Tag Archives: First meeting of Creditors

Bankruptcy is Becoming a Virtual World

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Friday I did my first initial consult with a prospective bankruptcy client by video conference.   A little over two hours later, we were done; and I thought the format was functional enough that it can replace a face-to-face, take off half a day to go meet the lawyer, traditional, in-office meeting.

The next step will be passing paperwork back and forth via my secure portal.  Of course, without a scanner, regular mail is an option as well.

Currently, most bankruptcy courts are allowing for the signing of the documents necessary to file a bankruptcy to be done remotely.  I am hopeful that we will be able to establish sufficiently secure procedures that we will be able to retain this.

Then, there is the First Meeting of Creditors (a/k/a the 341 hearing) which for most consumer debtors is the only time they have to go to the courthouse — except — currently, those are being conducted by telephone.  It has occurred to me that the client I met with by video on Friday and I might go all the way through the bankruptcy process and never be in the same room.

Elaine

When Creditors Don’t Go Away — Part 1

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In most cases someone files for bankruptcy, he lists all of his creditors with their addresses, account numbers and at least an approximate amount owed; the creditors receive notice of the Bankruptcy, then they receive the discharge; and they go away.  The general rule is that the Debtor will not hear from any of his creditors again once the Bankruptcy is filed.  (This post only pertains to debts that may or may not be included in the discharge.  It does not apply to creditors who don’t comply with the Automatic Stay.)

There are exceptions.  First of all, there are certain debts that are automatically not included in a discharge.  That means that once the Bankruptcy is over the Debtor is still liable for the debt.  The most common examples are recent taxes, child support or alimony and student loans.  These, the debtor can expect to have to deal with once the discharge is entered and are not generally a surprise.

Then there are the others.  There are lots of reasons why a debt will be excepted from the discharge, and some of them aren’t as predictable as recent taxes.  The complete list included in the Bankruptcy Code (and there are a few other provisions elsewhere in Federal Statutes, but they are really rare) is found at 11 U.S.C. Section 523.

If you file for Bankruptcy and a creditor thinks that you have defrauded them, obtained money by embezzlement or false pretenses, or otherwise come within the scope of a Section 523 objection to discharge, then the creditor may decide to ask the Court to exclude this debt from your discharge.  The vehicle for doing this is what is called an Adversary Proceeding, which is essentially a separate lawsuit filed within the scope of the Bankruptcy filing.  Adversary Proceedings are actually quite rare, but they do happen.

This is what can happen when a creditor isn’t willing to go away and wants to try to establish that his debt should be excepted from the discharge.  First, the creditor may appear at your First Meeting of Creditors.  This is not required, but if the creditor is local or has local counsel, it is an easy way to start to feel out the case.  The First Meeting of Creditors exists for creditors and the Trustee to ask questions, and a creditor looking to build a case for an objection to discharge may use this as an opportunity to ask a few, basic questions.  If they want to ask very many questions, the Trustee will tell them to set a 2004 Examination.

A 2004 Exam is the next step, and again it is not mandatory.  A 2004 Examination is basically a deposition.  It is a meeting in a conference room that will be recorded one way or another, it will be under oath, and the creditor who requests the exam asks the Debtor (or other party) questions.  The debtor can be required to bring documents to the meeting, and it can generate a great deal of facts that the Creditor can use to build his case against the debtor.  A 2004 Exam must be authorized by the Court, and the Court has the authority to limit it in scope or duration.

Finally, the creditor must file an Adversary Proceeding (unless his debt is automatically excepted from discharge like child support or student loans).  An Adversary Proceeding is really just a lawsuit, but it is filed inside the Bankruptcy.  Once it is filed it will proceed like any other civil case, with discovery, motions, and it will finally culminate in a trial with witnesses and exhibits but no jury.  One of the important things to remember about an Adversary Proceeding is that it must be filed by a deadline that is set when the Bankruptcy is first filed.  That deadline can be extended, but it cannot be missed – unless the creditor didn’t get notice of the filing.  Yet one more reason why you must give your lawyer a complete list of everybody you owe money to with their addresses!

I cannot repeat strongly enough how rare most of these things really are.  Creditors are not going to spend good money to send someone to a First Meeting of Creditors just because they can.  Likewise, filing an Adversary Proceeding is a significant investment in time and money; and creditors don’t do that without good reason.  There are certain flags that your attorney will be watching for when he prepares your case that indicate an Adversary Proceeding may be likely.  If that is the case, he should go over that with you.  It is incredibly rare for an Adversary Proceeding to be filed that is a real surprise to the debtor and debtor’s counsel – assuming that the Debtor has been fully above board with his lawyer.  So talk openly and honestly with your lawyer, ask if there is a debt you are concerned about.  A big part of your attorney’s role is helping you to evaluate risk and putting you at ease when you are worrying about things that aren’t likely to be an issue.

Elaine

First Meetings of Creditors — the Stories

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If you have a 341 hearing coming up, talk to your lawyer.  If your lawyer tells you that you have nothing to worry about, then take a book.  Otherwise, you will leave shaking your head over stories like this one:

Some time ago the first debtor on the docket (not my client THANK GOD) testified under oath that he owed mid 3 digits ($30,000 or MORE) in child support to each of three women (yep, that actually did add up to a total of 6 digits).  The Trustee, of course, needed the Mother’s names and addresses to send a kind of special notice to that goes to child support creditors.  The debtor didn’t know any of the Mothers’ addresses.  He wasn’t sure which city any of the three women lived in (with his children).  Although, he did know which Counties they each lived in, because DHS was collecting child support, or trying to, and they are organized into County offices.  Oh, did I mention that he wasn’t sure about one child’s name?  The really scary part was that his current girlfriend was there with him.

He didn’t have a good time.  My clients were in and out in about 3 minutes.  Well, three minutes after we sat through an hour plus long docket.  We were dead last.

Elaine

First Meetings of Creditors — the Questions

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The First Meeting of Creditors, or 341 hearing, exists so that the Trustee assigned to administer the case  can make sure he understands the schedules, identify any non-exempt assets he needs to administer and ask the Debtor any questions he needs answered.  Also, any creditors who need to know something (like car lenders who want to know if the Debtor is going to keep a car and verify that it is insured) or someone who believes he has been defrauded and needs a chance to ask a few questions to decide whether or not to pursue an objection to discharge have the right to ask questions as well.  These are the people for whom this hearing exists, but for most clients, it is a non-event.

Once you have been sworn in, you will take a seat to the Trustee’s left, and your lawyer will stand opposite you behind a podium.  Your lawyer will then begin asking you incredibly difficult questions — like your Name.  (You might want to study.)  Your lawyer should go over with you exactly what he will ask before the hearing, but the questions don’t generally get much harder than that first one.

Then, the Trustee has the right to ask you questions if he wants to.   He may ask some basic questions to make sure that he understands everything.  Again, not really much harder than that, “Please state your full name for the record” bit; and your lawyer should give you a pretty good idea of what kinds of things about your case will catch the Trustee’s eye.

After that, any creditors present have the right to ask you questions and so does the U.S. Trustee’s office if they want to.  The U.S. Trustee’s office is generally interested in asking questions about the Means Test, any budget entries that look excessive or anything that might smell like fraud or abuse.

It is that whole idea that their creditors are going to ask them questions that I think really scares my clients.  Look at it this way.   No one is going to pay a representative to drive to the Courthouse and cool his heels through the first part of the docket without a good reason.   Car lenders may want to know if you are going to keep the car and if it is insured.  That makes sense.  They need to know that.

For most of my clients from the time their case is called by the Trustee until they are heading out the door is less than five minutes.

Now, there are exceptions.  Business cases or other cases with significant assets and large  dollar figures involved will take more time.  For one thing, they are more complicated and there is more to understand.  For another, the bigger the dollar figures and the more things going on the greater the opportunity to conceal funds or otherwise commit fraud.

Of course, people who kind of, sort of, forgot to tell their lawyers about the rent house they own in another County or oil and gas rights in Texas  are generally in for an unpleasant surprise.  People who filed Bankruptcy leaving a number of people feeling like they were defrauded or just a ticked off ex-spouse will frequently prefer a root canal without anesthesia.  Clients whose lawyers either didn’t do their jobs or didn’t know their jobs are generally not in for a brief or pleasant time.  Anyone who thought that not mentioning something to his lawyer was a good idea is in for an eduction.  These are generally people for whom the 341 is not pleasant.

That last paragraph was a little smug and isn’t completely true.  There can be plenty of good, honest people who are well represented whose 341’s aren’t fun.  Construction contractors who left a bunch of houses unfinished and bills unpaid will frequently find homeowners showing up to either lay the groundwork for an objection to discharge or just to regain a pound of flesh.  Ex-spouses can be unpleasant additions to a 341 room.

Ask your lawyer if anyone is likely to show up on your case.  Basically, non-institutional creditors (normal people instead of Capital One) are likely to show up just because they got something in the mail and don’t know that they don’t have to.

If your lawyer tells you that you have nothing to worry about, then take a book.  Otherwise, you will leave shaking your head over some poor sod who went before you and didn’t have a good day.  I will post a few of those stories another time.

Elaine

First Meetings of Creditors — the Background

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For most of my clients the First Meeting of Creditors (known familiarly as the 341 hearing) is the only time they have to go to the Bankruptcy Court.   I warn them that it is likely to be the biggest non-event they have ever lost sleep over.  That doesn’t help.  They are almost always  scared to death.

I have to confess that I understand.  Some twenty years ago when  I was a baby lawyer (maybe even still in law school),  I was sent to a Chapter 11 341 to observe.  I was not to ask questions.  I was not to enter an appearance.  I was to observe, take notes and report back.

I was scared to death.  I try to remember this when I look at my clients in the hallway of the courthouse shaking in their shoes.  So, just for the record, this is what a consumer debtor in the Western District of Oklahoma has to look forward to.

First,  airport level security at the door of the Courthouse, and don’t even think about bringing your cell phone into the building with you.  Second, a  crowded room filled with other people who have filed for Bankruptcy, their lawyers and a few creditor representatives.  Third, (unless you are at the top of the docket) — boredom.   Bring a book.

When your case is called you and your attorney will go to the front of the room.  The first thing you will do is give to the Trustee presiding over the docket (no, he is not a Judge) your Government issued photo ID (like a driver’s license) and proof of your full Social Security Number.  He will then verify that you are in fact who you claim to be.  You see how difficult this is?  (Believe it or not identity theft does occasionally turn up in the Bankruptcy system.)

Then, you will give to the Trustee, or the Trustee’s assistant, the documents you were told to bring to the meeting.  Generally, in this District those documents are:

  • Car Titles to all vehicles in which you have an interest;
  • Current month’s pay stubs;
  • Three months’ bank statements for all accounts (the one showing the date the bankruptcy was filed and the two before that).

Your Attorney should have already provided your two most recent tax returns to the Trustee’s office.

Then, of course, you proceed to the purpose of the meeting — the questions.  This post was getting far too long, so those will be covered in a separate post.

Elaine