Chapter 11 bankruptcy cases are most frequently filed by businesses. However, certain high-earning individuals whose debts are above the statutory debt limits to qualify for Chapter 13 can also file for Chapter 11 relief. In Chapter 11 cases, the debtor retains control of its operations as a debtor in possession (DIP) and has the benefits and duties that are held by a Chapter 7 trustee. However, if the debtor acts in bad faith or mismanages the bankruptcy estate during the course of the case, a Chapter 11 trustee may be appointed to operate the business going forward.
Chapter 7 bankruptcy cases are straight liquidations sought by debtors who wish to have most or all of their debts discharged. In Chapter 7 cases, the Chapter 7 trustee obtains control over the debtor’s assets and evaluates whether any equity exists that would offset the costs of selling those assets. If the bankruptcy estate will likely profit from selling the debtor’s assets, the Chapter 7 trustee will liquidate the assets and distribute the proceeds to creditors. This is called an “asset case.”
Bankruptcy cases differ from typical lawsuits in a variety of ways, including the parties involved. Whereas standard lawsuits generally involve a plaintiff and a defendant, bankruptcy cases have a different cast of “players,” including the debtor or debtor in possession, creditors, the bankruptcy trustee (i.e., Chapter 7 trustee, Chapter 13 trustee, etc.), committees, and the United States Trustee. Often, these players will retain attorneys to represent their interests in bankruptcy cases. Understanding the roles of each of these players will help you navigate the bankruptcy system.
On January 19, 2021, the United States District Court for the Western District of Wisconsin granted a motion to dismiss filed by a consumer reporting agency in Ewert v. FD Holdings, LLC d/b/a Factual Data, 2021 WL 168967 (W.D. Wis. Jan. 19, 2021). The plaintiff, Lance M. Ewert, filed a bankruptcy petition in 2017, identifying a Chase credit card account as a disputed debt. The credit card debt was ultimately discharged in the bankruptcy case.
For the past few years, the federal circuit courts have struggled with the issue of whether a creditor retaining possession of bankruptcy estate property violates the automatic stay. For example, is a creditor required to automatically turn over a vehicle as soon as the bankruptcy petition is filed, or can the creditor retain possession of the vehicle while awaiting an order of the bankruptcy court adjudicating turnover in an adversary proceeding?
Today, the Supreme Court resolved a circuit split regarding whether a creditor’s post-petition refusal to turnover bankruptcy estate property that it repossessed or impounded prepetition violates the automatic stay. The Supreme Court ruled in favor of the creditor and decided that it did not violate the automatic stay.
Frequently, borrowers file for bankruptcy at the 11th hour to halt foreclosure sales. Once a petition for bankruptcy relief has been filed, secured creditors must cease their collection efforts to avoid violating the automatic stay. However, the automatic stay terminates upon a debtor’s dismissal and closure of the bankruptcy case. A Pennsylvania bankruptcy court recently ruled that if a foreclosure sale occurs between the time when a bankruptcy case is dismissed and when it is reinstated, the foreclosure sale is not void and does not violate the automatic stay.
On December 21, 2020, Congress passed the Consolidated Appropriations Act, 2021 (CAA 2021). Similar to the March 2020 CARES Act, several temporary changes to the Bankruptcy Code are included in Title X of the CAA 2021. Below, we examine four of the CAA 2021’s most significant changes to consumer bankruptcy laws.
On December 9, 2020, Congressional Democrats, including Elizabeth Warren (D-Mass.) and Jerrold Nadler (D-N.Y.), proposed sweeping legislation that would overhaul consumer bankruptcy law. The proposed changes generally make it easier for consumers to access the bankruptcy system and discharge their debts. Below is a discussion of 10 critical changes proposed in the Consumer Bankruptcy Reform Act of 2020 (CBRA).
1. Chapters 7 and 13 Are Replaced with New Chapter 10
In a notable decision interpreting the March 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act, the Bankruptcy Court for the Middle District of Alabama held that Chapter 13 debtors behind on their payments before March 2020 may seek modification of their plan if they suffered from COVID-19 related financial distress.