The Tenth Circuit handed down a decision two days ago reversing its Bankruptcy Appellate Panel and basically finding that at least some rules really do apply to creditors.  Imagine that.

The facts have become routine in virtually every Bankruptcy case in which assets are to be distributed to creditors (i.e. every chapter 13 and some chapter 7’s).  A debt repurchaser, in this case B-Line, LLC filed a claim alleging that it was entitled to be paid for a debt owed to it by the Debtor.  Its claim included the last 4 digits of an account number listed on the debtor’s schedules and an amount that was close to the amount scheduled for that debt.  B-Line claimed to have bought the debt from the former creditor, but it produced no documentation to support the amount of the claim or its ownership of the claim.

The Bankrupty Appellate Panel found some two years ago that B-Line’s claim was sufficient.  Since the claim resembled one included on the Debtor’s schedules,  the schedules essentially constituted prima facie evidence that the claim was accurate and that B-Line owned it.  This ruling few in the face of the statutory requirements that creditors attach documentation to their claims establishing the amount of the claim and the creditor’s ownership of the claim.

The Tenth Circuit has very wisely ruled that the statute means what it says and even debt repurchasers must comply with it.  B-Line’s claim was not sufficient, because it lacked documentation to support it.   Oh, if you want to read the opinion for yourself, it is Caplan v. B-Line LLC (In re:  Kirkland), Case No. 08-2017 (1oth Cir. May 14, 2009)

Elaine

USAToday just ran an interesting article on small business bankruptcies.  This article makes several interesting points about the rising numbers of small business failures and the impact that will have on the economy.  What I think the article misses is that you cannot track the failure of really small busineses through the bankruptcy courts — because they don’t go there.

In most cases the owners of the business file.  The Corporation or LLC that is actually the business does not file.  Why?  Simple, unless you are going to attempt a reorganization in a Chapter 11 (which most really small businesses can’t afford), then there is no reason for a Corporation or LLC to file a Bankruptcy.  They aren’t eligible for a discharge in a Chapter 7 filing.

Usually, the better course is to just let the business entity die on the vine.  The owner files and goes on down the road.  The business entity is just essentially abandoned.  The bankruptcy statistics will never be able to track those business failings.  So when you read articles on the bankruptcy rate amongst small businesses, assume that the actual failure rate is far higher.

Elaine