See the following, it pretty good start:
Bankruptcy cases in Michigan are governed by the U.S. Bankruptcy Code, the Federal Rules of Bankruptcy Procedure, and detailed local rules. Cases are adjudicated by bankruptcy judges appointed in each district court. Bankruptcy judges may hear and decide all core proceedings, i.e., those that are integral to the core bankruptcy function of restructuring debtor-creditor rights. However, in noncore proceedings, the bankruptcy judge may only submit proposed findings of fact and conclusions of law to the district court. Appeals from final orders and judgments of bankruptcy courts are heard by federal district courts or bankruptcy appellate panels (BAPs).
A bankruptcy case is commenced when a debtor files a voluntary petition or is forced into bankruptcy by an involuntary petition. If your client seeks bankruptcy relief, you must select the chapter best suited to his or her needs. In most cases involving individuals, that will be either Chapter 7 or Chapter 13, unless your client is a family farmer or family fisherman eligible for relief under Chapter 12. Involuntary petitions may be filed under Chapters 7 and 11; there is no such thing as an involuntary Chapter 12 or 13 petition. Farmers and charitable corporations may not be forced into involuntary bankruptcy.
Once a bankruptcy petition is filed and the case is commenced, a new entity called the estate is created. The estate consists of all of the debtor’s interests in real and personal property as of the date the petition is filed. The debtor, his or her trustee, and their attorneys are the persons primarily responsible for administering this estate.
The debtor must cooperate with the trustee in the execution of the trustee’s statutory duties, file certain documents, and attend and submit to examination under oath at the creditors’ meeting. In Chapter 7, 12, and 13 cases, the U.S. trustee appoints a trustee to administer the assets of the debtor for the benefit of creditors. The court does not automatically appoint a trustee in Chapter 11 cases. Instead, the debtor-in-possession is charged with the responsibility of administering the estate.
The Chapter 7 trustee’s primary duty is to reduce all nonexempt property to cash as quickly as possible and distribute the money to creditors. Chapter 12 and 13 trustees are primarily responsible for analyzing proposed payment plans and ensuring that debtors comply with the terms of their confirmed plans, especially the payment provisions.
Exempt property is not subject to distribution by the trustee; it forms the basis of the individual debtor’s fresh start. An individual debtor who files a bankruptcy petition may elect either federal exemptions or exemptions that may be available under state law.
Once the bankruptcy petition is filed, the debtor, the debtor’s exempt property, and property of the estate are all protected by automatic stay provisions. This protection gives the debtor a breathing spell from his or her creditors by stopping all collection efforts, harassment, and foreclosure actions. However, criminal proceedings and actions taken by governmental units to enforce their police or regulatory power may continue.
Once the trustee or debtor-in-possession collects and liquidates the nonexempt property of the estate, the resulting proceeds are distributed to holders of claims. Claims are classified as secured, unsecured, or priority. A secured claim is one that has a valid and perfected lien or a security interest in property of the estate as collateral. Unsecured claims are those not collateralized by any property of the estate or resulting from the undersecured status of a secured creditor.
The aim of a Chapter 7 bankruptcy case is to give the honest debtor a fresh start in life by discharging most of his or her debts and allowing the debtor to retain his or her exempt property. The entry of a discharge order relieves the debtor of all personal liability on any debts dischargeable under the Bankruptcy Code and acts as an injunction against creditors’ actions to collect discharged debts.
Chapter 11 cases are usually concerned with the reorganization of troubled businesses. Unless the bankruptcy court appoints a trustee, the debtor in a Chapter 11 case will normally remain in possession of its assets and be authorized to operate its business. Once the Chapter 11 case is commenced, the debtor-in-possession will usually negotiate the terms of a Chapter 11 plan with its secured and unsecured creditors.
After a plan is proposed and acceptances are solicited from creditors, the bankruptcy court will conduct a hearing to determine whether the plan should be confirmed. Confirmation binds the debtor and its creditors to the plan’s provisions, and all property of the estate is vested in the debtor and held free and clear of all creditors’ liens.
Under Chapter 13 of the Bankruptcy Code, the individual debtor may pay his or her creditors in installments over a period of as long as five years. The debtor must make these payments out of his or her future income directly to the Chapter 13 trustee, who will then disburse the money to the creditors entitled to receive it under the plan. If the debtor complies with the provisions of the plan, the debtor may retain most, if not all, of the his or her property and will be granted a discharge of most of his or her indebtedness.
Under Chapter 12 of the Bankruptcy Code, family farmers or fishermen who receive regular annual income may propose a plan to pay creditors in installments over a period not exceeding five years. The provisions of Chapter 12 are substantially similar to those contained in Chapter 13.
On October 17, 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), Pub L No 109-8, 119 Stat 23 (2005), extensively revised the Bankruptcy Code. Among the changes are the following:
the creation of a means test for Chapter 7 individual debtors with mainly consumer debt, creating a presumption of abuse if the debtor’s net monthly income after qualifying expenses exceeds certain levels (the amended act eliminates the presumption that the debtor is entitled to relief unless there is a finding of “substantial abuse”)
new duties for debtor’s counsel, including a certification that a Chapter 7 debtor meets the means test
stricter rules regarding a debtor’s notice to creditors, including the requirement that the debtor include account numbers
new priority rules for domestic support obligations
a tightening of requirements for debtor reaffirmation of specific debts
a strict mandate that debtors provide to the trustee their tax returns and other documents within a certain period or have their petitions dismissed
a requirement that individuals filing for relief under Chapter 7 or Chapter 13 of the Code undergo credit counseling and debtor education
limitations on the length of the automatic stay if the debtor has filed previous bankruptcy petitions
an exception from the automatic stay for certain leased residential real estate
an extension of the period between a debtor’s discharges to prevent serial filings
a limiting definition of “household goods” for the purpose of lien avoidance
a lowering of the dollar threshold for the presumption that credit card debt for “luxury goods” or cash advances is fraudulently incurred and therefore nondischargeable, from $1,350 to $550 for goods and $825 for cash advances
an expansion of the time period in which credit card charges for “luxury goods” or cash advances on credit cards may be aggregated to meet the lower dollar threshold
an expansion of the general rule that student loans are nondischargeable, to include private lender loans
a requirement that Chapter 7 debtors file a statement of intention regarding secured property within 30 days of the petition date
limitations on a Chapter 7 debtor’s retaining possession of secured personal property if the obligation is not reaffirmed; failure to reaffirm the debt within 30 days of the creditors’ meeting results in termination of the automatic stay
the creation of a requirement of 730 days (2 years) of residency in a state before that state’s exemptions apply
the exclusion from a state homestead exemption of any value in excess of $136,875 that is added to a homestead during the 1,215 days (3 years, 4 months) preceding the bankruptcy filing
the right of the trustee to avoid any transfer by a debtor to a debtor-created trust or other entity made within the 10 years before the petition date if made with the intent to hinder or defraud a creditor
the exclusion of employee contributions to ERISA-qualified retirement plans from being considered property of the bankrupt estate
a requirement to file with the court payment advices (pay stubs) received from an employer within 60 days before the filing of the petition
These changes make representing a bankruptcy debtor more difficult and complicated.
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II. Structure of the Bankruptcy Code
A. In General
§10.2 The U.S. Bankruptcy Code balances various values, policies, and interests. The code’s primary objective is to provide the honest debtor with a fresh start, free from debt. Another aim is to grant creditors, especially those who are secured, the benefit of their bargain with the debtor. A third objective of the code is to provide for equality of treatment among creditors of the same class. Needless to say, these goals often clash in bankruptcy cases. It is the task of bankruptcy judges to balance competing interests and arrive at fair solutions.
B. The Statutory Provisions
§10.3 The operative provisions of the Bankruptcy Code are found in Title 11 of the United States Code; the jurisdictional provisions form a part of Title 28. Title 11 is subdivided into eight chapters. Chapter 1 contains definitions and general provisions. Chapter 3 deals with the overall administration of bankruptcy cases. The nature and extent of the debtor’s estate, as well as the powers of the debtor and his or her trustee to augment that estate, are defined in Chapter 5. Chapter 7 provides for liquidation in bankruptcy cases. Chapter 9 contains special provisions for municipal bankruptcies. Chapter 11 provides for reorganizations. Chapter 12 grants special protection to family farmers and family fishermen. Chapter 13 governs debt extension plans for individuals with regular income.
This chapter will not discuss the Bankruptcy Code provisions governing municipal bankruptcies, railroad reorganizations, and stockbroker liquidations, all of which are comparatively rare.
C. Rules of Procedure and Evidence
§10.4 After the Bankruptcy Code was enacted, the U.S. Supreme Court revised and adopted the Rules of Bankruptcy Procedure for use in bankruptcy cases. The rules have been amended several times since the adoption of the Bankruptcy Code. The bankruptcy rules supplement the code and should be read carefully.
The Federal Rules of Evidence (FRE) apply in all contested matters and adversary proceedings in the bankruptcy courts. See Bankruptcy Rule 9017. Some or all of the Federal Rules of Civil Procedure (FRCP) may also apply. Furthermore, the Bankruptcy Court of the Eastern District of Michigan and the Bankruptcy Court of the Western District of Michigan have adopted detailed local rules. These rules are different for each district. You should become thoroughly familiar with these local rules and consult them before you attempt to represent a client or file any documents in a bankruptcy court.
D. United States Trustees
§10.5 On May 5, 1988, the U.S. Trustee System was established in the Michigan and Ohio region. Habbo Fokkena is the U.S. trustee for this region; his office is located in Cleveland, Ohio. Assistant U.S. trustees sit in each federal judicial district in the region and are authorized to act on behalf of the U.S. trustee. The assistant U.S. trustee for the Western District of Michigan is Daniel J. Casamatta; his office is located in Grand Rapids. The assistant U.S. trustee for the Eastern District of Michigan is Marion Joseph Mack, Jr., whose office is located in Detroit. These assistants employ a staff to assist them with their duties.
The U.S. trustee is a party in interest who “may raise and may appear and be heard on any issue” in any bankruptcy case or proceeding. 11 USC 307. However, the U.S. trustee may not file a plan in Chapter 11 cases. Id. Bankruptcy Rule 9034 requires any entity filing certain papers relating to matters such as approval of settlements, employment of professional persons, and applications for compensation to serve a copy on the U.S. trustee. The U.S. trustee for the region is not required to appear in person in bankruptcy cases or proceedings. He or she may act through a designee such as his or her assistant. 11 USC 102(9). Any references to the U.S. trustee in this chapter should be read to include the assistant U.S. trustee.
The duties of the U.S. trustee are specified in 28 USC 586. Those duties include
establishing, maintaining, and supervising a panel of private trustees for each judicial district;
serving as trustee when required to do so in a particular bankruptcy case and performing the trustee’s statutory duties in that case;
monitoring fee applications in bankruptcy cases and commenting on them;
monitoring plans and disclosure statements filed in Chapter 11 cases and commenting on them;
monitoring plans filed in Chapter 12 and 13 cases and commenting on them;
monitoring creditors’ committees;
monitoring the progress of bankruptcy cases and taking actions to prevent undue delay in that progress;
monitoring applications to employ professional persons, including attorneys, and commenting on them;
notifying the appropriate U.S. attorney of potential bankruptcy crimes; and
performing certain duties in small business cases.
The assistant U.S. trustees for the Eastern and Western Districts of Michigan have adopted a number of written forms to assist them in performing their statutory duties. These forms are available from their offices on request.
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III. Bankruptcy Courts
A. Jurisdiction of Bankruptcy Courts
1. Powers of the Federal District Court
§10.6 The Bankruptcy Amendments and Federal Judgeship Act of 1984 (referred to in this chapter as the “1984 Amendments”) grants to Article III federal district courts the power to administer bankruptcy cases and civil proceedings connected to those cases. The district court is granted “original and exclusive jurisdiction” over all bankruptcy cases. 28 USC 1334(a). In addition, the district court is granted original but not exclusive jurisdiction over all civil proceedings “arising under,”“arisingin,” or “related to” bankruptcy cases. 28 USC 1334(b). The Sixth Circuit Court of Appeals has broadly construed the scope of proceedings that are related to bankruptcy cases and, hence, within the scope of the district court’s bankruptcy jurisdiction under 28 USC 1334(b). In re Salem Mortgage Co, 783 F2d 626, 634 (6th Cir 1986) (class action commenced in bankruptcy court by Michigan attorney general against Chapter 11 debtors and certain other defendants for legal, equitable, and declaratory relief under Michigan Consumer Protection Act was “sufficiently related to the estate of the bankrupt such that district court had jurisdiction over the subject matter … and thus improperly dismissed the proceeding”); see also In re Dow Corning Corp, 86 F3d 482 (6th Cir 1996), cert denied, 519 US 1071 (1997).
A district court may abstain from deciding these types of civil proceedings “in the interest of justice, or in the interest of comity with State courts or respect for State law.” 28 USC 1334(c)(1). Finally, the district court is granted exclusive jurisdiction over all property of the debtor and all property of the estate, wherever that property is located. 28 USC 1334(e).
2. Delegation of Bankruptcy Matters: Core and Related Proceedings
a. Bankruptcy Court as a Unit of the District Court
§10.7 Although the 1984 Amendments identify the federal district court as the repository of all bankruptcy jurisdiction, it is still the bankruptcy court, now designated as a unit of the district court, that administers bankruptcy cases and decides most controversies related to bankruptcy disputes. 28 USC 151. Bankruptcy judges may exercise the powers delegated to the district court “with respect to any action, suit, or proceeding” except as otherwise provided by law or district court order. Id.; see also In re De Lorean Motor Co, 49 BR 900 (Bankr ED Mich 1985). In fact, the district courts for the Eastern and Western Districts of Michigan have adopted administrative orders providing for the automatic reference of all bankruptcy cases, matters, and proceedings to the bankruptcy judges of those districts in accordance with 28 USC 157(a).
A bankruptcy court may conduct a jury trial in certain circumstances if the district court has entered an order permitting the bankruptcy court to do so and all parties expressly consent. 28 USC 157(e).
b. Determination of Core and Noncore Proceedings
§10.8 Section 157 of Title 28 distinguishes between core and noncore proceedings in bankruptcy cases. The distinction is important for the practitioner because the power of a bankruptcy judge to hear and decide a proceeding pending before him or her will depend on its classification.
Bankruptcy judges may hear and determine all core proceedings arising under the Bankruptcy Code and enter orders and judgments in those core proceedings, subject to appellate review. 28 USC 157(b)(1). Core proceedings may generally be described as those that are integral to the core bankruptcy function of restructuring debtor-creditor rights. Examples of core proceedings, which include adversary proceedings to recover preferences, motions to lift the automatic stay, and objections to discharge, are listed in 28 USC 157(b)(2). See also In re Dow Corning Corp, 215 BR 346 (Bankr ED Mich 1997); In re Michigan Real Estate Ins Trust, 87 BR 447 (Bankr ED Mich 1988). As a general rule, the courts have adopted a somewhat restrictive view of what qualifies as a core proceeding. See, e.g., In re Adams, 133 BR 191 (Bankr WD Mich 1991); In re Marshall, 118 BR 954 (Bankr WD Mich 1990). The Sixth Circuit Court of Appeals discusses core and “related to” jurisdiction in Gordon Sel-Way, Inc v United States (In re Gordon Sel-Way, Inc), 270 F3d 280 (6th Cir 2001).
The 1984 Amendments do not define noncore or related proceedings. However, a proceeding will not be classified as noncore “solely on the basis that its resolution may be affected by State law.” 28 USC 157(b)(3). Certain proceedings that arise solely from state law, such as adversary proceedings commenced by a trustee against third parties to collect the debtor’s accounts receivable, have been considered noncore. See, e.g., In re Atlas Automation, Inc, 42 BR 246 (Bankr ED Mich 1984). Personal injury tort or wrongful death claims must be tried either in the district court where the bankruptcy case is pending or the district court where the claim arose. See 28 USC 157(b)(5).
In a bankruptcy court proceeding, the judge must decide, either on his or her own or a party’s timely motion, whether that proceeding is core or noncore. 28 USC 157(b)(3). If the bankruptcy judge finds that it is a noncore proceeding, he or she is empowered only to submit proposed findings of fact and conclusions of law to the district court. 28 USC 157(c). The specific procedure the bankruptcy judge follows in making proposed findings of fact and conclusions of law is set forth in Bankruptcy Rule 9033. The district court must consider proposed findings and conclusions and review de novo only those matters in the record to which a party “has timely and specifically objected.” 28 USC 157(c)(1); In re Fishell, 132 BR 337 (Bankr WD Mich 1991). Finally, if all parties consent, the district court may authorize the bankruptcy judge to enter orders and judgments, subject to appellate review by the district court. 28 USC 157(c)(2).
Bankruptcy Rules 7008(a) and 7012(b) require all parties to state in their first pleadings filed in adversary proceedings whether the action is classified as core or noncore. If the proceeding is classified as noncore, the pleader must state whether he or she consents or does not consent to the entry of a final order or a judgment by the bankruptcy judge.
c. Withdrawal of Reference from Bankruptcy Court
§10.9 Any bankruptcy case that has been referred to bankruptcy court may be transferred back to the federal district court. The district court may withdraw the case and any core or noncore proceeding in whole or in part from the bankruptcy court for cause shown on the district court’s own motion or a party’s timely motion. 28 USC 157(d). This power to withdraw references is consistent with Congress’s jurisdictional grant of authority to the district courts in the first place. Although the statute does not define the cause necessary to obtain a withdrawal of reference, it does mandate that a proceeding must be withdrawn on timely motion if the district court finds that the proceeding can be resolved only on consideration of Bankruptcy Code provisions and other federal laws regulating organizations or activities affecting interstate commerce. Id.; see, e.g., In re Dow Corning Corp, 215 BR 526 (Bankr ED Mich 1997); In re Michigan Real Estate Ins Trust, 87 BR 447, 458–459 (Bankr ED Mich 1988).
Bankruptcy Rule 5011(a) provides that motions for withdrawal of the reference of a case or proceeding must be heard by the district court judge, not the bankruptcy judge. Bankruptcy Rule 5011(c) states that mere filing of a withdrawal motion will not stay the administration of the subject case or proceeding. However, the bankruptcy judge, on a motion, may enter a stay pending the district court’s ruling on the withdrawal motion.
B. Venue Provisions
§10.10 In general, a debtor may commence a bankruptcy case in the court for the district in which his or her domicile, residence, principal place of business, or principal assets have been located for 180 days before the date the petition is filed. 28 USC 1408(1).
28 USC 1409 contains special venue provisions for core and noncore proceedings. You should read and consider these provisions carefully. If a bankruptcy case, whether it is a core or noncore proceeding, has been commenced in a district with improper or inconvenient venue, the district court may transfer it to another district court in the interest of justice or for the convenience of the parties. 28 USC 1412. In Haworth, Inc v Sunarhauserman, Ltd/Sunarhauserman Ltee, 131 BR 359 (Bankr WD Mich 1991), the court articulated six factors to consider when determining whether transfer to another district is appropriate.
C. Removal and Remand of State Court Proceedings
§10.11 With certain specified exceptions, if a civil action that is pending in a state court could have been commenced in the federal district court under 28 USC 1334, a party may remove it to the appropriate federal district court. 28 USC 1452(a). However, that removal may later be remanded to the state court on any equitable ground. 28 USC 1452(b). Remand orders and decisions not to remand are not reviewable by appeal or otherwise. Id.; see, e.g., Boone Coal & Timber Co v Polan, 787 F2d 1056 (6th Cir 1986). Bankruptcy Rule 9027 governs the procedure for removing a civil action to the district court. 28 USC 1447(c), which governs the procedure after removal in a bankruptcy case, states that a motion to remand a case on the basis of any defect “other than lack of subject matter jurisdiction” must be made within 30 days. Pub L No 104-219, 110 Stat 3022 (1996). 28 USC 1447(c) retains the language stating that “[i]f at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded.” For a discussion of removal and remand, see Vogel v United State Office Prods Co, 258 F3d 509 (6th Cir 2001); Cook v Cook, 220 BR 918 (Bankr ED Mich 1997) (denying removal from state court).
D. Appeals
§10.12 A practitioner considering an appeal must carefully study the applicable statutes and court rules. Federal district courts will hear appeals from final orders and judgments entered by bankruptcy courts. The Sixth Circuit, however, has created a bankruptcy appellate panel (BAP) service, pursuant to 28 USC 158(b). A BAP may hear appeals from bankruptcy court decisions, as an alternative to district court, if all parties consent. Appeals to a BAP will be heard by a panel of three bankruptcy judges appointed by the judicial council of the circuit. A bankruptcy judge cannot serve on a BAP that is hearing an appeal in an action that arose in that judge’s district. Bankruptcy Rule 8001(e) governs the procedure for electing to appeal to a district court instead of to a BAP.
Appeals from most interlocutory orders and decrees of the bankruptcy courts will be heard by the federal district courts or the BAPs only if leave of court is granted. 28 USC 158(a); see also In re PHM Credit Corp, 99 BR 762 (Bankr ED Mich 1989). 28 USC 158(a) authorizes appeal without leave of the court of orders issued under 11 USC 1121(d) increasing or decreasing the time limits of 11 USC 1121 for filing Chapter 11 plans. See 28 USC 158(a)(2).
Circuit courts of appeals are granted jurisdiction to hear appeals from final decisions of the district courts or BAPs. 28 USC 158(d). Circuit courts of appeals may also hear appeals of interlocutory orders issued by federal district courts sitting as courts of appeal in bankruptcy cases. Connecticut Nat’l Bank v Germain, 503 US 249 (1992).
Bankruptcy Rules 8001–8020 specify the procedure to be followed in appeals from bankruptcy court decisions. Bankruptcy Rule 8001(a) and (b) govern the manner of taking appeals as of right, under 28 USC 158(a)(1) and (2), and by leave, under 28 USC 158(a)(3). You should also consult the local rules for the bankruptcy court.
A party who wishes to appeal an order or judgment of the bankruptcy court must file a written notice of appeal with the bankruptcy court clerk within 10 days of the date on which the order or judgment was entered. Bankruptcy Rule 8002(a). If the party does not meet this deadline, the court may dismiss the appeal. Bankruptcy Rule 8002(c)(2) requires that a request to extend the time for filing a notice of appeal must be made by written motion filed before the time for filing a notice of appeal has expired. Any extension of time for filing a notice of appeal may not exceed 20 days from the expiration of the time for filing a notice of appeal otherwise prescribed by this rule or 10 days from the date of entry of the order granting the motion, whichever is later. Bankruptcy Rule 8002(c)(1) prohibits any extension of time to appeal from an order granting relief from the automatic stay; authorizing the sale or lease of property, the use of cash collateral, the obtaining of credit, or the assumption or assignment of an executory contract or unexpired lease under 11 USC 365; approving a disclosure statement; or confirming a plan, even if the motion for extension of time to appeal is filed before the original time to appeal has expired.
Bankruptcy Rule 8020 authorizes the district court, sitting as an appellate court in a bankruptcy case, and a BAP to award damages and costs for frivolous appeals.
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IV. Commencement of the Bankruptcy Case
A. In General
§10.13 Bankruptcy cases are commenced in one of two ways: (1) the debtor may file a voluntary petition with the bankruptcy court clerk or (2) the debtor may be forced into bankruptcy when an involuntary petition is filed against him or her. The filing of a voluntary petition operates as an order for relief. 11 USC 301. In an involuntary bankruptcy case, the court may enter an order for relief. See §10.18.
Filing fees must be paid to the court clerk when a bankruptcy petition is filed, although qualified individual debtors are permitted to pay this fee in installments. Bankruptcy Rule 1006. The current filing fees are as follows:Chapter 7 $299.00
Chapter 9 $1039.00
Chapter 11 $1039.00
Chapter 12 $239.00
Chapter 13 $274.00
Note that the Bankruptcy Courts for the Eastern and Western Districts of Michigan require attorneys to electronically file petitions, pleadings, and other documents.
The standard bankruptcy forms for Chapters 7 and 13 have been amended to truncate a debtor’s social security number. In an effort to both protect debtor privacy and limit identity theft, bankruptcy forms now require only the last four digits of the debtor’s social security number. However, to enable the trustee to verify that a petitioner is the debtor, the debtor must file Official Bankruptcy Form B-21, available at
http://www.uscourts.gov/bkforms/, which requires the full social security number. B-21 is a nonpublic document that is available to creditors.
B. Voluntary Bankruptcy Petitions: Chapters 7, 11, 12, and 13
1. Who Can File
§10.14 What's New in this Section Most natural and artificial persons who reside in the United States or whose domicile, place of business, or property is in the United States may file a voluntary petition under Chapter 7 of the Bankruptcy Code. 11 USC 109(a). See Official Bankruptcy Form B1, Voluntary Petition, available at
http://www.uscourts.gov/bkforms/. Certain persons, such as railroads, banks, and insurance companies, may not be debtors under Chapter 7. 11 USC 109(b). Persons who are qualified to file petitions under Chapter 7 may also seek relief under Chapter 11, as may railroads. 11 USC 101(19A), 109(d). See §§10.56–10.58.
Only a family farmer or family fisherman with regular annual income may commence a Chapter 12 case. 11 USC 109(f). The Bankruptcy Code defines the terms family farmer and family fishermen to include individuals, corporations, and partnerships if these persons or entities meet various tests set out in the code. 11 USC 101(18), (19A). See §10.93.
Chapter 13 is restricted to individuals who earn enough regular income to make payments under a Chapter 13 plan and whose debts fall below certain ceilings. 11 USC 109(e). Only individuals with regular income who have, on the date of filing, matured and liquidated secured debts amounting to less than $1,010,650 and unsecured debts amounting to less than $336,900 may seek relief under Chapter 13. 11 USC 109(e). See §10.77. These dollar limits are adjusted every three years.
BAPCPA added a new provision at 11 USC 109(h), which states that an individual may not be a bankruptcy debtor unless the individual has, during the 180 days preceding the filing of the bankruptcy petition, received from an approved nonprofit budget and credit counseling agency a briefing (in person, by telephone, or over the Internet). The U.S. trustee is responsible for approving such counseling agencies and maintains a listing of such agencies on its Web site. A waiver of the credit counseling requirement is possible in certain emergency or limited circumstances. 11 USC 109(h)(3) and (4). The prospective debtor who completes the briefing must obtain a certificate from the counseling agency and file that certificate with the bankruptcy petition. Failure to complete the briefing before the petition date will result in the dismissal of the case.
A petition under Chapter 7 may be filed only if a debtor with primarily consumer debts meets a new means test under 11 USC 707(b). In essence, the means test takes the debtor’s income and subtracts from it certain allowed expenses. The test is designed to steer into Chapter 13 those debtors who have some ability to pay some of their debts. As a general rule, a Chapter 7 debtor with mostly consumer debts will satisfy the means test only if the debtor’s income is less than the state’s median family income. Michigan’s median family income for one earner is $41,263.00 (based on a 2005 survey). See the State Median Family Income page of the U. S. Census Bureau Web site at
http://www.census.gov/hhes/www/income/statemedfaminc.html. If the debtor fails the means test, then the filing of the Chapter 7 bankruptcy case is presumed abusive, a presumption that may be rebutted only with a showing of special circumstances. 11 USC 707(b)(2)(
. Unless rebutted, a presumption of abuse will result in the dismissal of the bankruptcy case upon the motion of the U.S. trustee, the bankruptcy trustee, a party-in-interest, or the court. 11 USC 707(b)(2). Section 707(b)(2) sets forth a complicated formula for means testing to determine whether a presumption of abuse arises. If the debtor’s income is below the state median, the means test and the presumption of abuse do not apply. If, however, the debtor’s income exceeds the state median family income, the Bankruptcy Code requires the use of a formula to determine whether the presumption of abuse arises. The U.S. trustee is directed by 11 USC 704(b) to review all materials filed by the debtor to determine whether the presumption of abuse arises. Official Bankruptcy Form B22A, available at
http://www.uscourts.gov/bkforms/, provides the means test calculation.
2. Strategies
§10.15 What's New in this Section An important part of BAPCPA applies to “debt relief agencies” with strict rules regarding advertising, counseling, and disclosures. A debt relief agency is broadly defined to include “any person who provides any bankruptcy assistance to an assisted person in return for the payment of money or other valuable consideration.” 11 USC 101(12A). An assisted person means “any person whose debts consist primarily of consumer debts and the value of whose nonexempt property is less than $164,250.” 11 USC 101(3).
Some bankruptcy courts are considering whether Congress intended to regulate attorneys already regulated by state licensure requirements. See Hersch v United States, 347 BR 19 (N Tex 2006) (attorneys fall within definition of debt relief agency, but restrictions in 11 USC 526(a)(4) on legal advice violate First Amendment); In re Attorneys at Law, 332 BR 66 (Bankr SD Ga 2005) (attorneys admitted to state bar or admitted pro hac vice are not covered by debt relief agencies provisions if their activities fall within practice of law and are not separate commercial enterprise). Until this issue is resolved, attorneys should comply with the requirements of BAPCPA relating to debt relief agencies if they provide bankruptcy assistance in exchange for money. A debt relief agency must clearly and conspicuously disclose in any advertisement the following statement: “We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.” 11 USC 528(a)(4).
BAPCPA also requires a debt relief agency to make certain disclosures within certain time constraints. The new disclosure rules are set forth in 11 USC 526, 527, 528 and 342(d)(1). For example, 11 USC 527(a)(2) requires the debt relief agency to provide, not later than three business days after the first date the debt relief agency first offers to provide bankruptcy assistance services to an assisted person, a clear and conspicuous written notice advising the assisted person that
all information that the assisted person is required to provide with a petition and thereafter during a bankruptcy case must be complete, accurate, and truthful;
all assets and liabilities are required to be completely and accurately disclosed;
current monthly income must be stated after reasonable inquiry; and
information may be audited and failure to provide such information may result in dismissal of the case or other sanction, including a criminal sanction.
The debt relief agency must keep a copy of these notices for two years after the notices are given. 11 USC 527(d).
11 USC 527(b) has a statement that must be provided to the assisted person. 11 USC 527(c) requires, except to the extent the relief agency provides the required information itself after reasonably diligent inquiry of the assisted person and others, that the debt relief agency providing bankruptcy assistance to an assisted person must provide each assisted person reasonably sufficient information (which shall be provided in a clear and conspicuous writing) on how to provide all the information the assisted person is required to provide under the Bankruptcy Code, including
how to value assets at replacement value and determine current monthly income, the amounts in connection with the means test under 11 USC 707(b)(2), and disposable income;
how to complete a list of creditors; and
how to determine what property is exempt and how to value exempt property at replacement value as defined in 11 USC 506.
In addition, 11 USC 528(a)(1) provides that a debt relief agency, not later than five business days after the first day on which the agency provides any bankruptcy assistance services to an assisted person, but before the filing of the bankruptcy petition, must execute a written contract with the assisted person that explains clearly and conspicuously all the services the agency will provide an assisted person, the fees or charges for such services, and the terms of payment. The debt relief agency must provide the assisted person with a copy of the fully executed and completed contract. 11 USC 528(a)(2). A debt relief agency must also clearly and conspicuously disclose in any advertisement of bankruptcy assistance services or of the benefits of bankruptcy directed to the general public that such services or benefits are with respect to bankruptcy relief under the Bankruptcy Code. 11 USC 528(a)(3).
It is essential that you have complete and accurate information to counsel your client. BAPCPA provides sanctions for debtor relief agencies. At your initial meeting, the debtor should be given the disclosures discussed above, a copy of your prepaid contract, a blank set of bankruptcy schedules (schedules A and
, and a statement of financial affairs to complete. Include a summary of debts and property and a schedule of current income and current expenditures. See Official Bankruptcy Form B6. These documents are preprinted and are available at
http://www.uscourts.gov/bkforms/ or can be obtained from office supply stores. Software available to help you prepare schedules may have worksheets that you may send to your client to elicit the necessary information. Once your client properly completes these forms, you should have a comprehensive picture of his or her financial condition. Have your client bring the completed forms to your office along with copies of any loan and security agreements, recent bank statements, pay stubs for the preceding six months, credit agreements, recent tax returns, and any other documents you might consider helpful.
After you have interviewed your client, consider whether his or her financial problems can be solved outside the bankruptcy court. In many cases, it is better to resolve your client’s problems without involving a trustee and the entire bankruptcy court system. However, out-of-court “workout” agreements with creditors require, at a minimum, creditor consent. If one or more creditors refuse to cooperate and continue to press their claims against your client, you may have no alternative but to seek the protective shelter of the bankruptcy court.
Once you decide that your client should seek bankruptcy relief, you must select the chapter best suited to his or her needs. In most cases involving individuals, that will be either Chapter 7 or Chapter 13, unless your client is a family farmer or family fisherman eligible for relief under Chapter 12. Before making that recommendation, you should ask your client the following questions:
Is your client earning enough money on a regular basis to fund a Chapter 13 plan? If your client has a significant amount of personal property, the value of which exceeds the amount of bankruptcy exemptions, he or she should consider filing a Chapter 13 petition. See §§10.77–10.84. A Chapter 13 plan will normally provide for the repayment of debts over a period as long as five years. To qualify for relief under Chapter 13 and to fund such a plan, the individual debtor must have a stable source of income to pay into that plan. If the debtor does not, his or her Chapter 13 case will probably abort and the nonexempt property may then be liquidated by a trustee in a subsequent Chapter 7 case. With this in mind, ask your client to prepare a budget that will set forth your client’s anticipated sources and uses of cash over the period of his or her Chapter 13 plan. With this information, you should be able to determine whether a Chapter 13 case will work for your client. Also, the means test discussed above may direct your client to Chapter 13.
Does your client have any nondischargeable debts? Certain debts are not discharged in an individual’s bankruptcy case. Some of these nondischargeable debts result from the debtor’s “bad acts,” such as when the debtor submits a false financial statement to his or her lender. Nevertheless, some of the debts that are nondischargeable under Chapter 7 may be discharged in a Chapter 13 case. Thus, it may be to your client’s advantage to pay these debts pursuant to a Chapter 13 plan rather than run the risk of prompting a creditor to commence nondischargeability litigation in a Chapter 7 case.
Does your client wish to be subject to court scrutiny for five years while performing his or her obligations under a Chapter 13 plan? Although filing under Chapter 7 will result in the liquidation of your client’s nonexempt property, a Chapter 7 case is normally a swift and clean procedure. In many Chapter 7 cases, the debtor will most likely never have to go to court and will only have to appear for questioning once before the Chapter 7 trustee and creditors. On the other hand, a Chapter 13 debtor must perform all of his or her plan obligations before receiving a general discharge. If any disputes arise before then, your client may be required to attend numerous court hearings in his or her Chapter 13 case.
If your client is a farmer or fisherman, you should determine whether the client is eligible for relief under Chapter 12. In other words, is the client a family farmer or family fishermen as those terms are defined in the Bankruptcy Code, and is the client earning an annual income sufficient to fund a Chapter 12 plan? See, e.g., In re Coulston, 98 BR 280 (Bankr ED Mich 1989). If your client can file a Chapter 12 petition, you should advise the client that the bankruptcy court’s scrutiny may last for as long as five years while the client makes payments under the plan. The client should also be advised that, unlike Chapter 13, the client will not be discharged from those debts that arise from bad acts. See §10.95.
Finally, if you are counseling a troubled business, you should exercise a great deal of caution in recommending that your client seek reorganization under Chapter 11 of the Bankruptcy Code. Business reorganizations often give rise to complex and difficult problems. If your client’s financial problems are particularly acute, you may wish to seek the help of a bankruptcy specialist before you make any recommendation to your client.
3. Notices to Debtors Before Filing
§10.16 The Bankruptcy Code requires the bankruptcy court clerk to give individual debtors—whose debts are primarily consumer debts—a written notice about whether they may file under Chapter 7, 11, 12, or 13 of the code. 11 USC 342(b). Notice must be given before filing. Most bankruptcy courts have prepared standard notices for this purpose, and you should have your client read and sign the notice before filing the bankruptcy petition. See Official Bankruptcy Form B201 available at
http://www.uscourts.gov/bkforms/.
In addition, you will have to make the disclosures required under BAPCPA, as well as have an executed fee contract. As discussed in §10.15, BAPCPA imposes several additional disclosure requirements on debt relief agencies that may apply to an attorney representing a prospective bankruptcy debtor. Severe sanctions may be imposed for noncompliance. Under 11 USC 526(a), debt relief agencies shall not
(1) fail to perform any service that such agency informed an assisted person or prospective assisted person it would provide in connection with a case or proceeding under this title;
(2) make any statement, or counsel or advise any assisted person or prospective assisted person to make a statement in a document filed in a case or proceeding under this title, that is untrue and misleading, or that upon the exercise of reasonable care, should have been known by such agency to be untrue or misleading;
(3) misrepresent to any assisted person or prospective assisted person, directly or indirectly, affirmatively or by material omission, with respect to--
(A) the services that such agency will provide to such person; or
(
the benefits and risks that may result if such person becomes a debtor in a case under this title; or
(4) advise an assisted person or prospective assisted person to incur more debt in contemplation of such person filing a case under this title or to pay an attorney or bankruptcy petition preparer fee or charge for services performed as part of preparing for or representing a debtor in a case under this title.
The debt relief agency must, within five days after the agency provides bankruptcy assistance, execute a written contract and provide other specific and detailed information to assisted persons. See 11 USC 528(a), 527. For a fuller discussion, see §10.15.
4. Prohibitions Against Refiling
§10.17 An individual who has previously filed a bankruptcy case that was dismissed for willful failure to comply with a court order may not commence another case within 180 days of that dismissal. 11 USC 109(g)(1). In addition, an individual’s new bankruptcy case may be dismissed if, during the preceding 180 days, he or she requested and obtained a voluntary dismissal of a prior case after a creditor filed a motion for relief from the automatic stay. 11 USC 109(g)(2).
C. Involuntary Bankruptcy Petitions: Chapters 7 and 11
§10.18 What's New in this Section A person may be forced into bankruptcy if the petitioning creditors can prove either (1) that the debtor is generally not paying his or her debts as they mature, unless those debts are the subject of a bona fide dispute, or (2) that a custodian was appointed within the previous 120 days to take possession of all or most of the debtor’s property. 11 USC 303(h). Involuntary petitions may be filed under Chapter 7 and 11; there is no such thing as an involuntary Chapter 12 or 13 petition. Farmers and charitable corporations may not be forced into involuntary bankruptcy. 11 USC 303(a).
If a debtor has 12 or more creditors, 3 or more of them who hold unsecured, noncontingent, and undisputed (as to liability and amount) claims totaling $13,475 or more may file an involuntary petition. 11 USC 303(b)(1). If the debtor has fewer than 12 creditors, one or more unsecured creditors holding a noncontingent and undisputed (as to liability and amount) claim totaling $13,475 or more may file an involuntary petition. 11 USC 303(b)(2). The involuntary petition should be served on the debtor, along with a summons issued by the court clerk, in the manner provided for service of a summons and complaint in Bankruptcy Rule 7004 and Fed R Civ P 4(l) and (m). Bankruptcy Rule 1010. If the debtor fails to controvert the petition’s allegations, the bankruptcy court may enter an order for relief commencing a bankruptcy case against the debtor. 11 USC 303(h); Bankruptcy Rule 1013. A hearing may be held on the involuntary petition and may be conducted without a jury. 28 USC 1411(b).
There are substantial risks to creditors filing an involuntary petition. If the court dismisses the petition, the creditors may be ordered to pay the debtor’s costs or reasonable attorney fees. 11 USC 303(i)(1). Also, if the court determines that the creditors filed the involuntary petition in bad faith, the court may award the debtor either actual damages caused by the filing or punitive damages. 11 USC 303(i)(2).
D. Joint Cases
§10.19 Under Chapter 7, 11, 12, and 13 of the Bankruptcy Code, a husband and wife may file separate bankruptcy cases or a single joint case in which their individual and jointly held property will be administered. 11 USC 302.
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V. Administration of the Bankruptcy Estate: Chapters 7, 11, 12, and 13 Previous |
A. Persons Responsible for Estate Administration
1. In General
§10.20 Once a bankruptcy case has been commenced by entering an order for relief, an estate is created that must be administered for the benefit of the debtor’s creditors. The debtor, his or her trustee, and their attorneys are the persons primarily responsible for administering this estate. In a Chapter 11 case, it is the debtor-in-possession or a trustee working in conjunction with a creditors’ committee who is primarily responsible for estate administration. The special roles of a debtor-in-possession and a creditors’ committee are discussed in §§10.65 and 10.66.
2. The Debtor
a. Duty to File Documents
§10.21 Specific filing requirements with which the debtor must comply are listed in 11 USC 521 and Bankruptcy Rule 1007. The debtor must file with the court clerk, in addition to the petition and cover sheet, the following documents: (1) a list of creditors and their addresses (see Official Bankruptcy Form B6), (2) a schedule of assets and liabilities, (3) a schedule of current income and current expenditures, (4) a statement of financial affairs, (5) a statement of executory contracts, (6) a certificate of an attorney or a bankruptcy petition preparer indicating that the attorney or petition preparer delivered to the debtor the notice required by 11 USC 342(b), (7) copies of all payment advices or other evidence of payment received within 60 days before the filing of the petition, by the debtor from any employer of the debtor, (8) a statement of the amount of monthly net income of the debtor itemized to show how the amount is calculated, and (9) a statement disclosing any reasonably anticipated increase in income or expenditures over the 12-month period following the date of the filing of the petition. In addition, the debtor must file with the petition a certificate of credit counseling from a credit counseling agency. See Official Bankruptcy Form B23, available at
http://www.uscourts.gov/bkforms/. In a Chapter 7 case, the debtor must file a statement declaring the debtor’s intentions with respect to secured property—either to surrender, redeem, or reaffirm the debt. Within 30 days after the first date set for the meeting with the trustee, the debtor must perform his or her intentions with respect to such property. 11 USC 521(a)(2)(
. See Official Bankruptcy Form B8.
The debtor’s documents must satisfy specific requirements detailed in Bankruptcy Rule 1007 and applicable local rules. Before attempting a bankruptcy filing, you should carefully read these rules to ensure that all requirements will be satisfied. Bankruptcy Rule 1007 does not specify the number of copies of the petition, schedules, and statements that the debtor must file; these requirements are fixed by local rules.
11 USC 521(e)(2)(A) requires that each debtor, at least seven days before the meeting described below, provide to the trustee and any creditors who make timely requests, a copy of the debtor’s most recent federal income tax return. Upon request, the debtor must also provide any tax return filed while the case is pending.
b. Duty to Cooperate with the Trustee
§10.22 The debtor must cooperate with the trustee in the execution of the trustee’s statutory duties. 11 USC 521(a)(3) and (4). The debtor must also surrender to the trustee all nonexempt property and any related written information. 11 USC 521(a)(4); see also Bankruptcy Rule 4002.
c. Duty to Attend Hearings and Creditors’ Meetings
§10.23 The debtor must attend and submit to examination under oath at the meeting of creditors held in the bankruptcy case. 11 USC 343. This meeting is required to be held not less than 20 or more than 40 days after a case is commenced for Chapter 7 liquidation or Chapter 11 reorganization cases, not less than 20 days or more than 35 days after a case is commenced for Chapter 12 family farmer or fisherman debt adjustment cases, or not less than 20 days or more than 50 days after a case is commenced for Chapter 13 individual debt adjustment cases. See Bankruptcy Rule 2003(a). The meeting may be held as late as 60 days after the case is commenced if it is held at a place not regularly staffed by the trustee. Id. The meetings may be held in the courtroom, although the judge will not attend the meeting, or at some other location designated by the U.S. trustee. 11 USC 341; Bankruptcy Rule 2003. All the creditors the debtor has listed on his or her schedules and filed with the court must receive written notice that includes the date, time, and place of this meeting. Use varies from district to district. Remember that the debtor’s attendance at this meeting is mandatory and will be excused only under extraordinary circumstances. See, e.g., In re Owens, 221 BR 199 (Bankr WD Tenn 1998).
If the bankruptcy judge to whom your client’s case has been assigned elects to hold a discharge hearing, your client is obliged to attend. 11 USC 521(a)(5), 524(d). Although such hearings are seldom held, you should check with the court clerk to determine if such a hearing will be held in your client’s case. If so, you and your client will receive prior written notice of the date, time, and place of the hearing. If your client fails to attend, the bankruptcy court may deny the general discharge and dismiss the case.
3. The Trustee
a. Appointment
§10.24 In Chapter 7, 12, and 13 cases, the U.S. trustee appoints a trustee to administer the assets of the debtor for the benefit of creditors. 11 USC 323. Promptly after the order of relief is entered in a Chapter 7 case, the U.S. trustee selects an interim trustee, who will continue to serve as trustee unless a different one is elected at the meeting of creditors. 11 USC 701, 702. The appointed trustee must file a bond with the court to ensure the faithful performance of his or her statutory duties. 11 USC 322(a); Bankruptcy Rule 2010.
The court does not automatically appoint a trustee in Chapter 11 cases. Instead, the debtor-in-possession is charged with the responsibility of administering the estate. See the discussion in §10.65. However, if sufficient cause exists, the court may displace the debtor-in-possession by appointing a trustee. In this context, cause includes fraud, dishonesty, incompetence, or gross mismanagement. 11 USC 1104(a)(1). Bankruptcy Rule 2007.1 was amended to implement 11 USC 1104(b) and allows creditors (within 30 days after the court orders the appointment of a trustee) to request a meeting to elect a disinterested person as the trustee in a Chapter 11 case. Bankruptcy Rule 2007.1(b). Notice of this meeting must be given in accordance with Bankruptcy Rule 2002.
In Chapter 12 and 13 cases, the U.S. trustee will normally appoint a standing trustee to administer cases that are venued in certain counties in the judicial district.
b. Duties
§10.25 The trustee in Chapter 7 cases may operate the debtor’s business, but only if the court permits. 11 USC 721. The Chapter 7 trustee’s primary duty, however, is to reduce all nonexempt property to cash as quickly as possible and distribute the money to creditors. 11 USC 704(a)(1). The trustee must also see that the debtor performs his or her stated intentions regarding the collateral securing individual consumer debts. 11 USC 704(a)(3). The remainder of a Chapter 7 trustee’s duties are specified in 11 USC 704 and Bankruptcy Rule 2015(a).
Chapter 12 and 13 trustees are primarily responsible for analyzing proposed payment plans and ensuring that debtors comply with the terms of their confirmed plans, especially the payment provisions. Unlike trustees in Chapter 7 cases, Chapter 12 and 13 trustees will normally not liquidate the debtors’ assets. Rather, these trustees will distribute to creditors monies that the debtors are required to pay in accordance with their confirmed plans. In Chapter 12 cases, however, if a debtor-in-possession is removed for cause under 11 USC 1204(a), the standing trustee will step in and operate the debtor’s farming or fishing business. See §10.87.
The trustees in Chapter 7, 11, 12, and 13 also have certain monitoring and reporting requirements with respect to domestic support obligations. 11 USC 101(14A), 11 USC 704(a)(10) and (c)(10), 11 USC 1106(a)(8) and (c), 11 USC 1202(b)(6) and (c), and 11 USC 1302(b)(6) and (d).
c. Avoidance Powers
§10.26 The trustee or debtor-in-possession may augment the estate through the exercise of the Bankruptcy Code’s avoidance powers; any property recovered in this way will become property of the estate or, under certain circumstances, property in which the debtor may claim an exemption. 11 USC 541(a)(3). The most important of these avoidance powers are (1) the power to avoid unperfected liens, 11 USC 544; (2) the power to recover preferences, 11 USC 547; (3) the power to recover fraudulent conveyances, 11 USC 544(b), 548; and (4) the power to recover improper setoffs, 11 USC 553.
A trustee or debtor-in-possession must commence an action or proceeding to avoid an unperfected lien or recover a preference, a fraudulent transfer, or an improper setoff by the earlier of
the later of (a) two years after the entry of the order for relief or (b) one year after the appointment or election of the first trustee under various sections of the Bankruptcy Code if the appointment or election occurs before the expiration of the period specified in (a) or
the time the case is closed or dismissed.
11 USC 546(a).
d. Compensation
§10.27 Trustees appointed in Chapter 7 and 11 cases are entitled to reasonable compensation for their services, based on a statutory formula contained in 11 USC 326. They are also entitled to be reimbursed for their actual and necessary expenses. 11 USC 330(a)(1)(
; Bankruptcy Rule 2016. Trustees appointed in Chapter 12 and 13 cases receive annual compensation that has a maximum limit fixed by statute, plus a percentage fee. 28 USC 586(e).
B. Attorneys for Trustee and Debtor
1. Appointment and Duties
§10.28 A trustee in a Chapter 7, 11, 12, or 13 case may employ one or more attorneys to help perform his or her statutory duties, subject to approval of the court. 11 USC 327(a); Bankruptcy Rule 2014. Care should be taken to obtain bankruptcy court approval of an attorney’s appointment as soon as possible; if too much time elapses, the attorney may forfeit his or her right to compensation. See In re Diamond Mortgage Corp, 77 BR 597 (Bankr ED Mich 1987). The attorneys must be disinterested persons who have no interest adverse to the estate. 11 USC 327(a); see, e.g., In re Federated Dep’t Stores, Inc, 44 F3d 1310 (6th Cir 1995); Childress v Middleton Arms, LP, 934 F2d 723 (6th Cir 1991); Halbert v Yousif, 225 BR 336 (ED Mich 1998); In re Pica Sys, Inc, 124 BR 30 (Bankr ED Mich 1991).
An attorney for a Chapter 7, 11, or 12 trustee may be hired even if he or she previously represented a creditor of the estate, unless another creditor or the U.S. trustee objects to the appointment. If such an objection is made and if the court determines that there is an actual conflict of interest, the appointment will not be permitted. 11 USC 327(c). A court may authorize the trustee to act as the attorney or accountant for the estate if such authorization is in the best interest of the estate. 11 USC 327(d).
A debtor in a Chapter 7, 11, 12, or 13 case may also employ a bankruptcy attorney. The debtor’s attorney must disclose to the court, in writing, all compensation that the debtor has paid or agreed to pay the attorney for this bankruptcy representation. 11 USC 329(a); Bankruptcy Rule 2016(b); see also Mapother & Mapother, PSC v Cooper (In re Downs), 103 F3d 472 (6th Cir 1996). The court may order the return of this payment to the debtor or to the estate if it finds the amount to be excessive. 11 USC 329(b), 330(a)(2); see also In re Riverview Fin Servs, Inc, 67 BR 714 (Bankr ED Mich 1986). See Official Bankruptcy Form B203, available at
http://www.uscourts.gov/bkforms/.
BAPCPA added new duties for attorneys representing debtors. Specifically, attorneys for debtors may fall within the rubric of debt relief agency, which means any person who provides any bankruptcy assistance to an assisted person in return for the payment of money or other valuable consideration. See §10.15. A debtor’s attorney therefore may not
make any untrue and misleading statement or counsel or advise a debtor to make an untrue and misleading statement in a bankruptcy document; or
advise a debtor to incur more debt in contemplation of filing a bankruptcy petition.
Attorneys representing debtors must disclose in advertising that “we are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.” 11 USC 528.
Attorneys for debtors filing for Chapter 7 relief must also certify that the debtor meets the means test for Chapter 7. The act requires that attorneys certify that that the petition is well grounded in fact and that the attorney has no knowledge, after reasonably inquiry, that the information in the schedules is incorrect. Further, the attorney for a Chapter 13 debtor must aver that the debtor will be able to meet the requirements of the repayment plan. Finally, attorneys for debtors have new requirements for reaffirmation agreements entered into by their clients.
Bankruptcy Rule 2016 provides that a bankruptcy petition preparer must disclose the amount and source of any fee received from or on behalf of the debtor and all unpaid fees charged to the debtor. Bankruptcy Rule 2016(c).
2. Compensation
§10.29 Attorneys representing trustees and debtors are entitled to be reimbursed for their expenses and receive reasonable compensation for their services. 11 USC 330(a); see also In re Boddy, 950 F2d 334 (6th Cir 1991); In re Mayes, 101 BR 494 (Bankr WD Mich 1988); In re Vogue, 92 BR 717 (Bankr ED Mich 1988). The level of compensation is determined by the nature, extent, and value of the services as well as by the cost of comparable services in the private sector. 11 USC 330(a)(3); see also In re Watervliet Paper Co, 109 BR 733 (Bankr WD Mich 1989). To be paid from estate funds, however, you must strictly account to the court for your time spent, services rendered, and disbursements made in the case. You must submit either your original time records or accurate and detailed summaries in support of your payment requests. See, e.g., In re Bush, 131 BR 364 (Bankr WD Mich 1991); In re By-Rite Oil Co, 87 BR 905 (Bankr ED Mich 1988). If these records are not produced, the requested fees will not be paid. In a Chapter 7 case, the attorney for the debtor may not be compensated by the bankruptcy estate. Lamie v United States Trustee, 540 US 526 (2004). The Bankruptcy Courts for the Eastern and Western Districts of Michigan have detailed local rules regarding fee applications. See LBR 2016 (WD Mich); LBR 2016-1 (ED Mich). Form 10.1 is a simple example of a fee application; however, no application for fees should be filed without careful review of the local rules.
C. Property of the Estate
§10.30 Once a bankruptcy petition is filed and the case is commenced, a new entity called the estate is created as described in 11 USC 541. The estate consists of all of the debtor’s interests in real and personal property as of the date the petition is filed. 11 USC 541(a)(1); see also Borock v Mathis (In re Clipper Int’l Corp), 154 F3d 565 (6th Cir 1998); Honigman v Comerica Bank (In re Van Dresser Corp), 128 F3d 945 (6th Cir 1997). A cause of action generally constitutes property of the estate. Spartan Tube & Steel v Himmelspach (In re RCS Engineered Prods Co), 102 F3d 223 (6th Cir 1996). If the debtor’s interest in property terminates under state law before the date of filing, that property does not come into the estate. See, e.g., In re Young, 48 BR 678 (Bankr ED Mich 1985). Subsections (b), (c), and (d) list various i
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