NORTH TEXAS BANKRUPTCY: TEMPORARY WAIVER OF CREDIT COUNSELING REQUIREMENT

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Before a debtor can file bankruptcy they must complete a prebankruptcy credit counseling course.  This course must have been completed within the 180-day period prior to the filing of the bankruptcy petition.  Failure to comply with the credit counseling requirement can result in an order striking the petition, which results in no bankruptcy case being filed, or the court may even dismiss the bankruptcy case adversely affecting the debtor’s credit rating.

 

Sometimes a debtor is unable to complete credit counseling but is forced to file a bankruptcy petition to stop imminent collection activity.  The Bankruptcy Code has set forth a rule allowing debtors with exigent circumstances to receive temporary waiver of the credit counseling requirement.  Section 109(h)(3) of the Code states:  “… (1) [counseling requirements] shall not apply with respect to a debtor who submits to the court a certification that – (i) describes exigent circumstances that merit a waiver of the requirements of paragraph (1); (ii) states that the debtor requested credit counseling services from an approved nonprofit budget and credit counseling agency, but was unable to obtain the services referred to in paragraph (1) during the 5-day period beginning on the date on which the debtor made the request; and (iii) is satisfactory to the court.”

 

What constitutes exigent circumstances that merit a waiver depends on where you have filed bankruptcy.  Most courts have acknowledged that a pending foreclosure, wage garnishment, and repossession qualify as exigent circumstances that merit a waiver.  However, some courts have taken into account how much notice of the collection activity the debtor had before filing bankruptcy, and punished procrastinators who had ample advance notice of a foreclosure, but waited until the 11th hour, by denying their request for waiver and dismissing the bankruptcy case.

 

In north Texas credit counseling agencies are available on the telephone and internet, and some agencies are available 24 hours a day.  Because of the availability of credit counseling in this district it is very difficult to make a successful argument to a bankruptcy judge that a debtor made a good faith effort to obtain credit counseling prior to filing a petition but none was available.  There is risk in involved in seeking temporary waiver of credit counseling.  It is best to avoid having to file certification of exigent circumstances if at all possible by ensuring that the credit counseling requirement is satisfied prior to filing bankruptcy.

“I’M IN CHAPTER 13 BANKRUPTCY. WHAT HAPPENS TO MY TAX REFUND?”

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“I’M IN CHAPTER 13 BANKRUPTCY.  WHAT HAPPENS TO MY TAX REFUND?”

 

The rules affecting what happens to Chapter 13 debtor’s tax refunds while they are in bankruptcy differ depending on where the case is filed.  These rules are generally set out in the local rules of the court or a general order.

 

In the Eastern District of Texas, the Chapter 13 Trustee will allow a debtor to keep a tax refund if it is for $2,000 or less.  If the refund is more than $2,000 then the Trustee will take the entire refund and pay it to the general unsecured creditors in the bankruptcy case.  In the Northern District of Texas, the Chapter 13 Trustee will allow the debtor to keep the first $2,000 they receive from their tax refund.  Any additional amounts received will be paid to the general unsecured creditors.  However, in both districts, if the debtor owes back taxes the IRS may elect to offset a pre-petition refund, meaning they may keep it and apply it to any back taxes the debtor owes to the Internal Revenue Service.

 

The rules affecting tax refunds are just one example of how bankruptcy cases affect debtors differently depending on where they live.  Before you file bankruptcy, it is important that you speak with a local bankruptcy attorney with experience filing cases in the same district in which you will file.

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

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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

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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?

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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.