Monday, September 28, 2015

Transferring Assets Prior to Filing Bankruptcy: Buyer and Seller Beware



              The majority of people who consider filing for bankruptcy protection immediately start thinking about their assets and the possibility of losing them. The desire to protect your assets from creditors is a natural one and is usually the primary reason someone considers filing bankruptcy.  Often times, this desire to protect assets leads people to transfer or sell an asset before filing their bankruptcy case.  But potential debtors should know that certain asset transfers are outright illegal under the Bankruptcy Code.  The Trustee can void (i.e. undo) these types of asset transfers and take back the transferred property for the benefit of the unsecured creditors.  In plain terms, this means that the Trustee will file a lawsuit against whoever received the payment or purchased the asset to recover the property or the cash value of the property.  This right to “clawback” property of the estate often puts debtors in very awkward situations, especially when they transferred the asset to a family member or friend who is now being sued by a United States Trustee.  The two types of illegal asset transfers are “Preferential Transfers” and “Fraudulent Transfers”.  Let’s take a look at the elements of both.
            Preferential Transfers are governed by 11 U.S.C. § 547 and there are two basic types.  The first type of preferential transfer can be referred to as 90 day transfers.  These asset transfers include any payments or transfers of property to a creditor that: (1) occurred within 90 days of filing the bankruptcy case, (2) involved money or property worth more than $600 in aggregate to any one creditor, and (3) were made while the debtor was insolvent (i.e. at a time when the amount of the debts is greater than the value of all the assets).  It is important to note that the Trustee usually does not have to prove the debtor’s insolvency with these types of transfers because bankruptcy law automatically presumes that a debtor is insolvent during the 90 days prior to the filing of their case. 
            The second type of preferential transfer can be referred to as Insider Transfers.  Insider transfers include any payments or transfers of assets to people such as family members, friends, or business partners that involved money or property worth more than $600 in aggregate to any one creditor and occurred while the debtor was insolvent.  However, instead of only looking back 90 days from the filing date, the Trustee can undo these types of transfers if they were made anytime within 1 year of filing the bankruptcy case.
            Fraudulent Transfers are governed by 11 U.S.C. § 548 and include any transfer  made within 2 years of the filing date if the Debtor: (1) made the transfer with the actual intent to hinder, delay, or defraud the creditors or (2) received less than the fair market value of the property and was insolvent at the time of the transfer.
            Any potential debtor should be aware of these types of illegal transfers and consult a bankruptcy attorney about the potential impacts on their case.  Debtors who have made a transfer that might be considered preferential or fraudulent may be able to avoid a clawback situation by simply delaying the filing of their bankruptcy case.  However, all debtors should know that hiding assets or intentionally committing bankruptcy fraud can result in dire consequences such as loss of property, inability to receive a discharge, and even criminal prosecution.  The bottom line is that if you want to transfer or sell an asset before filing bankruptcy you should talk to your bankruptcy attorney to determine if you can do so without negative consequences.

By:  Joshua B. Dawes, Attorney at The Law Offices of Jason A. Burgess, LLC
If you have questions about this or anything else please give us a call at 904-354-5065 or email us at jason@jasonAburgess.com  

Wednesday, September 16, 2015

Fair Debt Collection and Practices Act: Protecting Consumers from Predatory Creditor Practices


It is no secret that creditors and debt collectors will go to great lengths in an attempt to collect a debt they are owed. From numerous phone calls a day, to leaving messages threatening criminal prosecution, it seems debt collectors will stop at nothing for what is often a meager pay out in the end. Recognizing this epidemic, Congress adopted the Fair Debt Collection and Practices Act (FDCPA) in an attempt to stop this predatory collecting. It is the purpose of this act "to eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses." 15 U.S.C. §1692.


While the FDCP prohibits many specific actions in order to protect the consumer, There are three general categories of actions that are prohibited: 1) A debt collector cannot engage in conduct that is likely to "harass, oppress, or abuse a person in connection with the collection of the debt," 15 U.S.C. §1692(d); 2) a debt collector cannot use any "false, deceptive, or misleading representations or means in connection with the collection of any debt," 15 U.S.C § 1692(e); and 3) a debt collector cannot use "any unfair or unconscionable means to collect or attempt to collect any debt." 15 U.S.C. §1692(f). So what do all these prohibitions actually mean when it comes down to it? Luckily, the 11th circuit has provided us some guidance.

Harass, Oppress, or Abuse

The FDCPA cites specific behavior, although not exclusive, as examples of behavior that would be considered harassing, oppressive, or abusive: 

                1) The use of threat of use of violence or other criminal means to harm the physical person, reputation or property of any person;
                2) The use of obscene or profane language or language the natural consequence of which is to abuse the hearer or reader;
                3) The publication of a list of consumers who allegedly refuse to pay debts, except to a consumer reporting agency or to persons meeting the requirements of section 1681a(f) or   1681b(3) of this title;
                4) The advertisement for sale of any debt to coerce payment of the debt;
                5) Causing a telephone to ring or engaging any person in telephone conversation repeatedly or continuously with intent to annoy, abuse, or harass any person at the called number;
                6) Except as provided in section 1692b of this title, the placement of telephone calls without meaningful disclosure of the caller's identity. 15 U.S.C. §1692(d). 

The 11th circuit in Jeter v. Credit Bureau, Inc. found that the above list was not exhaustive, but rather indicative of the kind of behavior that would be found to be harassing, oppressive, or abusive. 760 F.2d 1168 (11th Cir. 1985). The Court further found that each case and set of circumstances is different, but behaviors like those listed above should be considered a violation of the FDCPA. Additionally, the Court pointed out that what might harass or oppress one person may not cause the same feelings in another. The issue with the factors above is that they are subject to each individual's interpretation of the behavior. To assist, the Court held that the allegedly offending behaviors regarding 1692(d) should be judged from the perspective of "a consumer whose circumstances makes him relatively more susceptible to harassment, oppression, or abuse." Id. at 1179. This standard, along with the facts of each case, would ordinarily be up to a jury to decide. 

False, Deceptive, or Misleading Representations

The FDCPA provides several restrictions to behaviors Congress considered to be false, deceptive or misleading. One specific behavior that has continuously made an appearance in the 11th circuit is that found in 15 U.S.C. §1692(e)(5):
                ...
                (5) The threat to take any action that cannot legally be taken or that is not intended to be taken.

For this subsection, the 11th circuit has adopted the "least-sophisticated consumer" standard used when evaluating violations under the Federal Trade Commission Act. The idea is that both acts were intended to protect all consumers, "the gullible as well as the shrewd." LeBlanc v. Unifund CCR Partners, 601 F.3d 1185, 1194 (11th Cir. 2010). The idea here is that if the most basic and uneducated consumer could perceive the communication from a debt collector as a threat to take legal action, it is likely a violation of FDCPA. Id. This standard also protects debt collectors from "liability for bizarre or idiosyncratic interpretations of collection notices by preserving a quotient of reasonableness." Id at 1195. The jury would review the facts of each case, including the interpretation of the debtor, and make the ultimate determination as to whether there was a violation, so individuals who are hyper-sensitive or suspecting of misrepresentations would not be able to hold a debt collector liable for simply doing his job. 

Unfair or Unconscionable Means
As far as debt collection, the FDCPA does not defined what "unfair or unconscionable means" include, so the 11th circuit turns to the plain meaning. Unfair is defined as "marked by injustice, partiality, or deception;" while unconscionable has been defined as "having no consequence, unscrupulous, showing no regard for conscience, affronting the sense of justice, decency or reasonableness." Crawford v. LVNV Funding, LLC, 758 F.3d 1254, 1258 (11th Cir. 2014) quoting LeBlanc, 601 F. 3d at 1200. The Court has also determined, however, that this phrase in the FDCPA is "as vague as they come," and therefore applies the "least sophisticated consumer" standard to determine the behavior here as well, leaving the decision to a jury to make. Id.
The lesson to be taken away here, is that the FDCPA, with all its restrictions on debt collectors, and ambiguities in language, was set up this way on purpose. It is intended to protect all consumers, no matter their level of understanding or education. When there is a perceived violation, the 11th circuit courts look to how it was perceived by the consumer, and leave it to a jury to decide. While there is a slight level of protection for debt collectors, it still heavily relies on how a reasonable person, no matter the level of intelligence, would perceive the action of the creditor.



By:  Samantha A. Marriott, Attorney at The Law Offices of Jason A. Burgess, LLC

If you have questions about this or anything else please give us a call at 904-354-5065 or email us at jason@jasonAburgess.com 

Friday, August 7, 2015

Surrendering Property in Bankruptcy




One of the most common issues a bankruptcy debtor must decide early on in their case is whether or not to try and keep a piece of property or to surrender that property back to the creditor in satisfaction of the debt.  There can be a myriad of reasons why a debtor chooses to surrender a piece of property in their bankruptcy case but a recent opinion by Judge Williamson in the Middle District of Florida makes the surrender decision even more important.  That is because in In re Metzler Judge Williamson held that when a debtor surrenders a piece of property during bankruptcy they are barred from taking any actions to defend or stop the foreclosure proceeding in the state court. In re Metzler, 530 B.R. 894, 900 (Bankr. M.D. Fla. 2015).
            This is a very important development in the Middle District of Florida.  Now, when a debtor is considering the surrender of real property they must be committed to their ultimate decision because there is no going back.  Under Metzler, debtors in the Middle District of Florida cannot take any “overt actions”, i.e. defending a foreclosure case, that would prevent the secured creditor from foreclosing on the property and transferring title.
             The Metzler opinion actually involved two bankruptcy cases, one a Chapter 7 and the other a Chapter 13.  A Chapter 7 debtor has three options regarding their secured property: redeem the property, reaffirm the debt the property secures, or surrender the property.  Under Bankruptcy Code § 521 all Chapter 7 debtors are required to file a statement of intent within 30 days of filing the case which tells the court which option the debtor has chosen.  Chapter 13 debtors are not required to file a statement of intent but instead are required to file a plan of reorganization which indicates how the debtor proposes to treat the secured property.  Bankruptcy Code § 1325 gives the Chapter 13 debtors three options for treating the secured debt: gain the secured creditor’s consent to the plan, cram down the plan treatment over the secured creditor’s objection, or surrender the property.
            Both debtors in Metzler took explicit acts to prevent the respective secured creditors from foreclosing their mortgages by actively defending the foreclosure cases after stating their intent to surrender the properties during bankruptcy.  Metzler argued that surrender in bankruptcy actually just dissolved the automatic stay but did not have any effect on her state law rights.  But the court held differently when it stated that “Surrender means something.  In the context of Bankruptcy Code §§ 521 and 1325, the Court concludes the term means that a bankruptcy debtor must relinquish secured property and make it available to the secured creditor by refraining from taking any overt act that impedes a secured creditor’s ability to foreclose its interest in the secured property.” In re Metzler, 530 B.R. 894, 900 (Bankr. M.D. Fla. 2015).  In light of this decision, all potential Chapter 7 and Chapter 13 debtors need to be 100% positive regarding their decision to surrender a piece of property before informing the court of their intent.  All prospective debtors should create a plan of intent for each secured debt and corresponding asset with their bankruptcy counsel before filing their case.

By:  Joshua B. Dawes, Attorney at The Law Offices of Jason A. Burgess, LLC

If you have questions about this or anything else please give us a call at 904-354-5065 or email us at jason@jasonAburgess.com 

Monday, August 3, 2015

The Magic Behind the Confirmation Order in Chapter 11



The Magic Behind the Confirmation Order in Chapter 11

The goal of any Chapter 11 bankruptcy case, whether individual or business is simple: get the plan confirmed. The process of negotiating with creditors, making personal budgets, and filling out those pesky monthly operating reports all have the end goal of making a Plan of Reorganization that is fair, reasonable, and most importantly, feasible for the client to complete. But what effect does the confirmation order actually have on the case? What does this mystical magical confirmation order allow to happen if the Debtor defaults? These answers sometimes, are not so clear, even to attorneys.  
The confirmation order is the crucial point in the bankruptcy case when plan payments begin, and all the agreements between the debtor and creditors start over. The Chapter 11 Plan creates a new contractual relationship between the debtor and creditor, and the treatment that is provided for in the plan are the new terms. In re Winn-Dixie Stores, Inc. 414 B.R. 764 (M.D. Fla. 2009). The agreement the creditor and debtor had before the confirmation is erased, and the new agreement is controls.

With this in mind, there are really three ways that a debtor default can be dealt with: 1) the case can be re-opened and dismissed; 2) the case can be converted to a Chapter 7 liquidation case; or 3) the contract can be litigated in state court. Generally, courts are reluctant to re-open cases. Good cause must be shown, and usually pretty compelling circumstances have to exist for a court to allow a case to be re-opened. There are two ways cases can be converted, voluntarily or involuntarily. The bankruptcy code, under 11 U.S.C. §1112(b) allows creditors to request that the case be converted if certain circumstances exist, some of which include material default with respect to a confirmed plan, inability to effectuate a plan of reorganization, failure to file tax returns or pay post petition taxes, among several others. It is important to note that with both conversion and dismissal, the court looks at the best interest of the creditors, not the debtors, and creditors are not afraid to pursue these avenues when a debtor has not made plan payments.

The third option relies on the fact that a new contract is created between the creditor and debtor. Because the Chapter 11 plan and subsequent confirmation create a brand new contract, creditors can absolutely pursue action in state court. This means that foreclosure actions can commence, default judgments can be entered, and the creditor can pursue all legal remedies they were prevented from pursuing while the debtor was protected by the bankruptcy.

Bankruptcy is a long and often difficult process, and is not entered into lightly. A lot of debtors come to us and choose chapter 11 to protect themselves from foreclosures, or liquidating. While the primary goal of any chapter 11 is to get the case confirmed, there is no point to confirmation if the debtor defaults. The moral of the story is to make sure the plan proposed is feasible for the debtor, and that the debtor makes plan payments so that the event of a default is not even a concern.



By:  Samantha Marriott, Attorney at The Law Offices of Jason A. Burgess, LLC

If you have questions about this or anything else please give us a call at 904-354-5065 or email us at jason@jasonAburgess.com