Monthly Archives: October 2013

Who Comes to the First Meeting of Creditors?

Section 341 of the United States Bankruptcy Code requires that the United States Trustee shall hold a meeting of the creditors within a reasonable time (usually within 20 and 40 days) after a Bankruptcy Petition is filed.  It doesn’t restrict that to cases with assets or ongoing business activities or anything else.  It requires a meeting of creditors (generally referred to as the first meeting, because there can be more in complicated cases) in all cases filed.

It is called the First Meeting of Creditors (or 341 hearing), which confuses many of my clients who then seem to think that their creditors will actually show up.  In most consumer cases it is really a meeting between the Trustee assigned to the case, the debtor and debtor’s counsel.  I doubt anyone actually knows why the same provision for the same meeting is included in the Code for all chapters.  In reality consumer cases, whether they are filed under Chapter 7 or Chapter 13, are very different from business cases — regardless of chapter.

The first thing to say about 341 meetings is that they vary wildly from one part of the Country to another.  Since there is so little statutory direction, they have evolved according to local custom.  The one constant is that very few creditors show up.  Think about it.  Why would a credit card company pay someone to come to your First Meeting of Creditors?  What is he going to ask?  Why don’t you make more money so you could afford to pay this?   They have better things to do.

Now, a local car lender might show up.  First of all, they are already here, second, there are some things they need to know.  Are you going to keep the car?  Oh, and is it insured?  Actually, though, even that has gotten rare.  A call to debtor’s counsel is just more cost effective.  So, for most consumer debtors the only person interested in their case is the Trustee; and he just wants to make sure that the schedules are complete and accurate, make sure he understands what is going on and if there are any non-exempt assets that he gets his hands on them to he can sell them (pay himself a nice chunk) and distribute the rest to your creditors.

Well, that is most consumer cases.  It isn’t all of them.

A First Meeting of Creditors is held under oath, and it is intended for creditors to ask relevant questions if they want to.  So, it is a great chance for someone who thinks that they might have grounds to object to your discharge to ask some basic questions to help them build their case.  So, if someone thinks that the debtor has defrauded them, then that creditor (or his lawyer) might show up to ask some questions about that.

Then, there are the other creditors.  Probably my favorite to watch is the ticked off former spouse.  They are generally just mad, but they frequently know about assets that the debtor kind of, sort of, forgot to list on the Schedules.   Occasionally, a mad ex-spouse makes me regret that I don’t have the buildings’ popcorn concession; but those are rare.

Next, there are the creditors who got the notice of the hearing in the mail and just thought they were supposed to be there for some reason.  That is probably the largest group.

Finally, you have creditors who are just mad.  By golly, they didn’t get paid and they want to tell somebody about it.  I had one of those today, and the Trustee listened politely and then explained that he isn’t the Judge and he doesn’t make decisions about what debts should or shouldn’t be included in the discharge.  Usually, these people just want to feel like they have had their say and someone has listened.

Still, in most cases, the First Meeting of Creditors is the biggest non-event the debtors have ever lost sleep over.


The Government is Shut Down, Can I Still File for Bankruptcy?

Yes, for now.  Probably.

Believe it or not, the question of how the government shutdown would impact the practice of Bankruptcy consumed most of my morning last Tuesday; and I was not alone.

The simple answer is that the Federal Courts, of which the Bankruptcy Courts are a part,  announced on Monday that they had enough money to continue operating normally for two weeks.  Most of that money comes from filing fees, and I suspect a large percentage of it comes from Bankruptcy filing fees – but I regress.  So, the simple answer is – no problem for two weeks, then the Courts reassess.

Not so fast.  The bankruptcy system is overseen by the U.S. Trustee’s office, which is a division of the Department of Justice; and almost all of them are furloughed.  Many bankruptcy cases have the IRS, the SBA or some other Federal agency as an active party.  They are all furloughed, and if they aren’t, odds are that their bankruptcy lawyers are from the Department of Justice; and they are furloughed.  So, now what.

One thing that my court did quickly, and that appears to be unique to my jurisdiction is that my Judges entered a General Order staying all matters in Chapter 7’s and 13’s to which the IRS is a party.  Well, we are taking that to mean in which the IRS is an active party.  Technically, the IRS is a party in almost all Chapter 7’s and 13’s.  So, the two objections to claim that I filed last week in the same case now have different response dates, and one hearing date has been indefinitely postponed.

Also, the case trustees are not Federal employees, they are private attorneys; but they are appointed by the U.S. Trustee’s office.  They remain on the job, but I am unsure how long they will continue to be appointed to new filings.  First Meetings of Creditors continue to be held as scheduled, except, of course, neither the IRS nor the U.S. Trustee’s office will be there asking questions I would generally rather my clients weren’t being asked.  In fact, this may be a uniquely good time to file a case with means test issues.  Actually, a month ago probably would have been better. . . . I am teasing – sort of.  It would be interesting to see how that would play out.  If the US Trustee can’t object to a bankruptcy filing because the staff is furloughed, does that toll the time in which the objection must be made?  I wouldn’t think so, and it will be really interesting to see how the Courts deal with that issue, and they almost certainly will.

In the meantime, cases are filing like normal.  The automatic stay (i.e., bankruptcy protection) is going into effect just like always.  Most cases are proceeding normally at this point.  How thing will change if this continues for long, I don’t know.  I am reasonably sure of one thing, though.  The Bankruptcy courts are not going to stop accepting new filings anytime soon.  Bankruptcy cases all include a filing fee – $281 for a Chapter 13 and $306 for a Chapter 7 filing; and the Federal Courts are far too broke to turn that down.