Month: January 2017

Bankruptcy Estate in Chapter 11 and 13

Chapter 11 allows the Debtor to stay in possession of all his property, even though the property is above the exemption amount. (or threshold amount, as I labelled it in my Bankruptcy Estate in Chapter 7 post)  Chapter 13 is only for human beings, and legal entities are excluded – Chapter 11 can be filed by both individuals and corporations.  The role of the Chapter 13 Trustee is to screen a Chapter 13 plan (prepared and filed by the Debtor) that conforms to the bankruptcy code before it goes before and gets signed by the Judge.  Similarly, the US Trustee, who is the main player in a Chapter 11, is present to make sure that the Chapter 11 process is not being abused, and that creditors are not compromised by the extensive 120 day period where the Debtor comes up with a plan.  (the timing is much shorter in 13)

The two types of trustees are very different – Chapter 13 Trustees are motivated by plans that make logical sense per the Bankruptcy Code.  The Chapter 7 Trustee has an equal interest in making sure that documents conform properly to the code, but on the other hand, is also motivated by profit – oftentimes Standing Chapter 7 Trustee are successful bankruptcy or creditor lawyers or accountants that have extensive business knowledge.  This results in a focus on unexempt assets.  A Chapter 13 Trustee on the other hand is more focused on your income and expenses because your future income is what determines whether or not your repayment plan is successful.

A Chapter 11 is probably the most tricky because the Trustee is very vigilant about making sure that the Debtor is solvent enough pay because the time frames are much longer – you can get up to a six months to put together a plan.  Not only that, they are vigilant about the attorneys who are handling the case and will often object based on an attorneys experience or track record. (e.g. is this your first case?  Do you have co-counsel?  Do you file too many failed Chapter 11’s?)

Creditors are hosed because the automatic stay doesn’t allow them to collect the amounts they are owed, and they have a sharp learning curve with regards to figuring out what they need to do and if not, have to scramble to get lawyers if they are not well versed in the law. Therefore, it is essential that proper planning take place before a 11 or 13, as the Trustee may try to dismiss your case if you cannot come up with a feasible way of paying back who needs to be paid.  In a Chapter 11 and 13, there are creditors who MUST get paid, and there are creditors who MAY get paid.

Chapter 11 is also full of ethical landmines for the unsuspecting attorney.  A Chapter 11 attorney sometimes represents the individual, the Corporation, and the Bankruptcy Estate.  The interests of each may come into conflict.

For example, suppose the CEO of a Corporation with five employees, all of whom are family members, pays you to file and defend a Chapter 11 to save his company. All your dealings are between you and this CEO.  A time may come when the CEO decides that he doesn’t care anymore and just wants to walk away with the skin on his back.   An attorney’s primary responsibility may still be to the Corporation, which means maximizing profits for creditors, or keeping the company afloat – not minimizing the exposure of the CEO and his family.   This is because technically, the corporation is paying you, and the CEO is only acting on the Corporation’s behalf.

Believe me – that’s an awkward conversation to have.

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Proving Parentage through DNA

It’s not an issue that comes up often but recently I had to deal with a parentage challenge where the father found out three years into his marriage that his daughter was not his.  Ordinarily, the process would be to get a blood test to disprove parentage and therefore, he would be absolved of any financial responsibility.  However, in this case, the statute of limitations for a blood test had passed already (2 years).

The general rule is that parentage is presumed (the formal term is conclusively presumed, although it is rebuttable, meaning it can be challenged – don’t ask, I don’t know why either) if the husband and wife are married at the time of conception.  Not nine months before the conception, but at the time of conception.  Again, doesn’t make much sense but I suppose it makes it easier for measuring and there’s less potential for abuse.  It’s another example where efficiency trumps rationality.

Unless the father can either prove he was 1)impotent or sterile at the time of conception or 2) father requests a blood within two years of the conception, he is stuck being the father, whether or not any subsequent blood test proves otherwise.  Furthermore, the blood test that is required needs to be done by a court expert and through a court filed motion by the father.   Otherwise, he is pretty much shit out of luck.

It gets more complicated when a voluntary declaration of paternity is involved, but I will address that some other time.  Also, if the Department of Social Services is involved, the requirements also are different.  Suffice to say, this is a complicated area of the law, but the general rule itself can create some pretty unfair results.