Tag Archives: liens

Can I Get Sued in a Bankruptcy?

Most people think of filing for bankruptcy to stop lawsuits, but it is possible to get sued in a bankruptcy – or to do the suing. I’ve written recently about people who have been sued in the GMX Resources bankruptcy for fraudulent transfers for receiving dividends on preferred stock and people who have been sued for the recovery of what are called preferential transfers; but there is a lot more litigation than just this going on at the bankruptcy court.

For most people who file for bankruptcy the process looks a lot more administrative than it does judicial. Most people who file never see their Judge, for instance. No, the person who presides over the First Meeting of Creditors is NOT a Judge. Some standard rules of thumb – if there is no court room, no black robe and no standing when the person enters and leaves the room – you are probably not dealing with a Federal Bankruptcy Judge.

Just because most debtors never see them, doesn’t mean that the Judges aren’t staying busy. Bankruptcy litigation comes in two flavors: Adversary Proceedings and Contested Matters. An Adversary Proceeding is essentially a full-scale lawsuit filed within the context of a Bankruptcy case. It begins with a Complaint and a Summons, followed by an Answer, discovery, motions, evidentiary hearings and finally concludes with a trial.

Adversary Proceedings are required to determine the nature or extent of a lien, revoke a discharge or plan confirmation, object to a discharge, recover property of the estate, provide injunctive relief, declaratory relief or subrogation; and certain sales of property must be approved by an Adversary. Essentially anything else in the Bankruptcy Court where two people are arguing or disagreeing qualifies as a Contested Matter, which is quite useful; because in a contested matter you have full access to discovery and other litigation tools that are generally considered part of a lawsuit rather than just a motion hearing.

Some things can be the subject of either an Adversary Proceeding or a Contested Matter. A violation of the automatic stay, for instance, may be brought by either procedure. A violation of the discharge, however, generally is brought by a Contempt Citation, which is a Contested Matter.

So, what is the difference? Adversary Proceedings have greater procedural and due process protections built into them. They must be served like a lawsuit. They have a longer answer time. They have more structure to them which helps to manage greater complexity, a larger number of parties, more witnesses, more complicated issues. Contested Matters are procedurally more flexible. A Contested Matter may be a simple motion – motion with brief filed, fourteen days later a response with brief is filed, hearing set and heard generally in an hour or less. Of course, a Contested Matter may also have a long period of discovery, with related motions filed and culminate in a day or multi-day trial with lots of witnesses and exhibits. So, Contested Matters are inherently more flexible. The Court is expected to adapt procedures to fit the matter at hand. Adversaries are expected to be complex issues and so are treated that way automatically.

For something like a violation of the automatic stay, which may be brought in either form, I consider the following in making my choice: has the defendant appeared in the case, otherwise, the formal service procedures of the Adversary Proceeding will afford greater due process protections. How many facts will be in dispute? What is the nature of my client’s damages? How much post petition discovery will I want? How much time will I want to prepare the case? Even after considering all of these things, I may still file a case and have the Judge adapt the procedures for it as if it were the other. Judges can do that, and they will if they think it is necessary either for due process considerations, to protect the rights of a party or to make the case easier to manage.

So, there you have it. Bankruptcy lawyers may not empanel a jury too often (or ever), but they are still litigators.


Judgment Liens, Bankruptcy and Getting What You Pay For

By the time people file for Bankruptcy,  they can have a wide variety of liens attached to their homes — judgment liens, tax liens, m & m liens just to name a few.  The Bankruptcy Code allows for judgment liens to be removed from the Debtor’s homestead to the extent it impairs an exemption.  Obviously, what this means is going to vary by State; but in Oklahoma this means that a judgment lien owed by the Debtor can be removed from the Debtor’s homestead assuming certain things are done during the course of the Bankruptcy.

A judgment lien is avoided, or removed, by filing a motion, serving the motion on the proper parties, dealing with any responses that may come in; and then, assuming that all was as expected, submitting an Order finding that the lien should be avoided.  This is generally a fairly simple and straightforward process.  (I said generally, there are tons of fact specific exceptions to this rule.)  From the attorney’s perspective the trick is knowing when this needs to be done.

It is certainly fairly common for an attorney to identify that avoidable liens are either present or might be present while preparing the case for filing.  Of course, there may be liens that don’t come to light during that process.  There is also the problem that most attorneys charge more to do a Bankruptcy if they will be avoiding liens than if they don’t; and there may be times when avoiding a lien is really not necessary.  Then, of course, there is the problem of seeing something that indicates there might be a lien while preparing the case, the case doesn’t get filed for months (for whatever reason) and now the attorney is supposed to remember that he needs to investigate this possible lien and then file the motion.

The solution to that is that most attorneys put in our engagement agreement with our clients what they must do if they want us to avoid a judgment lien.  My engagement agreement requires that my clients provide me with a file-stamped copy of the Statement of Judgment.  I also build a little extra money into my flat fee for doing the Bankruptcy for avoiding the lien.  If that doesn’t happen, then I have not been hired to avoid that lien.

Here is why that is important.  It is fairly simple (generally) to avoid a judgment lien in the bankruptcy.  It is a pain in the backside to do it if the case has already closed and must be reopened.  You can pretty well bet that if a client hired me to avoid a judgment lien, and for some reason I didn’t do it and the case closes when I figure this out, I will be moving very quickly to reopen the case and get it done — and on my own dime.

However, what happens more frequently is that I get a call from someone who filed  a Bankruptcy with another attorney.  A lien wasn’t avoided, the person is trying to sell or refinance the house and now there is a problem.  They call their former attorney who discovers that for whatever reason the client didn’t hire them to avoid the lien in the first place.  The attorney tells them he will charge them almost as much to avoid the line as he did to file the bankruptcy.  So, they decide to shop around.  Just last week I quoted a fee to reopen a case and avoid a lien for someone who had filed with someone else.  The figure I quoted was substantial.  There was a long pause, and the woman on the phone said that was the same figure her lawyer had quoted her.

The moral of this story is make sure you know what you need to do to get the result you want, make sure you know what you are paying for  and what you aren’t paying for.  It should all be in your engagement agreement with your Bankruptcy attorney, and if you have any questions, ask sooner rather than later.  If you are reading this and you have been sued before filing for Bankruptcy, you should know that you need to ask specifically about you find out if a line has attached to your house, if it has, what you can do about it; and what your attorney expects from you to make it happen.


How to Get Ahead in Bankruptcy

One of my favorite tools in the Bankruptcy Code is the right of redemption.  Redemption, or to redeem property, is the ability to pay the lesser of the value of the property at the time the Bankruptcy is filed or the amount owed on it.   So, when you paid $2,500 for a computer two years ago that is now worth $400 but you still owe over $2,000 for it; redemption can be a great deal.   I’ve redeemed Palm Pilots ($50), dining room furniture, televisions, cars, mobile homes, travel trailers, all kinds of stuff in Bankruptcy.

Now, obviously there must be a lien on the property or you don’t need to redeem it, you just file the Bankruptcy.  If there isn’t a lien on property, then any debt owed is basic unsecured debt; and a bankruptcy filing eliminates that automatically anyway.  However, a bankruptcy discharge does not normally affect liens attached to property.

Redemption works best with property that isn’t worth very much.  Funding can be a real problem, because you have to pay off the original lender in a lump sum.  So, those used Palm Pilots in the ’90’s were easy.  Clients paid hundreds for them, racked up huge interest charges; and they could all come up with $50 to never make a payment on the Palm Pilot again.

Bigger ticket items present a different set of problems.  So, if you have a mobile home that you paid $70,000 for (I didn’t say my clients were all terribly bright), it flooded recently and has earthquake and hail damage — hey, its been a rough year weather wise; it might be worth considering what it is actually worth NOW in the condition it is in and whether you can come up with a source of funding to pay that amount off.   I’ve got a mobile home working now.  Granted, the amount owed is down to about $28,000 (in large part due to a seriously spotty payment history).  However, the mobile home is worth less than $12,000 — and the client has managed to come up with the $12,000 from a relative.

So, we file the motion, hire an appraiser and get ready to argue value in front of a Judge.

Cars are a little easier, because there are a couple of lenders who will finance the redemption of vehicles.  Their interest rates are astronomical, but it can still make a huge difference in the total amount being paid for a vehicle.  I think my record on a vehicle was a Chevy pickup worth $12,000 and with a payoff balance of more than $35,000.  My clients redeemed it with redemption financing at 28% interest.  Their payment went down and their payoff term went down.  GMAC was not happy.  Oh, well.  You can’t please all the people all the time, and GMAC  just never seemed to make it onto my list for the day.

Speaking of redemptions, I’ve got a motion to file.


Judgment Liens and Bankruptcy

Is it too late to file for Bankruptcy? I’ve already been sued.

I have to file for Bankruptcy THIS WEEK.  I’ve been sued, and the answer date is Monday.

Judgments and judgment liens are creatures of State law, and as such, there is considerable variance around the Country.  This may also be an area of law where I think title attorneys are as ignorant as laymen.

Here’s the skinny.

No, it is not too late to file for Bankruptcy.

Calm down.  Now, breathe.  You have more time than you realize.  We can take a little time, get this done right; and still get you the result you want.

Here is why.  First of all, pending lawsuits against the Debtor are stopped — dead in their tracks — by a bankruptcy filing.  The reason is an order called the Automatic Stay that goes into effect the instant a Bankruptcy case is filed.  Second, that date in the Petition and Summons that you were served with?  That is the answer date.  If you don’t file an Answer, then a default judgment can and will be taken against you — eventually.  It probably won’t happen on the first possible day, but it might happen that week.  In Oklahoma once a Judgment is taken, it cannot be acted upon (i.e., a wage garnishment issue, etc.) for ten days absent some pretty extraordinary events.  So, even if a judgment is taken on Monday, you still have ten days before you need to start looking over your figurative shoulder.

So, what happens if that ten days has passed, and the creditor has recorded its judgment in County records creating a lien on your home?  Simple.  You will pay me a little bit more money, but not a lot more.  Once the Bankruptcy is filed a Motion to Avoid (or remove) the judgment lien from your homestead can be filed.  It is a relatively simple procedure, albeit a bit fiddly.  A motion (which is just a fancy name for a request ) is filed asking the Court to do this.  It must be served on the Creditor.  The Creditor is then given time to object (not likely), then in every case I’ve ever had, the Court grants the Motion and enters an Order that removes the Judgment lien from the Debtor’s home — caveat below.

Now, what happens if the Debtor owns real estate that is not his home?  At that point the Debtor really, really does need to file for Bankruptcy before the judgment lien is recorded.  A Motion to Avoid may only be granted to the extent that the judgment lien is impairing the Debtor’s interest in property that he can claim as exempt.  I have never seen a successful claim of exemption in real estate that is not homestead — at least not using Oklahoma’s exemption statutes.  Of course, filing for Bankruptcy when you own real estate that isn’t your home opens a whole ‘nother can of worms all by itself, but that is a subject for another day.

Another problem is created if you have recently moved to Oklahoma and are not entitled (according to the 2005 Bankruptcy Reform Act) to use Oklahoma exemptions.  If you are using exemptions from another State (or the Federal exemptions) you may have too much equity in your home to be able to avoid the lien.  That is something that you will need to discuss in detail with the attorney you hire to represent you in your Bankruptcy filing.

However, even if you own real estate that isn’t your home or you have just moved here and aren’t entitled to use Oklahoma exemptions, that does not mean game over.  You do still have options, and with a little bit of flexibility you may still wind up with the result that you want.  Those situations, though, get very fact specific very quickly.

Oh, and something that every title attorney should know — but too many of them don’t.  A judgment only becomes a lien when it attaches to real estate, and a judgment cannot attach to real estate after the Bankruptcy is filed and discharged.  So, if you file for bankruptcy and don’t own any real estate, you can’t avoid the judgment liens — because there aren’t any, but the judgments become toothless when the discharge is entered.  So, if you go to buy a house a few years after the Bankruptcy, those old judgments cannot attach to your new house — no matter what the title company may say.

So, if you are going to buy a new house, and the title company is very concerned that something wasn’t done right in your Bankruptcy — call your Bankruptcy attorney sooner rather than later.  The Title company is probably wrong, but if they aren’t your Attorney will need a little time to fix it.