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Dabbling in Bankruptcy:
What Every General Practitioner Should Know
By: Kimberly B. Glass
Kimberly Glass practices with Najjar
Denaburg, P.C., where she concentrates on bankruptcy and commercial
litigation. She is immediate past president of the Bankruptcy and
Commercial Law Section of the Birmingham Bar Association. Ms. Glass
obtained her J.D. from the University of Alabama and was law clerk to
United States Bankruptcy Judge Tamara O. Mitchell.
The best advice I could give about
bankruptcy practice would be to refrain from "dabbling in
bankruptcy." Bankruptcy law is
particularly difficult to navigate on the fly because, like tax law, it
is code-driven. The governing statutes and rules of procedure are
amended from time to time to include substantial changes. An additional
complicating factor is that n
unlike in state court n the
trial level courts, i.e., your local bankruptcy court, routinely publish
their opinions. Given the number of bankruptcy judges in the country,
the body of case law generated on a weekly basis is staggering. All this
being said, there are some instances where one who would otherwise avoid
bankruptcy court may be drawn there by circumstances beyond his or her
control.
Automatic Stay
The most common place where bankruptcy
law and a general practitioner cross paths is likely on the
applicability of the automatic stay. Upon the filing of a voluntary1
petition for relief under any chapter of the Bankruptcy Code, a stay is
automatically imposed pursuant to 11 U.S.C.
' 362(a). A vastly simplified
version of ' 362(a) would be
that anyone attempting to take an action in furtherance of the
collection of a debt that existed before the bankruptcy case was filed
must immediately stop. If someone acts in violation of this stay, that
person may be liable to the debtor for damages including punitive
damages. Further, this stay comes into being at the moment the petition
is filed. Its effectiveness does not depend on the creditor having
actual or even constructive notice of the filing. The stay merely is
but like most of the law, the automatic stay rule is riddled with
exceptions.
One exception is for any type of
criminal action. 11 U.S.C. '
362(b)(1). This includes prosecution for bad checks and criminal
contempt proceedings. Accordingly, if you represent a defendant in a
criminal prosecution for writing bad checks, the filing of a bankruptcy
petition might not be the answer to your client's problems. That being
said, many attorneys have had some success with the Birmingham DA's in
getting them either to drop or suspend charges if the debtor files for
relief under Chapter 13 and proposes to repay the bad checks in full.
The filing of a petition also should not stop a criminal contempt
proceeding such as may arise in a domestic case. However, many judges
are hesitant to proceed with any type of contempt hearing once a
bankruptcy case has been filed. If the judge is willing to proceed, the
attorney should be very cautious about allowing them to do so on that
attorney= s motion. One can be
sure that if an action is brought in bankruptcy court for a violation of
the stay it will not be the state court judge who is named as the
defendant. If the client is found liable for a violation of the stay
because of an action that was taken upon his or her attorney=s
advice, the attorney would likely be guilty of malpractice. The debtor
may also choose to sue the creditor's attorney directly for stay
violations in certain circumstances.
Another exception to the provisions of
the automatic stay is for the "establishment or modification of an order
for alimony, maintenance, or support." 11 U.S.C.
' 362(b)(2)(A)(ii). One final
exception worth noting is for the "collection of alimony, maintenance,
or support from property that is not property of the estate." 11 U.S.C.
' 362(b)(2)(B). This is not,
however, a free pass for the collection of domestic debts. First, one
must be sure that the debt may properly be classified as "alimony,
maintenance or support" under the bankruptcy laws. This finding will be
heavily influenced by how the debt was characterized by the domestic
court but will not be fully controlled thereby. Second, one must be sure
what assets are "assets of the estate" This phrase may encompass more or
less property than one might guess and is controlled in part by the vast
case law interpreting 11 U.S.C. '
541. This determination will also be affected by whether the case is a
Chapter 13, Chapter 7 or Chapter 11; whether the Chapter 13 case has
been confirmed or not; and, if so, the exact terms of the confirmation
order.
In summary, tread carefully when taking
any action against a debtor after the filing of a bankruptcy case. This
is one situation where it is certainly better to ask for permission than
for forgiveness. The grounds for seeking relief from the stay are
contained in 11 U.S.C. '
362(d). Relief from the stay may be granted for "cause." The exercise of
a little caution, the filing of a motion, and a fee of $150.00 can save
one from facing the imposition of damages under 11 U.S.C.
' 362(h) which could include
costs, attorney's fees and punitive damages.
CM/ECF
On July 1, 2004, the Bankruptcy Courts
for the Northern District of Alabama converted to electronic filing,
otherwise known as "CM/ECF." Bankruptcy Courts in other districts have been electronic for much
longer. One cannot merely mail a pleading or a proof of claim for filing
anymore. To file something on-line, the attorney must have an
identification number and password. These are only issued after
completion of a two-hour training class. In the alternative, one may
present a document on a floppy disk in .pdf format for filing. If a
pleading or proof of claim is mailed in paper format to the bankruptcy
court, it cannot be guaranteed that it will be "filed." There is some
leniency but there is also the very real possibility that mailing a
paper pleading or proof of claim could result in a deadline being
missed.
____________________
1. The filing of an involuntary petition against the debtor does
not result in the automatic imposition of a stay. A separate order will
be entered in an involuntary case if a stay is imposed. An involuntary
petition is one that is filed–not by the debtor–but by the creditors
forcing the debtor into bankruptcy. In those cases, which are fairly
rare, the debtor has an opportunity to contest the filing or to consent
to it. If the debtor contests the filing, a stay order might not be
entered for months, years or ever. How new debts created in the “gap
period” between the filing of an involuntary petition and the entry of a
stay order are treated in the bankruptcy case is far beyond the scope of
this paper.
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