Category Archives: Bankruptcy

BANKRUPTCY: VICARIOUS LIABILITY DOES NOT APPLY TO § 523(a)(9

by

Leave a comment

As a bankruptcy attorney I have focused my practice on a specific type of legal practice.  I don’t know much about drafting a will, litigating a lawsuit, or defending a criminal action, but I know a lot about consumer bankruptcy.  Similarly, in my experience I have found that attorneys practicing other types of law know very little about bankruptcy.  Invariably, when I meet another type of attorney and they find out that I practice bankruptcy law they have questions for me.

 

Recently I ran into an attorney in my building who asked me an interesting question involving two legal concepts: vicarious liability and exceptions to bankruptcy discharge.  Vicarious liability is a form of strict liability that arises under the common law doctrine of agency.  Basically, the idea is that a superior may be responsible for the acts of a subordinate that result in liability to a third party.  For example, an employer may be liable for the torts of an employee.

 

The question asked me was, “can an employer discharge liability in bankruptcy that resulted from a lawsuit in which an employee was driving drunk and was involved in an accident causing personal injury to a third party?”  The Bankruptcy Code specifically states that “A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt for death or personal injury caused by the debtor’s operation of a motor vehicle, vessel, or aircraft if such operation was unlawful because the debtor was intoxicated from using alcohol, a drug, or another substance.  11 U.S.C. § 523(a)(9).

 

At first glance it appears that by combining the concept of vicarious liability with the exception to discharge, an employer should not be able to discharge this type of liability in bankruptcy.  However, most courts that have considered this issue have held that the employer is not denied discharge from liability resulting from the employee’s bad behavior.  Employers can discharge their liability even though the debt would be nondischargable if the employee were to file bankruptcy.

BANKRUPTCY: EXEMPTION FROM THE CREDIT COUNSELING REQUIREMENT

by

Leave a comment

Debtors wishing to file bankruptcy are required to successfully complete a credit counseling course during the 180 days prior to filing bankruptcy.  However, debtors that can show that they are incapacitated due to mental or physical disability may be exempt from this requirement.  Under Sec. 109(h)(4) of the Bankruptcy Code, a debtor may be excused from the credit counseling requirement if he has an incapacity or a disability. Incapacity means that the debtor “is impaired by reason of mental illness or mental deficiency so that he is incapable of realizing and making rational decisions with respect to his financial responsibilities.” Disability means that “the debtor is so physically impaired as to be unable, after reasonable effort, to participate in an in person, telephone, or Internet briefing.”  Debtors wishing to claim exemption from the credit counseling must get an order signed by a bankruptcy judge excusing them from this requirement.  But before a debtor asks the court for an exemption from credit counseling, they need to be sure they can prove incapacity or a disability.  Debtors are required to have completed credit counseling before their bankruptcy case is filed but the motion seeking exemption from this requirement cannot be filed until after the bankruptcy case commences.  If the motion requesting exemption from credit counseling is denied then the debtor may find his case dismissed for failure to comply with the credit counseling requirement prior to filing bankruptcy.

Texas Bankruptcy Attorney: WHAT IS TRCC?

by

Leave a comment

Texas Bankruptcy Attorney: TRCC is an acronym for Trustee’s Recommendation Concerning Claims.  TRCC is the point in a Chapter 13 case when the trustee reviews the claims filed by creditors, decides if objections to claims should be filed, and determines if the confirmed plan is sufficient to pay all allowed claims.  To understand TRCC it is helpful to understand the events leading up to it.

 

When a Chapter 13 case is filed the debtor files schedules that list his creditors, as well as a plan to repay these creditors.  In the plan the debtor estimates what he believes he owes to his creditors.  The trustee and the creditors review the plan and based upon what they find they may or may not file an objection to confirmation of the plan.  Confirmation is when a judge signs an order stating that all creditors in the plan are bound by its terms.  Since this affects their ability to get paid, creditors and the trustee sometimes object to the plan in a document called an Objection to Confirmation.  Once all of the objections are resolved, either by agreement or by a hearing in front of the judge, assuming all other requirements for confirmation have been met, the plan is confirmed.

 

Creditors don’t get paid simply because they are listed in the plan.  They are required to file a proof of claim.  A proof of claim is a document establishing what they are owed and why.  The deadline to file a proof of claim is 90 days after the first setting of the 341 meeting of creditors for secured and unsecured creditors and 180 days after the bankruptcy filing date for governmental units.  The deadline to file a proof of claim is called the claim bar date.  A Chapter 13 plan is usually confirmed before the claim bar date has passed.  This can create a problem because the debtor estimates how much he owes his creditors in the original plan and sometimes he estimates too low.

 

During TRCC the trustee reconciles the actual claims filed by the creditors and the amount provided in the Chapter 13 Plan.  If the amount provided in the plan is not enough to pay the allowed claims, then the debtor may be required to modify his plan to increase the amount paid during the remaining months.  If the claims come in lower the debtor may be able to modify his plan to lower the plan payment or reduce the number of months he is in bankruptcy.

DALLAS CHAPTER 7 BANKRUPTCY: WHEN IS A DEBT REAFFIRMED?

by

Leave a comment

A reaffirmation agreement is an agreement between a debtor and a creditor in a Chapter 7 bankruptcy case which allows a specific secured debt to survive the bankruptcy discharge.  The reason a debtor may want to enter into this type of agreement is because they wish to keep collateral that is securing the debt.  In Chapter 7 bankruptcy, debtors can discharge debt, but this may not remove the lien from their property.  In cases in which a debt is secured by an asset that the debtor wishes to keep, they may reaffirm the debt, which will allow the contractual obligation to survive discharge, and as long as they continue to make payments to the creditor, they will get to retain the property.

 

Just because a debtor states in their bankruptcy petition that they wish to reaffirm a debt, doesn’t mean that it is reaffirmed.  Reaffirmation isn’t a process that a debtor can implement unilaterally.  The bankruptcy petition will state what the debtor’s intent is as to the property, but it is up to the debtor to request a reaffirmation agreement from the creditor, sign the completed document, and make sure that it gets filed with the Court.  A debt is not reaffirmed until the Court has reviewed the agreement and has chosen not to oppose reaffirmation.  Courts sometimes object to reaffirmation of a debt when the debtor clearly cannot afford to continue making payments based upon the schedules filed in the case that show the debtor’s income and budget.  If the Court denies reaffirmation, the debt will be discharged and will not survive the bankruptcy.  If this happens, the debtor can try to retain the property by continuing to make payments or they may simply surrender the property to the creditor.

 

Failing to file a reaffirmation agreement may be a good idea when the debt is a mortgage.  Even though a reaffirmation agreement has not been signed, a mortgage lender will not be able to foreclose on a home if the homeowner continues to make payments.  Not filing a reaffirmation for a mortgage gives the debtor the benefit of being able to walk away from the debt without paying a mortgage deficiency if they later find they cannot afford to pay their mortgage payments.  In the case of auto loans and lenders, failing to file a reaffirmation agreement may result in the car being repossessed even though the debtor continues to make payments.

AUTOMATIC STAY APPLIES TO DALLAS BANKRUPTCY ATTORNEYS TOO

by

Leave a comment

When I meet with a client, usually one of the first topics they want to discuss is how much is bankruptcy going to cost them and how are they going to pay their attorney’s fees.  Understandably this is a concern, because if money wasn’t tight they wouldn’t be seeking the help of a bankruptcy attorney.  Unfortunately, bankruptcy attorneys have to collect all of their attorney’s fees and the costs of the case before a Chapter 7 case is filed.  There is a simple reason for requiring these costs to be paid up front.  The same laws that protect someone in bankruptcy from collection by their creditors also prevent bankruptcy attorneys from collecting their attorney’s fees after the case is filed.  When an attorney agrees to accept payment of their attorney’s fees for the filing of a Chapter 7 case after the case is filed, they put themselves and their clients in a difficult situation.  Not only is the attorney violating the law by attempting to collect a pre-petition debt in violation of the automatic stay but they are also creating a conflict of interest between themselves and their clients.  Smart attorneys avoid this problem and get paid up front so that once the case is filed they can focus on the needs of their clients instead of collecting their attorney’s fees.