Tag Archives: Bankruptcy

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.

AUTOMATIC STAY APPLIES TO DALLAS BANKRUPTCY ATTORNEYS TOO

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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.

TEXAS BANKRUPTCY ATTORNEY: BANKRUPTCY MYTHS

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TEXAS BANKRUPTCY ATTORNEY: BANKRUPTCY MYTHS: 

There is a lot of content on the internet about bankruptcy.  From my regular internet searches on the subject, I estimate that ten percent of bankruptcy content is posted by bankruptcy attorneys who usually know what they are talking about.  The rest of the information on the internet is confusing, misleading, and incorrect.  I imagine most people that need financial help become very confused at the amount of misinformation they find online.  Here I’ll try to address some of the common myths about bankruptcy.

 

Myth no. 1:  You will lose everything!  Most of my clients lose nothing, except maybe a sense of hopelessness and an inability to sleep at night.  Your assets are protected from creditors in bankruptcy by laws called exemptions.  Exemptions allow bankruptcy filers to get relief from their debt without giving up their things.  In Texas, we have great exemptions.  Most of my clients lose nothing when they file bankruptcy.

 

Myth no. 2:  It’s difficult to file bankruptcy.  Yes, this is true.  Hopefully you will have an experienced bankruptcy attorney to guide you through the process.  If you do you will probably find that your part of the process is fairly easy, and your bankruptcy attorney takes care of the difficult parts for you.

 

Myth no. 3:  Filing bankruptcy means you are a bad person.  Nonsense.  I have represented thousands of clients in bankruptcy cases and I have yet to represent a bad person.  Most of my clients have been unlucky (job loss, sickness, income affected by poor economy) or taken advantage of by predatory lending (adjustable rate mortgage, credit cards with small print and high fees).  If those things make you a bad person, then there are no good people, because at some point in each of our lives we all face these types of challenges.

 

Myth no. 4:  You will never be able to borrow money again.  Lenders make the decision to loan money largely based upon the applicant’s credit score and report.  Luckily for those of us with poor credit ratings, credit reports have a way of improving over time, if you don’t make bad financial decisions in the future.  Filing bankruptcy helps to remove a lot of the negative marks on a credit report.  After discharge, if you pay your bills on time and keep your balances low, your credit rating will improve.  Even bankruptcies come off of a credit report eventually.  After discharge you should be better off financially than you were before filing, and soon after your ability to obtain credit should improve as well.

 

Myth no. 5:  Everyone will know you filed for bankruptcy.  It is true that a bankruptcy filing is a matter of public record.  However, the number of filings each year is in the millions, and most people do not have access to the type of databases needed to determine if you filed bankruptcy.  In most cases the only people that will know you filed bankruptcy are the people you choose to tell.

 

I’ll leave you with one last piece of advice.  If you are interested in filing bankruptcy, speak with an experienced bankruptcy attorney.  Most bankruptcy attorneys do not charge their clients for the initial consultation, so getting advice about your situation from an attorney is usually free.