Monthly Archives: July 2009

Creditors Have to Play by SOME Rules

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)


Medical Bills and Credit Cards

CNN seems to think that paying medical expenses with credit cards is a new thing.  (Can’t Pay Your Doctor?  Charge It!)  They should have talked to a bankruptcy lawyer.   Anybody who thinks the credit card debt in this country was racked up on soccer shoes and restaurant meals, needs to take another look.  Elderly clients who have never used their credit cards anywhere but the pharmacy are just not that unusual — and haven’t been for years.  Think about the last time you were in a doctor’s office that didn’t display the Visa card sign.  This ain’t news, guys.  It may seem like news, because lobbyists spent so much money trying to influence the characterization of the people who file for bankruptcy prior to Bankruptcy reform passing; but nothing has really changed.


Consumer Debt Levels

USA Today has an article on consumer debt levels.   Basically, consumer debt isn’t going anywhere fast.  In 2008 household debt totaled $13.9 trillion.  That was almost double the 2000 levels.  In 2009 —  after the collapse of the credit bubble, banks cutting back lending, tightening of lending standards — you know, after the last year — household debt level is down for the first time in ages.  Well, sort of.  Household debt is now down to $13.8 trillion.  Whoo Hoo!

If this doesn’t scream that we’ve got a problem, then I don’t know what does.  Oh, and all those economists calling for a 2nd half economic recovery?  On the backs of what jobs and what income?  We are a consumer driven economy.  As long as the consumer is busy NOT getting debt paid down and NOT staying employed, I wouldn’t start singing Happy Days are Here Again anytime soon.

So, where to start?  The credit card reform bill going into effect next year is a start.  Anyone who has spent any time at all reading credit card terms figures out pretty quickly that the credit card companies have spent a huge amount of time figuring out ways to make debt almost impossible to pay down.  If you haven’t read about interest rate increases (by sometimes 30% apr or more) just because the card company thinks it can, then maybe you should start by googling double cycle billing; but I wouldn’t recomend trying that before breakfast.


Small Business Bankruptcies

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.