy friend or relative pays the costs and fees, an adversary proceeding is unlikely, even if it is warranted. It is for this reason that there are not very many student loan or tax dischargeability actions filed.

Of course, if the debtor’s debts are not primarily consumer debts — for example, they may be mostly tax debts, which are not consumer debts (see, e.g., In re Westberry , 215 F.3d 589, 591 (6th Cir. 2000))— then § 707(b) is inapplicable to the case. This is what underlies the occasional high income Chapter 7 filings. Then the debtor may have the resources to fund the litigation.

High income Chapter 7 cases usually involve high tax liabilities. As the IRS and the Franchise Tax Board (or whatever taxing authority you have in your state) may assert that the tax is nondischargeable, a debtor – initiated dischargeability action may be in order. As trust fund tax liabilities are never dischargeable, the focus of such actions is on income tax and the three – part dischargeability test that follows:

1. Due Date Of The Return

First, the debtor must file the bankruptcy papers more than three years after the date the tax return was due — with extensions. For example, if the tax year in question is 2007, then the date the tax return was due, with extension if the debtor took one, was October 15, 2008. Therefore, to satisfy this requirement the debtor cannot file the bankruptcy papers before October 16, 2011. Notice that this requirement does not focus on whether the debtor actually filed the return, just on when the return was due.

2. Filing Date Of The Return

Second, the debtor must have actually filed a legitimate, non – fraudulent return for the tax year in question at least two years before filing the bankruptcy papers. Continuing with the previous example, for the debtor to be able to file bankruptcy papers on October 16, 2011, the debtor must have filed the return no later than October 15, 2009. It should be noted that if the IRS files a “substitute for return” on behalf of the taxpayer because the taxpayer never filed a return, then this requirement cannot be satisfied.

3. Date Of Tax Assessment

Third, the IRS cannot have assessed the tax liability during the 240-day window immediately prior to filing the bankruptcy papers. Thus, in the previous example, for the debtor to file bankruptcy papers on October 16, 2011 the IRS cannot have assessed the tax after February 18, 2011. This particular requirement can be problematic because the 240 – day clock is tolled during an offer in – compromise, plus 30 days, and during any time in which a stay of proceedings against collections in a prior bankruptcy was in effect, plus 90 days. In applying this third requirement, one determines the applicable chronology by reviewing the tax transcript available from the IRS.

Other factors can come into play. For example, some years ago there was a debtor who had lived in a county in Texas that was declared a disaster area. As a result , the IRS granted a filing extension. Therefore, it is important to do a thorough analysis prior to filing the petition to ensure that a given tax is dischargeable

B. Chapter 13

Chapter 13 debtor initiated dischargeability actions are also rare because the debtor’s disposable income is usually consumed by plan payments. However, in a 100% plan where the debtor still has money left over, a dischargeability action may be warranted.

1. Student Loan Dischargeability Actions

A Chapter 13 debtor will almost certainly fail the so – called Brunner test (see In re Brunner, 46 B.R. 752, 753 (S.D.N.Y., 1985) (Aff’d by 831 F.2d 395 (2d Cir.1987)), and applied by the Ninth Circuit in In re Pena, 155 F. 3d 1108 (9th Cir. 1998)), so a Chapter 13 student loan dischargeability action will probably result in sanctions under Fed. R. Bankr. Proc. 9011.

2. Income Tax Dischargeability Actions

The difference in income tax dischargeability between the § 1328(a) and § 1328(b) discharges lies in the first and third requirements listed above. These requirements do not have to be met in a § 1328(a) discharge because § 1328 (a)(2) does not include §523(a)(1)(A) within its ambit. This simplification in the analysis may make a debtor-initiated action worth filing, especially if the liability is large and the proof of claim asserts nondischargeability status. However, it’s probably best to use an objection to the proof of claim rather than an adversary proceeding.

When Homeowner’s good faith attempts to amicably work with the Bank in order to resolve the issue fails;

What Homeowners in Bankruptcy Need to Know Before Commencing Advsersary Proceeding

18 Friday Jul 2014

Posted by BNG in Bankruptcy, Federal Court, Foreclosure Defense, Judicial States, Non-Judicial States, Pro Se Litigation, Your Legal Rights

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Many Homeowners who found themselves in an unfortunate foreclosure situation often wonder whether they have better options when dealing with pretender lenders trying to steal their homes right under their noses. In some situations, you may need a type of bankruptcy relief that can be granted only by a judge, and that cannot be provided by simply filing a motion related to the bankruptcy. In those cases, it may be appropriate to file an adversary proceeding within your bankruptcy case.

The Question then becomes – WHAT IS AN ADVERSARY PROCEEDING?

An adversary proceeding (or “AP”) is a lawsuit filed separate from but related to the bankruptcy case. It is an action commenced by one or more Plaintiffs filing a Complaint against one or more Defendants and resembles a typical civil case. The Plaintiff is the person, partnership or corporation initiating the lawsuit. The Defendant is the person, partnership or corporation being sued. Certain types of disputes cannot be handled in the bankruptcy case, but instead require the commencement of an adversary proceeding. These types of actions are found in Rule 7001 of the Federal Rules of Bankruptcy Procedure.

The laws pertaining to bankruptcy are very complex. Like many lawsuits, an adversary proceeding can involve complicated factual circumstances and legal questions. The Clerk’s Office staff, the judge, the judge’s staff and the trustee appointed to oversee the bankruptcy case are not permitted to answer legal questions or provide legal advice. It is strongly recommended that you retain legal counsel to represent you in an adversary proceeding, unless of course, you know what you are doing. Any individual who is a Plaintiff or Defendant may represent themselves pro se (without legal counsel). Corporations, partnerships and other business entities must be represented by an attorney.

All litigants involved in an adversary proceeding must comply with the Local Rules, the United States Bankruptcy Code and the Federal Rules of Bankruptcy Procedure as well as observe traditional and customary rules of decorum. Failure to do so can result in dismissal of the case or other sanctions.

The next question is – WHO TYPICALLY FILES AN ADVERSARY PROCEEDING?

Common adversary matters often involve dischargeability of a particular debt or denial of a discharge of all debts, preference payment (an action to recover money paid to a creditor just prior to filing bankruptcy), violation of the automatic stay, or fraudulent transfer issues. An adversary proceeding is typically filed by a creditor, a trustee, or the debtor.

An adversary proceeding is commenced by the filing of a Complaint. A Complaint is a formal, written statement in which the initiating party, (i.e., the Plaintiff) presents the facts as he or she believes them to be and demands relief to which he or she is entitled under the law. Each Complaint is unique and there is no specific or official form provided by the court.

The Complaint usually consists of five main parts:

The case caption which identifies the Court, bankruptcy case, and party information for the adversary.
The narrative statement identifying the name and location of the parties involved in the adversary proceeding as well as description of the transaction or other relationship between the parties that gives rise to the complaint.
The jurisdiction or reason your case is being filed in this bankruptcy court.
The allegations or claims that you are making against the Defendant.
The relief you are seeking from the Court. This can be money or something you want the judge to make the Defendant do or stop doing. This information is usually written in the last paragraph of the Complaint.

In addition to the Complaint, you must complete and submit the Adversary Proceeding Cover Sheet (Procedural Form B104) with the Complaint. If filing electronically (registered CM/ECF users only), you must include the Cover Sheet as an attachment to the Complaint.

PLEADING STYLE AND SIGNATURES

All pleadings submitted to the Court must be on 8 1/2″ x 11″ paper, the writing must be legible and double-spaced, whether typed or printed, and it must bear an original signature if not filed electronically.

SERVICE OF SUMMONS

When a Complaint is filed, the Clerk’s Office will generate a Summons [form B250A] form which is returned to the Plaintiff for service. A Summons is a writ used to notify the person(s) named as the Defendant(s) of the commencement of the adversary proceeding and the requirement to appear and answer. Service of the Complaint and Summons must be executed in accordance with Fed. R. Bankr. P. 7004. After the Complaint and Summons have been served, the Plaintiff must file a Certificate of Service indicating the parties have been served and by what method, i.e. USPO, personal service, etc.

PAYMENT OF FILING FEES

A filing fee is required in most instances when filing an adversary proceeding unless the Plaintiff is the debtor in a chapter 7 or 13 case and the adversary proceeding is related to the debtor’s discharge.

Plaintiffs who are not debtors in a pending bankruptcy case may pay filing fees by credit card, cash (exact amount), check, money orders, or cashier’s checks. Personal checks or credit cards from the debtor, two-party checks, or post-dated checks are usually not be accepted, but check with the clerk’s office of your local jurisdiction.

The bankruptcy case must be open at the time the Complaint is filed. If the bankruptcy case is closed, you must file a Motion to Reopen and pay the filing fee (if applicable) to reopen the case. The reopening fee is in addition to the adversary proceeding filing fee.

PERSONALLY IDENTIFIABLE INFORMATION PRIVACY NOTICE

Bankruptcy cases and their related adversary proceedings are public record. Do not place the full Social Security Number or Taxpayer Identification Number on any documents to be filed.

Documents which must include personally identifiable information must be redacted or truncated prior to filing. (Fed. R. Bankr. P. 9037). You may abbreviate the information as shown in the following examples:

Personally Identifiable Information Redaction Examples

Social Security and/or Last four digits only
Taxpayer Example: xxx-xx-1234
Identification Number

Financial Account Numbers Last four digits only
Example: XXXXXX1234

Birthdate Year of birth only
Example: XX/XX/1983
Names of Minor Children Initials only (no names)

Example: J.D in place of “John Doe”

CHANGE OF ADDRESS
You must notify the Clerk of Court in writing of any change of address. Hearing notices and other documents will be sent to you by U.S. Mail if you are not an electronic participant to the case. Your case may be dismissed if you cannot be contacted by mail.

“Pro Se” Homeowners Should Use the following as a Guide

I. An Adversary Proceeding is Required

A. To recover money or property or for turnover of money or property;
B. To determine the validity, priority, or extent of lien or other interest in property;
C. To obtain approval to sale both the interest of the estate and of a co-owner of property;
D. To object to or revoke a discharge;
E. To revoke an order of confirmation of a plan;
F. To determine the dischargeability of a debt;
G. To obtain an injunction;
H. To subordinate an allowed claim or interest;
I. To obtain a declaratory judgment (a judgment explaining disputed law) relating to any of the foregoing; or
J. To determine a claim or cause of action removed from a state court pursuant to 28 U.S.C. Section 1452.

II. Starting an Adversary Proceeding

An adversary proceeding is commenced by the filing of a complaint. A complaint is a written formal statement in which the party initiating the adversary, the plaintiff, presents the facts as he or she believes them to be and demands the relief to which he or she believes he or she is entitled against the defendant, the person or entity the action is brought against. Each complaint is unique and there is no specific form provided by the court.

The bankruptcy case must be open at the time the complaint is filed. If the bankruptcy case is closed, it will need to be reopened before the complaint is filed. To reopen the bankruptcy case, you need to file a motion to reopen. There may be a reopening fee due. If the reopening is for the debtor or other party to file a complaint to determine whether or not a particular debt was discharged or for the debtor to file an action to enforce the discharge, there is no reopening fee. If the reopening is to file a complaint for any other reason, there is a reopening fee due of $260.00 for a Chapter 7 case and $235.00 for a Chapter 13 case. The reopening fee is in addition to the adversary filing fee if due as described below.

III. Filing Fees for an Adversary Complaint

The fee for an adversary complaint is $293. Parties exempt from paying the filing fee are:

A. Any U.S. Government agency.

B. A Chapter 7 or Chapter 13 debtor.

C. A Chapter 11 individual debtor, or attorney representing debtor, only when filing a Complaint for Dischargeability of a Debt.

D. A Chapter 7 trustee – the fee is due at the time of filing the complaint unless the trustee files a certification that insufficient estate funds are available. The fee is then deferred until funds become available.

E. A Chapter 12 or Chapter 13 trustee – the fee is paid from the estate upon confirmation of the plan.

F. A Chapter 11 trustee – the fee is due at the time of filing the complaint unless a motion and order to defer payment is filed with the complaint.

G. A creditor owed child support by the debtor or such creditor’s representative – the fee is usually not due provided the creditor or representative files Form 281 – Appearance of Child Support Creditor or Representative. (Check with your local jurisdiction for the fees).

IV. What is Required for Filing an Adversary Complaint?

A. Filing fee of $293 (except when the filing fee is not required or is deferred).
B. An original and one copy of the adversary complaint.
C. An Adversary Proceeding Cover Sheet (recommended, but not required)
D. Summons in an Adversary Proceeding.
The clerk’s office will issue the summons.

V. Issuing the Summons

The clerk’s office will issue the summons and mail it to the pro se (party not represented by an attorney) plaintiff.

VI. Service of Summons and Complaint

IMPORTANT: IF YOU HAVE NAMED THE UNITED STATES/OR A FEDERAL AGENCY AS A DEFENDANT, YOU ARE REQUIRED TO SERVE THE U.S. ATTORNEY AND THE ATTORNEY GENERAL OF THE UNITED STATES WITH A COPY OF THE COMPLAINT AND THE SUMMONS.

The summons and complaint may be served anywhere in the United States. For service in a foreign country, see Bankruptcy Rule 7004.

A. Service may be made by:

1. Personal Service – By person not less than 18 years of age and not a party to the complaint.

2. First Class Mail – Service may be made on defendants within the United States by first class U.S. mail postage pre-paid, except as stated below. Service by first class mail is also subject to the following specific requirements as stated.

a. Mail service on an Insured Depository Institution (banks and other financial institutions whose deposits are federally insured) must be by certified mail addressed to a particular officer of the institution.

b. If serving the bankruptcy debtor by mail, the summons and complaint must be mailed to the address stated on the bankruptcy petition or to such other address as the debtor may designate in a writing filed with the bankruptcy court. If the debtor is represented by an attorney, service must also be made on the attorney at
the attorney’s post-office address.

c. Service on an Agency of the United States must be made to all three of the following addresses.

(1) Civil Process Clerk US Attorney, (YOUR CITY AND STATE, ZIP).

(2) Attorney General of the United States Dept of Justice, Room B-103 950 Pennsylvania Ave NW Washington DC 20530-0001

(3) US Agency Name Street Address/PO Box City State Zip Code

d. Service on the United States Trustee by mail must be mailed to the following address.

United States Trustee (YOUR CITY AND STATER, ZIP)

3. Publication – If a party cannot be served by personal service or first class mail, the court may, on motion of the plaintiff, order at least one publication in such manner and form as the court directs (example: newspaper).

B. Time Limit for Service:

1. Service must be made within ten days following the issuance date of the summons. If the summons is not timely delivered or mailed, a replacement summons (an alias summons) shall be issued upon request of the plaintiff, providing that 120 days have not passed since the filing of the adversary complaint.

2. If service of the summons and complaint is not made within 120 days after the filing of the complaint, and good cause cannot be shown why service was not made within that period, the adversary complaint may be dismissed.

C. Certificate of Service. You will complete the Certificate of Service form and then file it as your Certificate of Service . For the service to be valid, the certificate must show that the following requirements were done.

1. The date service was made must be stated. If mailed, the date the copy of the complaint and summons was deposited in the mail is the date to be stated.

2. It must state that a copy of the complaint and summons was served or mailed.

3. If service was made by personal delivery of the summons and complaint, then it must state that the person making service is 18 years or older and is not a party to the case.

4. If service was made by mail, then the names and addresses to which the summons and copy of the complaint were mailed must be stated.

5. If service was made by certified mail, then the certification must be attached to the certificate.

VII. What is the Usual Course of an Adversary Complaint?

A. An adversary complaint is filed by the plaintiff and the clerk’s office issues a summons.

B. The summons and complaint are served upon the defendant(s) and their attorneys by the plaintiff.

C. The plaintiff files with the bankruptcy court a Certificate of Service of the summons and complaint.

D. If the defendant files an answer to the complaint, the court will set a status hearing and will notice the hearing to the interested parties.

E. The adversary would then go through its course until the judge renders a decision, judgment, or the parties reach a settlement. The adversary would then be closed.

F. If an answer is not filed, the plaintiff would file the proper paperwork to have a default entered against the defendant(s).

VIII. How do I Have the Court Enter a Default Against the Defendant?

There are no specific forms available. You will prepare your own Application for Default and a separate Default Judgment. The clerk’s office is permitted to enter a default only upon being presented with an Application for Default setting forth the facts. These facts normally include the following:

A. Date the adversary complaint was filed with the court;
B. Date the summons was signed/issued by the deputy clerk;
C. Date you served the adversary complaint on the defendant and defendant’s attorney;
D. Date you filed your Certificate of Service with the court;
E. Statement that no answer has been received within the time limit fixed by the court on the summons; and
F. Statement that the defendant is not in the military service. If the defendant is or may be in the military service, the defendant is afforded certain protections which must be addressed prior to the Entry of Default.

IX. Clerk’s Entry of Default

When an Application for Entry of Default is filed, the adversary case will be reviewed and if appropriate, the clerk’s office will prepare and mail the Entry of Default to the interested parties. If the application is deficient, the clerk’s office will notify the plaintiff regarding the deficiency.

IX. Default Judgment

The judge will review the file and either sign the Default Judgment or set the matter for hearing.

FAILURE TO COMPLY

Failure to comply with any of the requirements may result in the Plaintiff’s Complaint being dismissed or may result in a judgment being entered against the Defendant(s). An Order to Show Cause may also be entered which requires the party to appear in Court and explain the lack of compliance.

The information contained herein is not intended to be a complete guide as to what is required in an adversary proceeding.

When Homeowner’s good faith attempts to amicably work with the Bank in order to resolve the issue fails;

How Homeowners and Commercial Property Investors Can Effectively Bring & Defend Claims Objections in Bankruptcy Proceeding

16 Wednesday Jul 2014

Posted by BNG in Bankruptcy, Federal Court, Foreclosure Defense, Judicial States, Non-Judicial States, Pro Se Litigation, Your Legal Rights

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I. Introduction

Once a proof of claim has been filed,(1) the claim is deemed allowed unless a party in interest objects.(2) The best preparation for defending against a claim objection is to pay careful attention to the proper filing of the claim in the first instance, including timely filing, the claim form and necessary attachments, and the legal effect of filing. Whether bringing or defending an objection to claim, the practitioner should be cognizant of applicable procedures governing the filing and service of claims objections, the content of omnibus objections and requested relief requiring the filing of an adversary proceeding. These issues, as well as determining the burden of proof in the disposition of claims objections, the effect of a transferred or assigned claim on the claim objection process, the resolution of administrative expense claims, and reconsideration of claims are addressed below.

II. The Best Defense is a Good Offense—Essential Facts Informing the Filing of Claims

A. Timing

In a chapter 7, chapter 12, or chapter 13 case, a proof of claim generally must be filed within 90 days after the first date set for the meeting of creditors under 11 U.S.C. section 341.(3) However, a proof of claim asserted by a governmental unit must be filed within 180 days of the

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1 The filing of a proof of claim is governed by 11 U.S.C. § 501 and Fed. R. Bankr. P. 3001–3005.
2 The allowance of a proof of claim is governed by 11 U.S.C. § 502.
3 Fed. R. Bankr. P. 3002(c).

order for relief, unless it is for a claim resulting from a tax return filed under 11 U.S.C. section 1308.(4) In the latter case, the governmental claim must be filed by the later of 180 days after the date of the order for relief or 60 days after the date of the filing of the tax return in order to be considered timely.(5) In a chapter 9 or chapter 11 case, the court sets the time within which a proof of claim or interest may be filed.(6) Only those creditors whose claims are not scheduled or are scheduled as disputed, contingent, or unliquidated must file a claim in chapter 9 and chapter 11 cases.(7)

A debtor or trustee may file a proof of claim on behalf of a creditor who fails to timely file up to 30 days after the expiration of the above bar dates.(8) A debtor may have tactical reasons for filing a proof of claim on behalf of a creditor, e.g., to ensure that non-dischargeable debts are
reduced by distributions from the bankruptcy estate, or to trigger a proceeding disputing the amount of the claim or seeking a determination of an allowed secured claim.(9)

There are several exceptions to the bar date for filing a proof of claim. The court may extend the time for filing by an infant, incompetent person, or representative of the same.(10) An unsecured claim arising as a result of a judgment may be filed within 30 days after the judgment
becomes final if the judgment is for recovery of money or property or denies or avoids an entity’s interest in property, but the claim will not be allowed if the judgment imposes a liability

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4 Fed. R. Bankr. P. 3002(c)(1). 11 U.S.C. § 1308 prescribes the time by which a chapter 13 debtor must file outstanding tax returns for all tax periods ending during the four-year period preceding the filing of the petition.
5 Id.
6 Fed. R. Bankr. P. 3003(c)(3).
7 Id. at (c)(2).
8 Fed. R. Bankr. P. 3004.
9 9 Collier on Bankruptcy ¶ 3004.01 (Alan N. Resnick & Henry J. Sommer eds., 15th ed. rev.
2008).
10 Fed. R. Bankr. P. 3002(c)(2).

that is not satisfied or a duty that is not performed.(11) The court may set the time for filing a claim arising from the rejection of an executory contract or unexpired lease.(12) When creditors are given notice of insufficient assets to pay a dividend and the trustee subsequently notifies the court that assets have been identified that will likely result in the payment of a dividend, the clerk must set the time for filing a proof of claim and give creditors at least 90 days’ notice.(13) Finally, the court may extend the time for filing a proof of claim by up to 60 days where a creditor at a foreign address was given insufficient notice to reasonably file a proof of claim.(14) The court may enlarge the time for filing a proof of claim in a chapter 7, 12, or 13 case only under the above exceptions.(15) However, the court may extend the time for filing a proof of claim in a chapter 9 or 11 case “for cause” shown.(16) Prior to the deadline, the creditor must

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11 Id. at (c)(3). See In re Little, 74 B.R. 625, 627 (Bankr. N.D.N.Y. 1987) (holding that creditor’s proof of claim was timely filed within 30 days in accordance with Fed. R. Bankr. P. 3002(c)(3), when court order avoiding lien was entered on December 1 and became final on December 11, and proof of claim was filed by January 10). However, the claim of a transferee
of a voidable transfer will be disallowed if the transferee has not paid the amount, or turned over any property received, as required by the sections under which the transferee is liable. 11 U.S.C. § 502(d); see also In re Davis, 889 F.2d 658, 661 (5th Cir. 1989), cert. denied, 495 U.S. 993
(1990) (“The legislative history and policy behind [11 U.S.C. §] 502(d) illustrates that the section is intended to have the coercive effect of insuring compliance with judicial orders.”). 12 Id. at (c)(4). See In re Montaldo Corp., 209 B.R. 40, 46 (Bankr. M.D.N.C. 1997) (“Although
the foregoing language [of Fed. R. Bankr. P. 3002(c)(4)] permits the court to specify a special deadline for the filing of claims arising from the rejection of an executory contract or unexpired lease, there is no requirement that such specialized orders be entered.”) (citing Liakas v. Creditors’ Comm. of Déjà Vu, Inc., 780 F.2d 176, 178 (1st Cir. 1986)).
13 Id. at (c)(5).
14 Id. at (c)(6).
15 Fed. R. Bankr. P. 9006(b)(3). See also In re Jensen, 333 B.R. 906, 909 (Bankr. M.D. Fla.
2005) (“[Fed. R. Bankr. P.] 9006(b)(3) prohibits enlargement of the bar date other than as
permitted by [Fed. R. Bankr. P.] 3002(c)”); but see In re Jewelart, Inc., 71 B.R. 968, 971 n.4
(Bankr. C.D. Cal. 1987) (court specially set bar date other than date provided under Fed. R.
Bankr. P. 3002(c)); In re Unroe, 937 F.2d 346, 350 (7th Cir. 1991) (leaving open the question of
whether a judge in equity could permit an entirely new claim to be filed after bar date).
16 Fed. R. Bankr. P. 3003(c)(3).

show why the deadline cannot be met.(17) After the deadline, the creditor must show “excusable neglect,” which the Supreme Court of the United States addressed in Pioneer Investment Services Company v. Brunswick Associates Limited Partnership.(18) In Pioneer, the Supreme
Court found that the determination was an equitable one, taking into account all relevant circumstances, including: 1) the danger of prejudice to the debtor; 2) the length of the delay and its potential impact on judicial proceedings; 3) the reason for the delay, including whether it was
within the reasonable control of the movant; and 4) whether the movant acted in good faith.(19) Since Pioneer, courts have held that excusable neglect does not include mistake of law(20) or clerical or office problems,(21) but courts have found excusable neglect when the failure to timely file was due to counsel’s exploration of settlement,(22) observance of a religious holiday,(23) or illness.(24)

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17 9 Collier on Bankruptcy ¶ 3003.03[4][b].
18 Pioneer Inv. Servs. Co. v. Brunswick Assocs. P’ship, 507 U.S. 380 (1993).
19 Id. at 395.
20 Artificial Intelligence Corp. v. Casey (In re Casey), 198 B.R. 918, 924–25 (Bankr. S.D. Cal.
1996) (“Ignorance of the law or Federal Rules, or mistakes in their construction, do not usually constitute excusable neglect.”).
21 Schmidt v. Boggs (In re Boggs), 246 B.R. 265, 268 (B.A.P. 6th Cir. 2000) (“‘Clerical or office problems’ are simply not a sufficient excuse for failing to file a notice of appeal within the ten day period.”).
22 Jones Truck Lines v. Foster’s Truck & Equip. Sales (In re Jones Truck Lines), 63 F.3d 685 (8th Cir. 1995).
23 Finger v. County of Sullivan (In re Paramount Hotel Corp., 319 B.R. 350 (Bankr. S.D.N.Y. 2005).
24 Allied Domecq Retailing USA v. Schultz (In re Schultz), 254 B.R. 149, 154 (B.A.P. 6th Cir. 2000) (“[E]xcusable neglect includes sudden death, disability or illness of counsel or the party.”); cf. Jackson v. President Casinos, Inc. (In re President Casinos, Inc.), 2008 Bankr. LEXIS 3107, *10–11 (B.A.P. 8th Cir. 2008) (“[I]llness of counsel may be sufficient for a finding of excusable neglect, but the illness must be of ‘such character and magnitude that counsel was both physically and mentally incapacitated during the crucial period of time.’”) (quoting In re
Gehl, 324 B.R. 756, 759 (Bankr. N.D. Iowa 2005)).

An Amendment to a timely-filed proof of claim will relate back to the original filing date.(25) However, a nexus must exist between the original proof of claim and the amendment, because courts scrutinize such amendments to ensure that a new claim is not being made.(26) This
“nexus” text requires that amendment be allowed “where its purpose is to cure a defect, provide a more particular description of the claim, or plead a new theory of recovery based upon facts stated in the original claim.”(27) In order to alleviate the harsh results of strict enforcement of the bar date, courts have developed the equitable doctrine of the “informal proof of claim.”(28) To qualify as an informal proof of claim, many courts have held that a document must be in writing, must contain a
demand by the creditor on the estate, must express an intent to hold the debtor liable for the debt, and must be filed with the bankruptcy court, and further that the facts of the case must make allowance equitable.(29) Thus, documents such as a complaint initiating an adversary proceeding have been deemed informal proofs of claim,(30) which may be amended at the court’s discretion.(31)

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25 But see In re Carraway Methodist Health Sys., 2008 Bankr. LEXIS 2108 (Bankr. N.D. Ala. July 23, 2008) (where court allowed creditors to file claims relating to the debtors’ rejection of unexpired leases and executory contracts, creditor filed claim prior to bar date that was then
disallowed, and creditor subsequently filed two additional claims, court found that the additional claims were untimely and did not amend the earlier claim, as there was nothing left to amend once the earlier claim was disallowed).
26 Clamp-All Corp. v. Foresta (In re Clamp-All Corp.), 235 B.R. 137, 140 (B.A.P. 1st Cir. 1999) (“Post-bar date amendments should be scrutinized to ensure that the amendment is not making a new claim against the estate.”).
27 Id. (citing In re International Horizons, 751 F.2d 1213, 1216 (11th Cir. 1985)).
28 Houbigant, Inc. v. ACB Mercantile (In re Houbigant, Inc.), 190 B.R. 185, 187 (Bankr. S.D.N.Y. 1995) (“The informal proof of claim is an equitable principle developed by courts to alleviate the harsh results of strict enforcement of the bar date.”) (citing In re Mother Hubbard,
Inc., 152 Bankr. 189, 192 (Bankr. W.D. Mich. 1993)).
29 9 Collier on Bankruptcy ¶ 3001.05[2] and n.33 (collecting cases).
30 In re Sherret, 58 B.R. 750, 751 (Bankr. W.D. La. 1986).
31 In re Sambo’s Restaurants, Inc., 754 F.2d 811, 817 (9th Cir. 1985).

B. Proof of Claim Form

A proof of claim is a written statement setting forth a creditor’s claim, and should conform substantially to Official Form No. 10.(32) Attachments documenting the claim should be included when required to properly establish the right to payment. When a claim is based on a writing, a copy of the writing should be filed with the proof of claim unless the writing has been lost or destroyed, in which case a statement of the circumstances of the loss or destruction should be filed with the proof of claim.(33) When a claim is for a security interest in property of the
debtor, evidence that the security interest has been perfected should be filed with the proof of claim.(34) Documentation should also be filed with the proof of claim explaining how components of the claim, such as interest and fees were computed, as should any evidence in support of
additional costs. To the extent that such documentation is filed with the proof of claim, the practitioner may be able to avert objections to the claim.(35)

C. Legal Effect

The Seventh Amendment of the United States Constitution preserves the right to a jury trial for actions at common law concerning a private right, where the amount in controversy

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32 Fed. R. Bankr. P. 3001(a); see also Official Form No. 10 (2008).
33 Id. at (c).
34 Id. at (d).
35 For example, a credit card company in response to an objection to its claim may need to supply more than the one-page summary of the account history attached to the claim. The court in In re Plourde found that although the company may find it burdensome, it was required to
provide details of the charges and interest imposed in responding to the trustee’s objection and, failing to do so, the court sustained the objection. In re Plourde, 397 B.R. 207, 226 (Bankr. D.N.H. 2008) (“The need to provide details on the terms and conditions of the contract, and the actual charges and interest imposed, from time to time may be onerous from the credit card [issuers’] point of view. However, such difficulties flow from the business model that the credit card industry has voluntarily adopted. So long as credit card issuers wish to maintain sole discretion to vary the terms of their agreement with a consumer at any time, and from time to time, they must accept the legal consequences of that business model.”).

exceeds twenty dollars.(36) To determine whether a claimant is entitled to a jury trial, the court must determine whether the action and remedy sought are legal or equitable.(37) A claimant does not have a right to jury trial in cases “‘involving statutory rights that are integral parts of a public
regulatory scheme and whose adjudication Congress has assigned to . . . a specialized court of equity,’ because those rights are deemed ‘public.’”(38) If a claimant’s action is inextricably intertwined with a statutory public right, such as an action for the allowance of claims, then the party does not have a Seventh Amendment right to jury trial.39 The filing of a proof of claim is the prototypical situation involving the allowance or disallowance of claims, which is a core proceeding under 28 U.S.C. § 157(b)(2)(B).(40) By filing a proof of claim, a creditor triggers the
process of “allowance and disallowance of claims,” and thereby subjects herself to the equitable power of the bankruptcy court.(41) A creditor may waive the right to jury trial by filing a proof of claim even when she attempts to reserve the right.(42) Apart from entitlement to a jury trial, the filing of a claim may subject an entity to the jurisdiction of the court for purposes of any and all counterclaims that the debtor may assert against the claimant.(43)

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36 Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 41 (1989).
37 Id. at 42.
38 MCI WorldCom Communs., Inc. v. Communs. Network Int’l, Ltd. (In re WorldCom, Inc.), 378 B.R. 745, 751 (Bankr. S.D.N.Y. 2007) (quoting Germain v. Connecticut Nat’l Bank, 988 F.2d 1323, 1331 (2d Cir. 1993)).
39 Id. at 752.
40 Durkin v. Benedor Corp. (In re G.I. Indus.), 204 F.3d 1276, 1279–80 (9th Cir. 2000).
41 Langenkamp v. Culp, 498 U.S. 42, 44 (1990) (quoting Granfinanciera, 492 U.S. at 58–59, n.14). See also In re S.G. Phillips Constructors, Inc., 45 F.3d 702, 704–08 (2d Cir. 1995).
42 Anderson v. Brokers, Inc. (In re Brokers, Inc.), 2005 Bankr. LEXIS 1100, *8 (Bankr. M.D.N.C. June 6, 2005) (“The filing of a proof of claim may waive a creditor’s right to a jury trial even when the creditor attempts to reserve its right to a jury trial.”) (citing Travellers Int’l AG v. Robinson, 982 F.2d 96, 100 (3d Cir. 1992); Granader v. Peachtree Lane Assocs. (In re
Peachtree Lane Assocs.), 150 F.3d 788, 799 (7th Cir. 1998)).
43 28 U.S.C. § 157(b)(2)(C).

A governmental unit that has filed a proof of claim is deemed to have waived sovereign immunity with respect to any claim against the governmental unit that 1) is property of the estate and 2) arose out of the same transaction or occurrence as the governmental unit’s claim.(44)
Further, any claim by a governmental unit is offset by any claim against the governmental unit that is property of the estate.(45) Of course, when a filing is required, if a discharge is ultimately entered or the debt is not otherwise excepted from discharge, a subsequent affirmative recovery from the debtor is barred.
Furthermore, the non-filing party does not share in a distribution from the estate and one’s status as an included member of a certified class is adversely impacted. In an action asserted by former employees of a chapter 11 debtor under the Worker Adjustment Retraining Notification Act (“WARN Act”),(46) the court in In re Protected Vehicles used a modified class action model, consonant with principles of equal treatment of claims in bankruptcy, to limit the certified class only to members who had timely filed proofs of claim prior to the bar date.(47)

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44 11 U.S.C. § 106(b). See also Schulman v. California (In re Lazar), 237 F.3d 967, 978 (9th Cir. 2001), cert. denied, 534 U.S. 992 (2001) (finding that, by filing a proof of claim, a state waives its Eleventh Amendment immunity with respect to the bankruptcy estate’s claims that arise from
the same transaction or occurrence as the state’s claim).
45 Id. at (c). Any concerns about the constitutionality of § 106(b) and (c) have been laid to rest the Supreme Court’s conclusion that the “States agreed in the plan of the Convention not to assert any sovereign immunity defense they might have had in proceedings brought pursuant to ‘Laws on the subject of Bankruptcies.’” Cent. Va. Cmty. Coll. v. Katz, 546 U.S. 356, 377 (2006).
46 29 U.S.C. § 2101 et seq.
47 In re Protected Vehicles, Inc., 397 B.R. 339 (Bankr. D.S.C. 2008).

III. Filing and Service of Claims Objections

A. Timing

There is no per se bar date for filing claims objections,48 although the court may always set a bar date.(49) However, some courts in chapter 13 cases have found that when a proof of claim was filed prior to confirmation of a chapter 13 plan, an objection to that claim must also be
filed prior to confirmation.(50) Other courts have permitted post-confirmation objections to claims in chapter 13 cases.(51)

B. Filing Omnibus Objections

Fed. R. Bankr. P. 3007 was amended in 2007 to restrict the use of omnibus objections in order to ensure the protection of claimants’ due process rights.52 Under the revised rule, claims objections may only be joined in a single omnibus objection by court order, or if the objection is

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48 In re Herrera v. JPMorgan Chase Bank, N.A., 369 B.R. 395, 400 (E.D. Wis. 2007) (“[Fed. R. Bankr. P.] 3007 sets no bar date for objections.”) (citing In re Kolstad, 928 F.2d 171, 174 (5th Cir. 1991), cert. denied, 502 U.S. 958 (1991); In re Consolidated Pioneer Mortgage, 178 B.R.
222, 225 (B.A.P. 9th Cir. 1995), aff’d, 91 F.3d 151 (9th Cir. 1996)).
49 Id. (“The bankruptcy court may set deadlines for filing objections.”) (citing In re Hovis, 356 F.3d 820, 822 (7th Cir. 2004)).
50 See Universal Am. Mortgage Co. v. Bateman (In re Bateman), 331 F.3d 821 (11th Cir. 2003) (“Although [11 U.S.C.] § 502(a) does not provide a time limit to file an objection, it must be filed prior to plan confirmation.”) (citing In re Justice Oaks II, Ltd., 898 F.2d 1544, 1553 (11th Cir. 1990), cert. denied, 498 U.S. 959 (1990); In re Starling, 251 B.R. 908, 909–10 (Bankr. S.D. Fla. 2000)) (emphasis in original).
51 See Morton v. Morton (In re Morton), 298 B.R. 301, 309–10 (B.A.P. 6th Cir. 2003) (“Neither the Bankruptcy Code nor the Bankruptcy Rules contain a bar date or deadline for filing objections to claims in a chapter 13 case and we will not read one into the law where none exists.”).
52 Fed. R. Bankr. P. 3007 Notes of Advisory Committee on 2007 Amendment. Prior to 2007 amendment, courts applied the doctrine of excusable neglect to reconsider claims of creditors that had been expunged due to failure to respond to an omnibus objection. See Pro-Tec Servs., LLC v. Inacom Corp. (In re Inacom Corp.), 2004 U.S. Dist. Lexis 20822 (D. Del. Oct. 4, 2004) (finding excusable neglect through application of Pioneer factors); In re Enron, 325 B.R. 114 (Bankr. S.D.N.Y. 2005) (finding excusable neglect where inaction was based upon the erroneous assumption that the debtors would not file a formal objection to claim while engaged in negotiations regarding claim). See also supra Part II.A.

based solely on the grounds that the claims: 1) are duplicative; 2) were filed in the wrong case; 3) have been amended by subsequent proofs of claim; 4) were not timely filed; 5) have been satisfied or released; 6) were presented in a form that does not comply with applicable rules and
the objector is unable to determine the claim’s validity due to noncompliance; 7) are interests rather than claims; or 8) assert priority in amounts in excess of the maximum allowed under 11 U.S.C. section 507.53 To ensure notice to the claimant, omnibus objections must also: 1) state conspicuously that claimants receiving the objection should locate their names and claims in the objection; 2) list claimants alphabetically, cross-reference claim numbers, and list claimants by
category of claims if appropriate; 3) state the grounds of objection to each claim and cross reference pertinent pages in the objection; 4) state in the title the identity of the objector and grounds for objection; 5) be numbered consecutively with other omnibus objections filed by the
same objector; and 6) contain objections to no more than 100 claims.54 Since omnibus objections may be allowed as “otherwise ordered by the court,”(55) familiarity with local bankruptcy rules and general orders is important, as they may deviate from the federal requirements regarding the filing of omnibus objections.(56)

C. Service

An objection to the allowance of a claim must be served with 30 days’ notice of the hearing.(57) Although Fed. R. Bankr. P. 3007 does not expressly provide the manner for service of claims objections, many authorities agree that claims objections are contested matters governed

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53 Fed. R. Bankr. P. 3007(c)–(d).
54 Id. at (e).
55 Id. at (c).
56 See D. Del. Rev. Local Bankr. R. 3007-1 (effective Feb. 1, 2009) (App. infra Part V); see also General Order Regarding Applicability of Rule 3007(c) of the Amended Federal Rules of Bankruptcy Procedure (Bankr. D. Del. Nov. 27, 2007) (deviating from Fed. R. Bankr. P. 3007
and specifying additional requirements for the filing of omnibus objections).
57 Fed. R. Bankr. P. 3007(a).

by Fed. R. Bankr. P. 9014.(58) In general, service of a motion in a contested matter must comply with the service requirements of Fed. R. Bankr. P. 7004.(59) However, courts are split as to whether service of a claim objection on the address listed by the creditor on the proof of claim is sufficient, even if that service would not normally satisfy Fed. R. Bankr. P. 7004.(60) Beneath the service requirement is a general concern for due process. The requirements of due process are satisfied so long as a defendant has been served in a manner “reasonably calculated to give him actual notice of the proceedings.”(61) Therefore, if the claimant responds to the objection, the manner of service is of less concern than if there is no response. For this reason, it is good practice to serve in accordance with Fed. R. Bankr. P. 7004 and on the proof of claim address. As with the filing of omnibus objections, familiarity with applicable local
bankruptcy rules is important because such rules may specify different or additional requirements for the proper service of claims objections.(62) Proper service of the objection will

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58 See In re Lomas Fin. Corp., 212 B.R. 46, 52 (Bankr. D. Del. 1997) (“Most authorities agree that claim[s] objections are contested matters.”) (quoting United States v. Levoy (In re Levoy), 182 B.R. 827, 834 (B.A.P. 9th Cir. 1995)).
59 Fed. R. Bankr. P. 9014(b) (incorporating Fed. R. Bankr. P. 7004).
60 See In re Cagle, 2008 Bankr. LEXIS 2094, *7–12 (Bankr. N.D. Ga. Jun. 2, 2008) (collecting cases). See also In re Outlet Dep’t Stores, Inc., 49 B.R. 536, 540 (Bankr. S.D.N.Y. 1985) (“Given that [the creditor] in its proof of claim provided this address to the trustee, it cannot now
claim that service of process at that address was either defective or violative of [the creditor’s] rights.”); but see In re Sunde, 2007 Bankr. LEXIS 3704, *6 (Bankr. W.D. Wis. Oct. 2, 2007) (“[Fed. R. Bankr. P.] 7004(b)(3) expressly requires that service be addressed to the attention of ‘an officer, [or] agent’ of the business. The court is not persuaded that the plain language of [Fed. R. Bankr. P.] 7004(b)(3) should be overridden simply because the [c]reditor failed to provide a proper address for service on its proof of claim form.”).
61 In re Outlet Dep’t Stores, Inc., 49 B.R. at 540 (quoting Hackner v. Guaranty Trust Co., 117 F.2d 95, 98 (2d Cir. 1941), cert. denied, 313 U.S. 559 (1941)).
62 See D. Md. Rev. Local Bankr. R. 3007-1 (2008) (“In addition to the service required by [Fed. R. Bankr. P.] 9014 and 7004(b), a party objecting to a proof of claim must serve a copy of the objection and any supporting memorandum and affidavit on the claimant at the address (and in care of the individual) shown on the proof of claim and must certify that service to the court.”).

be a defense to a later motion for reconsideration of an order disallowing a claim filed by a claimant who never responded to the objection upon which the order was based.(63)

D. Requested Relief Requiring the Filing of an Adversary Proceeding

Prior to December 1, 2007, if an objection to a claim was joined with a demand for relief of the kind specified in Fed. R. Bankr. P. 7001,(64) it would be automatically converted to an adversary proceeding.(65) New subsection (b) of Fed. R. Bankr. P. 3007 does not allow a party in
interest to include such a demand for relief in a claim objection, but rather requires the filing of an adversary proceeding that may include a claim objection.(66) As amended, the Rule allows a party to object to a claim separately from a related adversary proceeding, although the court may
consolidate the hearing on the objection with the trial of the adversary proceeding under Fed. R. Bankr. P. 7042.(67) A claim objection that includes a demand for relief of the kind specified in

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63 See infra Part IV.D.
64 Fed R. Bankr. P. 7001 specifies that the following are adversary proceedings: 1) a proceeding to recover money or property, other than a proceeding to compel the debtor to deliver property to
the trustee, or a proceeding under 11 U.S.C. § 554(b) or § 725, Fed. R. Bankr. P 2017, or Fed. R. Bankr. P 6002; 2) a proceeding to determine the validity, priority, or extent of a lien or other interest in property, other than a proceeding under Fed. R. Bankr. P 4003(d); 3) a proceeding to
obtain approval under 11 U.S.C. § 363(h) for the sale of both the interest of the estate and of a co-owner in property; 4) a proceeding to object to or revoke a discharge; 5) a proceeding to revoke an order of confirmation of a chapter 11, chapter 12, or chapter 13 plan; 6) a proceeding
to determine the dischargeability of a debt; 7) a proceeding to obtain an injunction or other equitable relief, except when a chapter 9, chapter 11, chapter 12, or chapter 13 plan provides for the relief; 8) a proceeding to subordinate any allowed claim or interest, except when a chapter 9,
chapter 11, chapter 12, or chapter 13 plan provides for subordination; 9) a proceeding to obtain a declaratory judgment relating to any of the foregoing; or 10) a proceeding to determine a claim or cause of action removed under 28 U.S.C. § 1452.
65 Fed. R. Bankr. P. 3007 (amended Dec. 1, 2007) (“If an objection to a claim is joined with a demand for relief of the kind specified in [Fed. R. Bankr. P.] 7001, it becomes an adversary proceeding.”).
66 Fed. R. Bankr. P. 3007(b) (effective Dec. 1, 2007) (“A party in interest shall not include a demand for relief of a kind specified in [Fed. R. Bankr. P.] 7001 in an objection to the allowance
of a claim, but may include the objection in an adversary proceeding.”).
67 Fed. R. Bankr. P. 3007 Notes of Advisory Committee on 2007 Amendment.

Fed. R. Bankr. P. 7001 may be subject to dismissal.(68) Adversary proceedings afford defendants greater due process. Allowing a plaintiff in an adversary proceeding to assert a claim objection would not unfairly surprise the defendant, as might be the case if the matter was framed as a contested matter, but included a demand for relief of the kind specified in Fed. R. Bankr. P. 7001.(69)

IV. Disposition of Claims Objections

A. Burden of Proof

A proof of claim executed and filed in accordance with the Federal Rules of Bankruptcy Procedure constitutes prima facie evidence of the validity and amount of the claim.(70) The burden then shifts to the objecting party to produce evidence sufficient to rebut the prima facie validity
of the claim.(71) Once the objecting party introduces evidence sufficient to overcome the prima facie validity of the claim, the claimant bears the burden of proof to establish the validity of the claim.(72) If a proof of claim lacks the documentation necessary to establish prima facie validity,
the claimant may bear the burden of establishing its claim.(73)

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68 See 9 Collier on Bankruptcy ¶ 3007.02 (“Whether a claim objection which includes a request for affirmative relief against the claimant may be recharacterized by the court as an adversary proceeding, rather than being subject to dismissal in whole or in part, is a more difficult question
given the mandatory language of [Fed. R. Bankr. P.] 3007(b). At a minimum, use of the words ‘shall not’ should result in greater caution by practitioners to utilize adversary proceedings when appropriate.”).
69 Fed. R. Bankr. P. 3007 Notes of Advisory Committee on 2007 Amendment.
70 Fed. R. Bankr. P. 3001(f).
71 See In re McLaughlin, 320 B.R. 661, 665 (Bankr. N.D. Ohio 2005) (“To defeat the claim, the objector must come forward with sufficient evidence and ‘show facts tending to defeat the claim by probative force equal to that of the allegations of the proofs of claim themselves.’”) (quoting
Wright v. Holm (In re Holm), 931 F.2d 620, 623 (9th Cir. 1991)); see also In re Allegheny Int’l, Inc., 954 F.2d 167, 173–74 (3d Cir. 1992) (“In practice, the objector must produce evidence which, if believed, would refute at least one of the allegations that is essential to the claim’s legal
sufficiency.”).
72 In re Rockefeller Ctr. Props., 272 B.R. 524, 539 (Bankr. S.D.N.Y. 2000), aff’d, 266 B.R. 52 (S.D.N.Y. 2001), aff’d, 46 Fed. Appx. 40 (2d Cir. 2002) (“Once an objectant offers sufficient

B. Effect of Transferred and Assigned Claims on Claims Objections

If a claim other than for security is transferred before a proof of claim is filed, only the transferee or an indenture trustee may file the proof of claim.(74) If a claim other than for security
is transferred after the proof of claim has been filed, evidence of the transfer must be filed by the transferee.(75) The court must immediately notify the alleged transferor by mail of the filing of the
transfer, and the transferor has 20 days to object to the transfer of the claim or the transferee shall be substituted for the transferor.(76) Although third parties such as the debtor do not have standing
to object to claim assignment itself,(77) the bankruptcy court, as a court of equity, will scrutinize a timely, plausible argument that a proof of claim was fraudulently assigned, to avoid shielding fraudulent conduct.(78)

Setoff is unavailable where a claim was transferred from another creditor either after the commencement of the debtor’s bankruptcy case,(79) or after 90 days before the date of commencement and while debtor was insolvent.(80) This provision exists to prevent a creditor

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evidence to overcome the prima facie validity of the claim, the claimant is required to meet the usual burden of proof to establish the validity of the claim.”).
73 See In re Moreno, 341 B.R. 813, 819 (Bankr. S.D. Fla. 2006) (“If the original proof of claim contains only summary information and lacks the documentation necessary under [Fed. R. Bankr. P.] 3001 to establish prima facie validity, the claimant will have the burden of establishing its claim . . . including, for example, providing a breakdown of how it calculated charges such as interest, late fees, or attorneys fees if it is these types of charges which represent the challenged amount.”). See also supra Part II.B.
74 Fed. R. Bankr. P. 3001(e)(1).
75 Id. at (e)(2).
76 Id.
77 In re Lynn, 285 B.R. 858, 862 (Bankr. S.D.N.Y. 2002) (“[T]hird parties, including the [d]ebtor, do not have standing to object to a claim assignment itself.”) (citing Viking Assocs. v. Drewes (In re Olsen), 120 F.3d 98, 102 (8th Cir. 1997)).
78 Prin Corp. v. Altman (In re Altman), 265 B.R. 652, 658–59 (Bankr. D. Conn. 2001).
79 11 U.S.C. § 553(a)(2)(A).
80 Id. at (a)(2)(B). This provision contains an exception for a setoff of a kind described in 11 U.S.C. §§ 362(b)(6), 362(b)(7), 362(b)(17), 362(b)(27), 555, 556, 559, 560, and 561.

from acquiring a claim solely for the purpose of avoiding an anticipated claim asserted against
her by the debtor.(81)

C. Administrative Expense Claims

Payment of an administrative expense must be requested pursuant to 11 U.S.C. section 503(a), rather than by the mere filing of a proof of claim.(82) A claimant must give 20 day-notice to all creditors of a hearing on the claimant’s request for compensation or reimbursement of
expenses that exceeds $1,000.(83) Administrative expenses, other than for claims allowed under 11 U.S.C. section 502, are allowable for a number of categories of expenses.(84) These allowable
expenses generally include all costs and expenses incurred by the bankruptcy estate,(85) including any actual, necessary costs and expenses of preserving the estate.(86) An expense is administrative
only where it “arises out of a transaction between the creditor and the bankrupt’s trustee or debtor in possession, and only to the extent that the consideration supporting the claimant’s right to payment was both supplied to and beneficial to the debtor-in-possession in the operation of the business.”(87)

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81 See U.S. Aeroteam, Inc. v. Delphi Automotive Systems, LLC (In re United States Aeroteam),, 327 B.R. 852, 865–66 (Bankr. S.D. Ohio 2005) (“The drafters of [11 U.S.C.] § 553 acknowledged the concern that creditors might engage in the ‘trafficking’ of claims in order to
create a setoff advantage in bankruptcy. For this reason, Congress enacted § 553(a)(2) . . . [w]ithout such a restriction, creditors indebted to a debtor would have an incentive to purchase claims at a discount following the bankruptcy filing, or during the ninety days prior, in order to
reduce their indebtedness through the exercise of acquired setoff rights.”).
82 NL Indus., Inc. v. GHR Energy Corp., 940 F.2d 957, 966 (5th Cir. 1991), cert. denied, 502 U.S. 1032 (1992).
83 Fed. R. Bankr. P. 2002(a)(6).
84 11 U.S.C. § 503(b). This provision provides a nonexhaustive list of allowable administrative expenses. See In re Kadjevich, 220 F.3d 1016, 1019 (9th Cir. 2000).
85 See 11 U.S.C. § 503(b)(1)–(8).
86 Id. at (b)(1)(A).
87 Supplee v. Bethlehem Steel Corp. (In re Bethlehem Steel Corp.), 479 F.3d 167, 172 (2d Cir. 2007) (quoting Trustees of the Amalgamated Ins. Fund v. McFarlin’s, Inc., 789 F.2d 98, 101 (2d Cir. 1986)).

Administrative expense claims have been approved for unpaid postpetition rent on behalf of a commercial landlord, when the claim was for an actual, necessary cost and expense of preserving the estate.(88) However, the payment of post petition rent under this provision need not
be made immediately; rather, the timing of payment is left to the discretion of the court.(89)
Pursuant to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”), allowable administrative expenses also include wages and benefits awarded pursuant to a judicial or National Labor Relations Board proceeding as back pay.(90) However, expenses requested pursuant to the WARN Act by employees terminated prepetition have been denied, on the grounds that 1) employees seeking administrative claim status must have been employed by the debtor postpetition,(91) and 2) an award pursuant to the WARN Act must be
made by a court of general jurisdiction, and a bankruptcy court, as a court of limited jurisdiction, may not make such an award.(92)
Further, under the BAPCPA, allowable administrative expenses include the value of goods received by the debtor up to 20 days before the commencement of the bankruptcy case, when the goods were sold to the debtor in the ordinary course of the debtor’s business.(93)

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88 In re Goody’s Family Clothing, Inc., 392 B.R. 604, 607, 609–14 (Bankr. D. Del. 2008) (finding that 11 U.S.C. § 365(d)(3) and (b)(1)(A) were not the sole bases for approving a claim for postpetition rent, and approving administrative claim for unpaid rent pursuant to 11 U.S.C. §503(b)(1)(A) where the claim was for an actual, necessary cost of preserving the bankruptcy estate).
89 Id. at 607, 614-18 (finding that an administrative expense claim under 11 U.S.C. § 503(b)(1) for postpetition rent need not be timely paid under 11 U.S.C. § 365(d)(3) and denying request for immediate payment).
90 11 U.S.C. § 503(b)(1)(A)(ii); see also 11 U.S.C. § 503 Comment on 2005 Amendment.
91 In re First Magnus Fin. Corp., 390 B.R. 667, 677 (Bankr. D. Ariz. 2008); see also Henderson v. Powermate Holding Corp. (In re Powermate Holding Corp.), 394 B.R. 765, 778 (Bankr. D. Del. 2008) (“[W]hether a WARN Act claim is an administrative expense depends on whether the
termination without notice occurred pre or post-petition.”).
92 In re First Magnus Fin. Corp., 390 B.R. at 678.
93 11 U.S.C. § 503(b)(9); see also 11 U.S.C. § 503 Comment on 2005 Amendment.

Pursuant to this provision, a seller who wishes to reclaim goods sold, but who fails to make a written demand for reclamation within the time provided by 11 U.S.C. § 546(c)(1), may nonetheless assert a right to an administrative expense.(94) However, requests for immediate
payment of claims under this provision have been denied when the claims far exceeded the debtor company’s ability to borrow, the debtor did not then have funds available to make the payments, and the debtor’s reorganization efforts would collapse if required to immediately
pay.(95)

D. Reconsideration of Claims

Unlike Fed. R. Bankr. P. 9023, which requires that motions for a new trial or to alter or amend a judgment be served within 10 days of the entry of the judgment, there is no time limit for the reconsideration of claims under Fed. R. Bankr. P. 3008.(96) Fed. R. Bankr. P. 9024, which
incorporates Fed. R. Civ. P. 60, excepts from its one-year limitations period the reconsideration of an order entered without contest allowing or disallowing a claim.(97) However, the passage of a significant amount of time may work against the moving party.(98) A claim that has been allowed or disallowed may be reconsidered “for cause” shown, and a reconsidered claim may be allowed or disallowed based on the equities of the case.99 When parties have litigated an objection to a

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94 See Brown & Cole Stores, LLC v. Associated Grocers, Inc. (In re Brown & Cole Stores, LLC), 375 B.R. 873, 875n.3 (B.A.P. 9th Cir. 2007) (“The legislative history of [11 U.S.C.] §503(b)(9) ‘suggests that it was aimed at providing relief to sellers of goods who fail to give the required notice under the reclamation provision of [11 U.S.C. §] 546(c).’”) (quoting Shirley S. Cho, The Intersection of Critical Vender Orders and Bankruptcy Code § 503(b)(9), 29 Cal. Bankr. J. 7, 11 (2007)).
95 In re Global Home Prods., LLC, 2006 Bankr. LEXIS 3608, *12-13, *16 (Bankr. D. Del. Dec. 21, 2006).
96 Fed. R. Bankr. P. 9023 Notes of Advisory Committee.
97 Fed. R. Bankr. P. 9024.
98 See In re Cassell, 206 B.R. 853, 856 (Bankr. W.D. Va. 1997).
99 11 U.S.C. § 502(j). See also In re Zeider, 263 B.R. 114, 117 (Bankr. D. Ariz. 2001) (“[11 U.S.C. §] 502(j) permits reconsideration of claims ‘according to the equities of the case.’”).

proof of claim, courts “may provide relief from judgment based on such things as mistake, newly discovered evidence, fraud, a void or satisfied judgment or any other similar reason justifying relief.”(100) When a proof of claim was instead deemed allowed by a confirmed plan without
objection, courts have established cause for reconsideration based on the following factors: 1) the extent and reasonableness of the delay; 2) the prejudice to any party in interest; 3) the effect on efficient court administration; and 4) the moving party’s good faith.(101)

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100 In re Gomez, 250 B.R. 397, 401 (Bankr. M.D. Fla. 1999).
101 Id. (citing In re Bernard, 189 B.R. 1017, 1022 (Bankr. N.D. Ga. 1996)).

When Homeowner’s good faith attempts to amicably work with the Bank in order to resolve the issue fails;

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It’s all about risk mitigation…………..for the banks, not for you.

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