BANKRUPTCY

Reprinted from www.uscourts.gov

The Process

Article I, Section 8, of the United States Constitution authorizes Congress to enact "uniform Laws on the subject of Bankruptcies." Under this grant of authority, Congress enacted the "Bankruptcy Code" in 1978. The Bankruptcy Code, which is codified as title 11 of the United States Code, has been amended several times since its enactment. It is the uniform federal law that governs all bankruptcy cases.

The procedural aspects of the bankruptcy process are governed by the Federal Rules of Bankruptcy Procedure (often called the "Bankruptcy Rules") and local rules of each bankruptcy court. The Bankruptcy Rules contain a set of official forms for use in bankruptcy cases. The Bankruptcy Code and Bankruptcy Rules (and local rules) set forth the formal legal procedures for dealing with the debt problems of individuals and businesses.

There is a bankruptcy court for each judicial district in the country. Each state has one or more districts. There are 90 bankruptcy districts across the country. The bankruptcy courts generally have their own clerk's offices.

The court official with decision-making power over federal bankruptcy cases is the United States bankruptcy judge, a judicial officer of the United States district court. The bankruptcy judge may decide any matter connected with a bankruptcy case, such as eligibility to file or whether a debtor should receive a discharge of debts. Much of the bankruptcy process is administrative, however, and is conducted away from the courthouse. In cases under chapters 7, 12, or 13, and sometimes in chapter 11 cases, this administrative process is carried out by a trustee who is appointed to oversee the case.

A debtor's involvement with the bankruptcy judge is usually very limited. A typical chapter 7 debtor will not appear in court and will not see the bankruptcy judge unless an objection is raised in the case. A chapter 13 debtor may only have to appear before the bankruptcy judge at a plan confirmation hearing. Usually, the only formal proceeding at which a debtor must appear is the meeting of creditors, which is usually held at the offices of the U.S. trustee. This meeting is informally called a "341 meeting" because section 341 of the Bankruptcy Code requires that the debtor attend this meeting so that creditors can question the debtor about debts and property.

A fundamental goal of the federal bankruptcy laws enacted by Congress is to give debtors a financial "fresh start" from burdensome debts. The Supreme Court made this point about the purpose of the bankruptcy law in a 1934 decision:

[I]t gives to the honest but unfortunate debtor…a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.

Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934). This goal is accomplished through the bankruptcy discharge, which releases debtors from personal liability from specific debts and prohibits creditors from ever taking any action against the debtor to collect those debts. This publication describes the bankruptcy discharge in a question and answer format, discussing the timing of the discharge, the scope of the discharge (what debts are discharged and what debts are not discharged), objections to discharge, and revocation of the discharge. It also describes what a debtor can do if a creditor attempts to collect a discharged debt after the bankruptcy case is concluded.

Six basic types of bankruptcy cases are provided for under the Bankruptcy Code, each of which is discussed in this publication. The cases are traditionally given the names of the chapters that describe them.

Chapter 7, entitled Liquidation, contemplates an orderly, court-supervised procedure by which a trustee takes over the assets of the debtor's estate, reduces them to cash, and makes distributions to creditors, subject to the debtor's right to retain certain exempt property and the rights of secured creditors. Because there is usually little or no nonexempt property in most chapter 7 cases, there may not be an actual liquidation of the debtor's assets. These cases are called "no-asset cases." A creditor holding an unsecured claim will get a distribution from the bankruptcy estate only if the case is an asset case and the creditor files a proof of claim with the bankruptcy court. In most chapter 7 cases, if the debtor is an individual, he or she receives a discharge that releases him or her from personal liability for certain dischargeable debts. The debtor normally receives a discharge just a few months after the petition is filed. Amendments to the Bankruptcy Code enacted in to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 require the application of a "means test" to determine whether individual consumer debtors qualify for relief under chapter 7. If such a debtor's income is in excess of certain thresholds, the debtor may not be eligible for chapter 7 relief.

Chapter 13, entitled Adjustment of Debts of an Individual With Regular Income, is designed for an individual debtor who has a regular source of income. Chapter 13 is often preferable to chapter 7 because it enables the debtor to keep a valuable asset, such as a house, and because it allows the debtor to propose a "plan" to repay creditors over time – usually three to five years. Chapter 13 is also used by consumer debtors who do not qualify for chapter 7 relief under the means test. At a confirmation hearing, the court either approves or disapproves the debtor's repayment plan, depending on whether it meets the Bankruptcy Code's requirements for confirmation. Chapter 13 is very different from chapter 7 since the chapter 13 debtor usually remains in possession of the property of the estate and makes payments to creditors, through the trustee, based on the debtor's anticipated income over the life of the plan. Unlike chapter 7, the debtor does not receive an immediate discharge of debts. The debtor must complete the payments required under the plan before the discharge is received. The debtor is protected from lawsuits, garnishments, and other creditor actions while the plan is in effect. The discharge is also somewhat broader (i.e., more debts are eliminated) under chapter 13 than the discharge under chapter 7.

Chapter 11, entitled Reorganization, ordinarily is used by commercial enterprises that desire to continue operating a business and repay creditors concurrently through a court-approved plan of reorganization. The chapter 11 debtor usually has the exclusive right to file a plan of reorganization for the first 120 days after it files the case and must provide creditors with a disclosure statement containing information adequate to enable creditors to evaluate the plan. The court ultimately approves (confirms) or disapproves the plan of reorganization. Under the confirmed plan, the debtor can reduce its debts by repaying a portion of its obligations and discharging others. The debtor can also terminate burdensome contracts and leases, recover assets, and rescale its operations in order to return to profitability. Under chapter 11, the debtor normally goes through a period of consolidation and emerges with a reduced debt load and a reorganized business.

Chapter 12, entitled Adjustment of Debts of a Family Farmer or Fisherman with Regular Annual Income, provides debt relief to family farmers and fishermen with regular income. The process under chapter 12 is very similar to that of chapter 13, under which the debtor proposes a plan to repay debts over a period of time – no more than three years unless the court approves a longer period, not exceeding five years. There is also a trustee in every chapter 12 case whose duties are very similar to those of a chapter 13 trustee. The chapter 12 trustee's disbursement of payments to creditors under a confirmed plan parallels the procedure under chapter 13. Chapter 12 allows a family farmer or fisherman to continue to operate the business while the plan is being carried out.

Chapter 9, entitled Adjustment of Debts of a Municipality, provides essentially for reorganization, much like a reorganization under chapter 11. Only a "municipality" may file under chapter 9, which includes cities and towns, as well as villages, counties, taxing districts, municipal utilities, and school districts.

The purpose of Chapter 15, entitled Ancillary and Other Cross-Border Cases, is to provide an effective mechanism for dealing with cases of cross-border insolvency. This publication discusses the applicability of Chapter 15 where a debtor or its property is subject to the laws of the United States and one or more foreign countries.

In addition to the basic types of bankruptcy cases, Bankruptcy Basics provides an overview of the Servicemembers' Civil Relief Act, which, among other things, provides protection to members of the military against the entry of default judgments and gives the court the ability to stay proceedings against military debtors.

This publication also contains a description of liquidation proceedings under theSecurities Investor Protection Act ("SIPA"). Although the Bankruptcy Code provides for a stockbroker liquidation proceeding, it is far more likely that a failing brokerage firm will find itself involved in a SIPA proceeding. The purpose of SIPA is to return to investors securities and cash left with failed brokerages. Since being established by Congress in 1970, the Securities Investor Protection Corporation has protected investors who deposit stocks and bonds with brokerage firms by ensuring that every customer's property is protected, up to $500,000 per customer.

The bankruptcy process is complex and relies on legal concepts like the "automatic stay," "discharge," "exemptions," and "assume." Therefore, the final chapter of this publication is a glossary of Bankruptcy Terminology which explains, in layman's terms, most of the legal concepts that apply in cases filed under the Bankruptcy Code.

Home Improvement Scams

What should I do before hiring a contractor to work on my home?

Before hiring a contractor to work on your home, you should interview each potential candidate to find out how long they have been in business, whether they are licensed and registered with your state, how many projects similar to yours the contractor has completed within the previous year (ask for a list of references and then check them out), whether your home improvement project will require permits and what types of insurance they carry. The contractor should have personal liability, worker’s compensation and property damage coverage.

Thoroughly check the contractor’s references; these past customers can help you decide if the contractor is right for you. Ask the references if you can visit their home to see the contractor’s work. Find out whether or not they were satisfied with the work and whether it was completed on time. Where there any unexpected costs? Did the contractor show up on time? Most importantly, would they use the contractor again?

Get written estimates from several different contractors. Make sure the estimates are based on identical project specifications.

CAUTION: Do not hire a contractor merely because you share an ethnic or cultural background. Coming from the same part of the world as your ancestors does not make a contractor competent or trustworthy. Many contractors use such influences to secure work and then fail to adequately deliver.

Are there any warning signs of a potential home improvement scam?

Yes. Certain things should set off alarm bells when dealing with home improvement businesses. For example:

• door-to-door salespeople who do not have local connections and who offer to do work for substantially less than market price
• companies that list only a telephone number or post office box as contact information (This is especially true if it is an out-of-state company.)
• contractors who will not provide references
• salespeople who offer to inspect your house for free (Never let anyone into your house unless they can present authentic identification that establishes their business status. Look up the employer’s phone number yourself and call to verify the salesperson’s identity.)
• contractors demanding cash payment for a job or who ask you to make a check payable to a person other than the owner or company name
• contractors who offer to drive you to the bank to withdraw funds to pay for the work
• contractors who offer you discounts for finding other customers
• contractors who ask you to get the building permits

What should be included in a home improvement contract?

Remember that contract requirements vary from state to state. Before signing any contract, check the laws of your particular state. Moreover, even if your state does not require a written contract in this instance, demand one.

The contract should be clear, concise and complete. Do not sign a contract that contains blank spaces; cross them out.

Before you sign, make sure the contract contains:

• the name, address, phone number and license number of the contractor;
• a detailed description of the work to be performed;
• a detailed list of all materials including color, model, size, brand name and product;
• a schedule and method of payment, including down payment, subsequent payments and final payment;
• any oral promises made by the contractor;
• the start and completion dates;
• the contractor’s obligation to obtain all necessary permits;
• a list of warranties covering materials and workmanship with the names and addresses of the parties honoring the warranties and the length of the warranty periods;
• a provision stating the grounds for termination of the contract by either party—remember, you have 3 business days to cancel the contract if you signed it in your home or at a location other than the seller’s permanent place of business; and
• total cost of work to be performed.

My contractor never finished the job. What do I do now?

You must pay the contractor for the work he or she completed. However, do not make the final payment until you are satisfied with the work and all subcontractors have been paid. Or, you can cancel the contract and may be entitled to a refund of any down payment or other payments made towards the work, once you have sent the contractor a written demand by certified mail.

Garnishment

Garnishment is a legal process that allows a creditor to collect money awarded by a court that has not been paid. The award can result from a judgment against a person after a trial, or a court order such as a child support or alimony order. Typically, creditors file garnishment lawsuits to take money from a debtor’s bank accounts. The bank is served with the lawsuit, along with the debtor.

Creditors can also garnish earnings directly from the creditor’s employer. In child support situations, wage garnishment is a common method of obtaining child support from an unwilling parent. Usually, a form is served on the employer instructing it to take certain steps to direct the debtor’s earnings to the creditor.

SIDEBAR: Garnishments can only be used by a judgment creditor. A creditor to whom you simply owe money cannot proceed with a garnishment suit against you.

I have had my checking account garnished. Can I still use the account?

Yes. However, any money you deposit will be subject to the garnishment. Additionally, any checks you write on the account will be returned.

Can my entire paycheck be garnished?

No. Laws limit the amount of money that can be garnished to a certain percentage of the debtor’s net pay (gross pay minus state and federal taxes). For example, the law may prohibit garnishing more than 20 percent of the debtor’s net earnings.

TIP: A child support garnishment can be as high as 50 to 60 percent of the debtor’s net earnings.

My employer has been served with a garnishment for my wages. Is there any way I can prevent a portion of my salary from being garnished?

Yes. You can answer the garnishment. Usually, a debtor’s answer form is provided in the garnishment paperwork that you received. If you answer and assert a defense, your employer is prohibited from paying the creditor out of your earnings until there has been a hearing on the matter.

How long will my wages be garnished?

Depending on the laws of your states, several weeks’ worth of paychecks could be affected. A usual time period is 3 months. If the creditor is paid off before the garnishment period ends, the garnishment order terminates.

Can my bank account be garnished if my only income is Social Security disability payments?

No. Social Security payments, pensions, unemployment and other state and federal aid payments are exempt from garnishment.

TIP: You must file a garnishment exemption notice. The bank where you have your account usually provides the form.

If my wages are being garnished, can the same creditor garnish my bank accounts?

Yes. If you want to avoid a bank account garnishment, cash your paycheck and pay bills with money orders and all other expenses in cash.

My mother’s name is on my bank account because I was under 18 when I opened it many years ago. Can my mother’s creditors garnish the funds although she has never deposited any money in the account?

Yes. If your mother’s name is on the account, it is her account, too, and it is subject to a garnishment. If garnishment papers were not served on you, get copies from the bank and file an answer appealing the garnishment order. The court will set a hearing and it is likely a judge will order the funds released because they belong to you alone.

Will the garnishment on my wages continue if I file bankruptcy?

No. As soon as you file, the automatic stay goes into effect, stopping all collection efforts by your creditors, including those with judgments and court orders.

TIP: Immediately provide the bank or employer and the creditor garnishing your wages with a copy of your bankruptcy petition. Do not wait on your lawyer (if you have hired one to file the bankruptcy) to send the petition; hand deliver it as soon as possible.

I filed suit in small claims court against my neighbor and was awarded $1,000. The neighbor refuses to pay. Can I garnish her bank account?

Yes. You are a judgment creditor and can garnish up to $1,000 from her bank account. However, you must know the name of the bank and account number to pursue a garnishment.

SIDEBAR: You must obtain a “Writ of Garnishment” from the small claims court. There will be a fee of approximately $50. Additionally, the court may require a sheriff’s deputy to serve the writ on the debtor and the bank, which adds at least another $100 to the cost.

Fair Debt Collection

The federal Fair Debt Collection Practices Act (FDCPA) prohibits collection agencies and other debt collectors from taking certain offensive actions in trying to collect a debt. The FDCPA covers all personal, family and household debts, including car loans, medical fees owing, credit card payments and other bills. The actual creditor is not covered under the FDCPA. For example, a friend who loans another friend money does not have to follow the FDCPA in attempting to get paid back. TIP: The Federal Trade Commission’s Web site at www.ftc.gov/bcp/conline/pubs/credit/fdc.htm explains the act and answers consumers’ questions. What debt collection practices are prohibited under the FDCPA? Collection agencies and even attorneys who are working on behalf of a creditor cannot contact a debtor before 8 a.m. or after 9 p.m. Profane language, threats, constant calling and publishing your name are also prohibited. Additionally, phone calls to the debtor’s place of employment are usually prohibited once the creditor is told not to call there. Importantly, any false statements violate the FDCPA. Telling a debtor she will be arrested or implying she is talking to an attorney (rather than a collection agent) is prohibited. SIDEBAR: Sending “fake” legal documents or documents that look like a legal filing and meant to convince a debtor she has been sued or a judgment was entered are prohibited. Does the FDCPA give me any rights as a debtor? The FDCPA not only prohibits collectors from certain acts, it allows the debtor the right to sue a debt collector that violates the FDCPA. The debtor may recover money for the damages suffered (plus additional damages up to $1,000) and recover court costs and attorneys’ fees. Is there any way to stop collection agencies from calling me and leaving messages on my answering machine? Yes. The FDCPA prohibits creditors from contacting you if you write a letter to the creditor (or collection agency) stating you want the phone calls to stop. SIDEBAR: The letter should ask that all contact stop. Contact includes letters, bills and faxes. A collection agency sent me a letter telling me they were turning the matter over to an attorney and gave me her name. Have they violated the FDCPA because I wrote and told them to cease all contact? No. Although a creditor must stop contacting you once you make the request in writing, the creditor is allowed to notify you that specific action is being taken. In this case, you are being informed that an attorney is handling the collection matter. The notification does not violate the FDCPA. Can a collection agency call my mother to get my phone number? Yes. Creditors regularly contact friends, relatives, employers and former employers of debtors to get a current phone number or address of the debtor. However, repeated phone calls or contacts to third parties may violate the law. SIDEBAR: The creditor violates the FDCPA if the third party is informed that the creditors are trying to collect a debt. I received a collection letter stating that if I do not pay the debt, I will be reported to a credit bureau in 30 days. I will not be able to pay the debt. Is there any way to stop the collection agency from reporting me? Yes. You have the right to dispute or contest the debt. If you write a letter back to the agency stating you do not owe the money, the amount is wrong or it was already paid, you cannot be reported to a credit bureau for failure to pay. Under the law, the collection agency must investigate your claims and verify you owe the debt. SIDEBAR: The validation notice is a statement in a collection letter that the debtor has the right to dispute the debt within 30 days. Debt collectors must include the notice in their initial communication with the debtor. TIP: Agencies do not violate any laws by failing to tell the debtor in letters sent after the initial communication that she can dispute the debt. I was never billed (and never paid) for a sofa I purchased at a local department store, and after 6 years I am getting calls from the store trying to collect. Is the store violating the FDCPA? No. Although you can no longer be sued to collect the amount (since the statute of limitations has passed), the store can still attempt to collect. SIDEBAR: The statue of limitations may be different depending on the type of debt. For example, a credit card account is an open account and has a shorter statute of limitations as opposed to a promissory note (a contract), which might have a 10-year time period. Is there a time limit as to how long a collection agency can pursue me for payment? Yes. The time limit is called the statute of limitations. After a period of years passes, the debt is no longer collectible and the collection agency (unlike the store) cannot continue to pursue you. The length of time depends upon the laws in the state where you live, but generally, a debt can legally be collected for 4 to 6 years after it first becomes delinquent. SIDEBAR: A collection agency that falsely states the debtor will be sued when legally a lawsuit is not possible is violating the FDCPA. TIP: A collection agency can allege “bona fide error” to defeat an unfair practices claim. If the collection agency was unaware of the statute of limitations and did not intend to mislead you, the FDCPA was not violated. I hired an attorney and sued a collection agency for unfair debt collection practices. Can the agency continue to contact me about owing the debt? No. Once a lawyer represents you, it is a violation of the FDCPA to contact you (the debtor). The agency can only communicate with your attorney. A major department store will not stop sending me bills for past due amounts on my credit card, even though I wrote and told them to stop contacting me. Is the store violating the FDCPA? No. The department store is your actual creditor and the FDCPA does not apply to creditors. The store can continue to bill you and contact you concerning your past due amounts. The letter I received from the collection agency states I also owe “collection fees” and added $100 to my debt. Do I have to pay the fees? No. The agency is violating the FDCPA by unilaterally adding amounts to your debt that you do not owe and did not agree to.

Essentia Legal Wins Significant Case

This Article by Daniel Silliman was published on October 03, 2008 in Clayton News Daily- Online

 

A new Atlanta Law Firm won its first case, defending the owner of a dormant web site against claims of trademark infringement.

“We have the ability to take on fairly complex litigation and go against the big guns,” said Latif Oduola-Owoo, one of the three attorneys who left King & Spalding to start Essentia Legal in a mall storefront on Camp Creek Parkway. 

The three attorneys, Oduola-Owoo, Michael Mason and Robert Arrington, are corporate litigators who’ve decided to take the experience they had at the big firm and use it to represent people who normally “don’t have access to good quality lawyers.

Their first case after hanging out the shingle in July, was defending Dwayne Marshall, the owner of the web site:  we the people.com. 

Marshall, an Emory University graduate and community activist, was being sued by We The People, LLC, a legal document preparation company.  The company claimed Marshall was infringing on its trademark, and argued that he should have to surrender the web site to the company.

“We didn’t think it was fair they should be able to take the website like that,”Oduola-Owoo said.  “This is going to be a significant case, because, believe it or not, people are having their web sites taken every day.  They’re being taken by these big companies with trademark claims.

Marshall registered the domain name for his web site in the late 1990s, in an attempt to set up a political site.  He paid a designer and did some work on the project, but then put it on hold for lack of funding.  He kept the name, but “parked” the inactive site with Network Solutions.

What Marshall didn’t know, according to Oduola-Owoo, was that he’d agreed to let Network Solutions use his site for advertising.  Somewhere in the bowels of the terms of use agreement, he had signed off on “domain name monetization.”  He was paying network Solutions to host his inactive web site on its servers, and they were using it too, for advertising.

The use of Marshall’s website wouldn’t have been a problem, except the ads on wethepeople.com were for competitors of We The People, LLC, and seemed to be intended to look like the legal-document company was promoting its business rivals.  Or, that the business rivals were trying to create some confusion with the similar name. 

We the People, LLC, filed a complaint of trademark infringement with the National Arbitration Forum.  Marshall hired Essentia Legal, the self described “new kids in the neighborhood,” to fight back.

“They tried to use the opportunity to seize the web site from him,” Oduola-Owoo said.  “They didn’t make him an offer, they tried to take it.  “We the People” are the first three words of the constitution, so, as a politician, he sees value of this domain name [and wants to keep it].”

The three-member panel of the National Arbitration Forum decided in Marshall’s favor last month, ruling that he didn’t infringe on the trademark, and didn’t register the domain or use it in a “bad faith” attempt to cause any confusion.

The panel, in a 2 to 1 decision, found the name wethepeople.com wasn’t confusingly similar, or identical to the trademark of We The People, LLC, because the legal document company’s trademark includes a picture of the Liberty Bell.

The panel found “the domain name is neither identical nor confusingly similar. “The panel also ruled that Marshall wasn’t trying to disrupt the legal document company.  “A reasonable bystander looking at the domain name would not be confused, “ according to the arbitrators’ finding.  Oduola-Owoo said the first win for the College Park firm has helped them make their mark and demonstrate their model of litigation. He said the case should also serve as a warning to people who own web site domain names they've parked.

“If Mr. Marshall had known about the conflict in the advertising on his web site, “Oduola-Owoo said, “or had consented to it in any way, even by ignoring it and not asking to have the ads removed, he would have lost the web site.“