mobar cle next step series: creditors’ step series...the next step series: creditors’ remedies...
TRANSCRIPT
5/6/2015
1
MoBAR CLEThe Next Step Series:Creditors’ Remedies
Eric L. Johnson Michelle M.Masoner
Bryan Voss, ModeratorBlackwell & Associates
Agenda
• Debtor Protection Statutes• Pre‐Judgment Remedies
• Post‐Judgment Remedies
• Creditor Rights in Bankruptcy
5/6/2015
2
Sources of Law
• Fair Debt Collections Practices Act
• Bankruptcy Code – Title 11– General Chapters: 1, 3, and 5
– Common Chapters: 7, 11, and 13
– Specialized Chapters: 9, 12, and 15
• Rules– Federal Rules of Bankruptcy
Procedure
– Federal Rules of Civil Procedure
– Federal Rules of Evidence
– Federal Rule of Appellate Procedure
– Local Rules and Standing Orders
• State Law– Uniform Commercial Code
– Exemption Statutes
– Lien Statutes
– Uniform Fraudulent Transfer Act
– Missouri Merchandising Practices Act
• Case Law– State and Federal
Decisions
– Common law
Debtor Protection Statutes
5/6/2015
3
Debtor Protection Statutes
• The Fair Debt Collections Practices Act (FDCPA)
• The Missouri Merchandising Practices Act (MMPA)
• Exemption Statutes
• The Bankruptcy Code
Fair Debt Collections Practices Act• Enacted in 1977
• 15 U.S.C. § 1692 et seq.
• Purpose
– Eliminate abusive debt collection practices
– Eliminate competitive disadvantage for debt collectors who do not engage in abusive tactics
– Promote consistent State Action to protect consumers against debt collection abuse
5/6/2015
4
Fair Debt Collections Practices Act• Consumer Debt
– Applies only to natural persons
– obligations primarily for personal, family or household purposes
• Debt Collector– “any person who use any instrumentality of interstate commerce or
the mails in any business in the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another….” 15 U.S.C. § 1692a(6) (emphasis added).
– Several Statutory Exceptions, including Creditor and Affiliate Exceptions
– Statutory Exclusion Exception
– Attorneys are not per se exempted.
FDCPA – Permitted or Restricted Actions
• Improper Communications– Time restriction– Representation restriction– Validation Notice– Miranda Warning– Communications with Third Parties and when a consumer is represented by counsel
• Other Proscribed Conduct– Harassment or Abuse– False or Misleading Statements– Unfair Practices– Venue Restriction
5/6/2015
5
FDCPA – Civil Liability• Actual Damages• Statutory Damages
– Individual: $1,000 per case– Class Action
• $1,000 per individual• Cap: the lesser of $500,000 or 1% of Debt Collector’s net worth
• Attorney Fees– Plaintiff can recover if successful– Defendant can recover if brought in bad faith and for purposes of harassment
• Punitive Damages– Not generally allowed– Can be recovered for another claim joined with a FDCPA claim
Missouri Merchandising Property Act
The MMPA, Mo. Rev. Stat. §407.010 et seq., serves as a supplement to the common‐law claim of fraud.
5/6/2015
6
MMPATo establish an MMPA claim, a plaintiff must allege:
(1) purchased or leased merchandise;
(2) for personal, family or household purposes;
(3) suffered an ascertainable loss of money or property;
(4) as a result of “any deception, fraud, false pretense, false promise, misrepresentation, [or] unfair practice,” or concealed, suppressed, or omitted “any material fact[,] in connection with the sale or the advertisement of any merchandise in trade or commerce.” Mo. Rev. Stat. § 407.020(1).
MMPA
The Missouri Supreme Court’s recent decisions:
• Watson v. Wells Fargo Home Mortgage, Inc., 438 S.W.3d 404 (Mo. 2014)
• Conway v. CitiMortgage, Inc., 438 S.W.3d 410 (Mo. 2014)
5/6/2015
7
ExemptionsDerive from both state and federal law
Common Missouri Exemptions:
Mo. Rev. Stat. §§ 513.430; 513.475; 525.030
• Homestead ‐ $15,000
• Household Goods ‐ $3,000,
• Wedding Ring ‐ $1,500
• Other Jewelry ‐ $500
• Automobile ‐ $3,000
• Tools of the Trade ‐ $3,000
• Wages – 75% or 90% (HOH)
• Social Security – Unlimited
• Public Assistance –Unlimited
• Wildcard ‐ $600
ExemptionsEarned Income Credit
• Mo. Rev. Stat. .§ 513.430(10)(a)
• Public Assistance Benefit
• Unlimited
– In re Corbett, Slip Copy, 2013 WL 1344717
(Bankr. W.D. Mo., April 2, 2013)
– In re Gray, Slip Copy, 2013 WL 2452693 (Bankr. W.D. Mo., June 5, 2013)
5/6/2015
8
Tenancy By The Entireties• Form of ownership of property
• Creditor can only seek satisfaction from entireties property if both spouses have acted to jointly encumber property
• Presumption that all jointly owned property owned by husband and wife is held as tenants by the entirety
• 4 unities
– Interest– Time– Title– Possession
Pre‐Judgment Remedies
5/6/2015
9
Pre‐Judgment Remedies
• Article 9 Remedies
• Replevin• Attachment
• Receivership• Non‐Judicial Foreclosure
Article 9 RemediesSelf‐Help Repossession
• Self‐Help Repossession permitted.
– Mo. Rev. Stat. § 400.9‐609(b)
• Cannot Breach the Peace
– Act likely to produce violence
– Breaking an entering into business or residence
– Mere lack of consent does not constitute breach of peace
5/6/2015
10
Article 9 Remedies
• Conduct foreclosure sale without judicial process
• Proceed against collateral and obtain deficiency judgment
• Ignore security interest and seek judgment against debtor without regard to collateral
Practice Pointer: These remedies apply to collateral including goods, inventory, equipment, chattel paper, instruments and accounts. There are additional remedies available when foreclosing on collateral such as accounts.
Article 9 RemediesDisposition of Collateral
• Sale Options
– Private sale
– Public Sale
– Strict Foreclosure
– Unified Sale
• Lender must always act in good faith and in a commercially reasonable manner
5/6/2015
11
Article 9 RemediesCommercially Reasonable
• All aspects of any disposition, including method, manner, time, place and other terms must be commercially reasonable.
– Notice of sale
– Conducting sale in a careful manner at a time and place selected to obtain a fair value for the goods.
Article 9 RemediesNotice
• When:– After default and 10+ days before disposition
• What:– Debtor & Lender– Description of collateral– Method of intended disposition (public v. private)– Debtor is entitled to an accounting of indebtedness– Time & Place of public sale
• Who:– Debtor– Guarantor– Parties who had secured interest 10 days before notification date– Safe Harbor– Any party giving notice to secured creditor of interest in collateral
5/6/2015
12
Replevin• Mo. Rev. Stat. § 533.010, et seq.• Definition
– Allows a creditor to regain personal property improperly held by another person
– Creditor has superior rights in property than debtor
• Requirements– The property must be identifiable– The property must be able to be seized
• Limitation– The other person can defeat a replevin action by paying a bond
• Procedure– Affidavit– Notice– Bond
Attachment• Mo. Rev. Stat. § 521.010, et seq.
• Ability to seize property pre‐judgment in which the plaintiff has no interest.
• Used in circumstances where plaintiff concerned defendant is disposing of property or there will be nothing left to execute upon
• Procedure
– Affidavit
– Bond
– Grounds of a Just Claim
– Seizure
• Recovery of property by Defendant: Bond or by Motion
5/6/2015
13
• Mo. Rev. Stat. § 515.240
• Procedure
– Ancillary Action
– Bond
• Entitlement in loan documents may be enough.
– See MIF Realty v. Pickett, 963 S.W.2d 308, 312 (Mo. App. W.D. 1997)
• A bar sponsored bill is currently in the general assembly that will bring uniformity and clarity with respect to Missouri general receiverships.
General Receivership
Non‐Judicial Foreclosure
• Mo. Rev. Stat. § 443.290, et seq.
• Power of Sale
• Procedure– Notice
– Sale by Trustee
– Appropriate Bid Standard
• CAUTION: Foreclosures can move fast in Missouri
5/6/2015
14
Post‐Judgment Remedies
Post‐Judgment Remedies
• Judgment Liens
• Writs of Execution
• Garnishment
• Debtor’s Examination
• Fraudulent Transfers
5/6/2015
15
Judgment Liens• Judgments will give rise to automatic lien on real property in
county where judgment was rendered.
• Exceptions– Judgment must be registered in county where real estate is located
– Judgment from Associate Circuit Court will only give rise to lien upon payment of fee and judgment being registered in the permanent record
– Judgment entered by small claims and municipal courts do not give rise to a lien
• Preservation of Lien– Conclusive presumption that every judgment presumed satisfied after
10 years from date of judgment
– Judgment creditor must revive judgment within such time.
– If properly revived, then judgment is valid an additional 10 years, but the judgment lien will expire in three years
Garnishment
• Definition– The court orders a 3rd party to
turn over the debtor’s property that is in possession of the 3rd party
• Example– Wages, Bank Accounts
• Who can be a “Garnishee”?– Anyone (technically)
• What can be Garnished?– Goods, Money, or Personal
Property
• Process– Court Judgment
– Notice
– Summons
– Timing
5/6/2015
16
Writs of Execution• Mo. Rev. Stat. § 513.010, et seq.
• The right to execute on a final judgment in Missouri arises upon rendition of the same.
• Procedure
• Levy
– Personal Property: Possession, or posting of notice, if possession impracticable.
– Real Property: Notice with Recorder of Deeds
• Claiming Exemptions
• Quashing the Execution: Application, Notice, Cause, Bond
Seizure and Sale by the Sheriff• Selection and Order of Sale
• Location of Sale
• Notice of Sale
– Timing
– Content
– Publication Requirement
– Personal Service Requirement
5/6/2015
17
Debtor’s Examinations• If a sheriff returns an execution unsatisfied or the judgment
creditor is without sufficient knowledge to advise the sheriff where and on what to levy execution, the judgment creditor is allowed to conduct a debtors’ exam.
• A debtors’ exam requires that the judgment debtor appear and answer concerning his means of satisfying the judgment.
• Under Missouri law, there are several barriers to meaningful post‐judgment discovery, including, a higher burden imposed on a creditor where the judgment debtor has invoked the Fifth Amendment.
Fraudulent Transfers• Missouri has adopted the Uniform Fraudulent Transfer
Act
• Mo. Rev. Stat. § 428.005, et seq.
• Property, obligations and liens can be avoided
• Reach Back Period: potentially 4 years or more
• Actual Fraudulent Transfers– Actual Intent to Hinder, Defraud, or Delay Creditors
– Intent usually not admitted = Badges of Fraud
• Constructive Fraudulent Transfers– Debtor received less than reasonably equivalent value
– Insolvency Tests
5/6/2015
18
Creditors’ Rights in Bankruptcy
The Bankruptcy System
United States Supreme Court
United States Court of Appeals
Bankruptcy Appellate Panel
United States District Court
United States Bankruptcy Court
Key Statutes: 28 U.S.C. §§ 151‐158, 1334, 1408‐09Bankruptcy Rule Reference: 5001‐5012, 8001‐8020
5/6/2015
19
The Bankruptcy Exchange Rate
• What is the Bankruptcy Exchange Rate:
– With certain limited exceptions, the actual value of a creditor’s claim in bankruptcy is something less than its face value.
– Creditors spend real dollars in order to recover “bankruptcy dollars”
• What causes the Bankruptcy Exchange Rate:
– Significant unencumbered non‐exempt assets are rare and usually require substantial administrative expense to liquidate.
– Not all claims are created equal
Assets Available to Creditors
• Property of the Estate
– All legal or equitable interests of the debtor in property as of the Bankruptcy Filing Date
– Depending upon type of bankruptcy, includes assets acquired during or shortly after filing as well
• Exemptions
– Takes property out of the bankruptcy estate
– Missouri has opted out of the federal bankruptcy exemptions
– Bankruptcy Code establishes residency requirements and caps
– Objection DeadlinesPrimary Code Sections: 522 and 541 Bankruptcy Rule Reference: 1007, 1009, 6002, 6004, and 6006
5/6/2015
20
Not All Claims Are Created Equal
• Secured Claims– Oversecured/Undersecured– Interest, attorney fees and
other preferred rights
• Administrative Claims– Generally post‐bankruptcy
claims– Motion or Application
• Priority Unsecured Claims– Specified by Code– Examples:
• Wage Claims • Taxes
• General Unsecured Claims– Most claims– Limited rights and
recoveries
• Subordinated Claims– By Agreement– Equitable subordination
• Equity– Last in line– Least amount of rights
Primary Code Sections: 501‐511, 726Bankruptcy Rule Reference: 3001‐3022
Types of Bankruptcy• Voluntary Bankruptcy
– Majority of bankruptcies are voluntary
– Debtor must meet eligibility requirements
• Involuntary Bankruptcy– Commenced by the Debtor’s creditors (generally three or more)
– Creditors must meet eligibility requirements
– Only available for Chapter 7 and 11
– Farmers and not‐for‐profits cannot be put into an involuntary bankruptcy
Primary Code Sections: 109, 301‐303Bankruptcy Rule Reference: 1002, 1003, 1015
5/6/2015
21
Chapter 7• Purpose
– Liquidation of Non‐Exempt Assets
– Individuals: Discharge of Debts
• Key Players– Debtor: Corporate or Individual
– Chapter 7 Trustee
– United States Trustee
– Creditors – Typically secured will be more active
Primary Code Sections: 321‐326, 363, 521, 707‐784Bankruptcy Rule Reference: 4001‐4008, 6001‐6011
Chapter 13• Purpose
– Designed to allow individuals to keep their non‐exempt property while paying all or a portion of their debts over a 3‐5 year period pursuant to a Plan.
– Some individuals have to file Chapter 13 because they are prohibited from filing Chapter 7.
• Key Players– Debtor
• Individuals with regular income• Subject to Debt Limitations
– Chapter 13 Trustee– Creditors – Typically Secured
Primary Code Sections: 521, 1301‐1330Bankruptcy Rule Reference: 4001‐4008, 6001‐6011
5/6/2015
22
Chapter 11• Purpose
– Traditional: Reorganization via plan– Current Trend: Liquidation via 363 Sale
• Key Players– Debtor in Possession (“DIP”): Individual or Corporate
• Different rules for small businesses and individuals
– Committees: Creditors or Equity– Creditors: Unsecured and Secured– Stalking Horse Purchaser– United States Trustee– Chapter 11 Trustee or Examiner
Primary Code Sections: 363, 365, 1101‐1174Bankruptcy Rule Reference: 4001‐4008, 6001‐6011
Notice of Bankruptcy
• Usually first notice received by creditors
• Form will vary depending upon Chapter
• Tells the basics: who, what, when and where
• Contains key deadlines and creditors’ meeting date
• Version mailed to creditors will contain personally identifiable information
Primary Code Sections: 341‐343
5/6/2015
24
Proofs of Claim
• Deemed Allowed until objection
• Bar Dates– Can be set at different times in a case
– A missed bar date may be fatal.
• Waiver Issues– Filing may waive right to a jury
– Submit to equitable jurisdiction of the Bankruptcy Court
Primary Code Sections: 501 and 502Bankruptcy Rule Reference: 3001‐3008
5/6/2015
25
• Proofs of Claims Signed under Penalty of Perjury
• Fraudulent Claims = Fine up to $500,000, 5 years in prison, or both
Primary Code Sections: 18 U.S.C. §§ 152 and 3571Bankruptcy Rule Reference: 3001(c) and 3002.1(i)
Proofs of Claim and the FDCPA• Issue: Is filing a proof of claim on a debt that is time
barred by a statute of limitations a FDCPA violation?
• Split among courts
– It is a violation
• Crawford v. LVNV Funding, LLC, 758 F.3d 1254 (11th Cir. 2014)
• Brimmage v. Quantum3 Group LLC, 523 B.R. 134 (Bankr. N.D. Ill. 2015).
– It is not a violation
• Johnson v. Midland Funding, LLC, No. 14‐0322‐WS‐C, 2015 WL 1345431 (S.D. Ala. Mar. 23, 2015)
• LaGrone v. LVNV Funding, LLC (In re LaGrone), 525 B.R. 419 (Bankr. N.D. Ill. 2015)
5/6/2015
26
Pitfalls for the Unwary
• Automatic Stay
• Discharge Injunction
• Notice of Continued Perfection
• Postpetition Effect of Security Interest
• Reclamation
The Automatic Stay
• The Automatic Stay
– Upon filing stays most actions against the debtor and property of the estate
– Specified exceptions
– Limited Duration
• Relief From Automatic Stay
– For Cause
– No Equity, Not Necessary for Reorganization
– Single Asset Real Estate and Landlord Tenant grounds
– Serial Filers
Primary Code Sections: 361 and 362Bankruptcy Rule Reference: 4001
5/6/2015
27
Violation of the Automatic Stay• Consequences for Stay Violation
– Renders Action Void or Voidable
– Willful Violation:
• Actual and Punitive Damages
• Attorney Fees
• Willful Violation – No Specific Intent Required
– Creditor knew of the automatic stay
– Intended actions that constituted the violation
– Designated Notice Safe Harbor
Primary Code Sections: 342(f) and 362(k)Bankruptcy Rule Reference: 2002, 4001
Notice of Continued Perfection
• Commencement of a lawsuit to enforce a mechanic’s lien is often part of the perfection process under state law.
• The automatic stay prevents the commencement of a lawsuit.
• If enforcement is part of the perfection process, then a creditor needs to file a Notice of Continued Perfection
• If it does not, then it will lose its lien rights.
Don’t take a chance, file the Notice
Primary Code Sections: 108, 362, 546(b)Bankruptcy Rule Reference: 4001
5/6/2015
28
The Discharge
• The Discharge– Bars creditor from collecting on debt
– Timing and eligibility vary and depend on circumstances
– Consequences for violating similar to stay violations
• Exceptions to Discharge– Domestic Support Obligations
– Certain Taxes
– Debts for Really Bad Acts• Affirmative Action by Creditor Required
• Unforgiving Deadlines
Primary Code Sections: 105, 523, 524, 727, 1141, 1228, and 1328Bankruptcy Rule Reference: 4004‐4007
Postpetition Effect of Security Interest
• Property acquired post‐bankruptcy by debtor is not subject to pre‐petition security agreements.
• Exceptions:– Proceeds, products, offspring, or profits from prepetition
collateral
– Rents from prepetition property
– Hotel fees, charges, and payments for lodging, if covered by prepetition agreement
Get Replacement Liens as Part of a
Cash Collateral OrderPrimary Code Sections: 363 and 552Bankruptcy Rule Reference: 4001 and 6004
5/6/2015
29
Reclamation
• Allows a seller the ability to reclaim goods sold on credit if determined that buyer is insolvent
• UCC: Demand must be made 10 days after receipt unless seller received misrepresentation of solvency 3 months before deliver.
• Bankruptcy Code: 45 days or 20 days after commencement of case if 45 day period expires prepetition to make reclamation demand.
• Bankruptcy Code makes clear that reclamation claimants interests subordinate to secured creditor.
Primary Code Sections: 546
Preferences ‐ Elements• A transfer of an interest of the debtor in property;
• To or for the benefit of a creditor;
• For or on account of antecedent debt owed by the debtor before such transfer was made;
• Made while the debtor was Insolvent (presumed if 90 days);
• Made on or within 90 days before the petition date; or between 90 days and 1 year before the date of petition date, if the creditor was an insider; and
• Enable the creditor to receive more than such creditor would receive if the case were a Chapter 7 bankruptcy case, the transfer had not been made, and such creditor received payment of such debt to the extent provided by the provisions of the Bankruptcy Code.
Primary Code Section: 547Bankruptcy Rule Reference: 7001‐7087, 9001‐9037
5/6/2015
30
Preferences• Common Defenses
– Transfers less than $6,225 (commercial) or $600 (consumer)
– Contemporaneous Exchange for New Value
– Ordinary Course
– Subsequent New Value
– 546(e) Safe Harbor
• Burdens of Proof
– Trustee on Prima Facie Elements
– Transferee on Defenses
– Insolvency presumed for the 90 days prior to filing
Primary Code Sections: 547(c) and (g)Bankruptcy Rule Reference: 7001‐7087, 9001‐9037
Preference Remedies• Recovery: Property Transferred or Value of Such Property
• Transferee Liability
– Initial Transferee = Strict Liability
– Entity for Whose Benefit the Transfer was Made = Strict Liability
– Immediate Transferee – Unless such transferee takes:
• For Value
• In Good Faith
• Without Knowledge of voidability
– Mediate Transferee – Unless such transferee takes in good faith.
• Claim Disallowance
• Any avoided lien is preserved for benefit of the bankruptcy estate as to property of the estate
Primary Code Sections: 550 and 551Bankruptcy Rule Reference: 7001‐7087, 9001‐9037
5/6/2015
31
Statute of Limitations
• Avoidance
– 2 years after Order for Relief (usually petition date)
– 1 year after appointment of first Trustee (if within the 2 years)
• Recovery: 1 years after avoidance
• Equitable Tolling
Primary Code Sections: 546(a) and 550(f) Bankruptcy Rule Reference: 7001‐7087, 9001‐9037
Punch List for When a Bankruptcy is Filed
Cease Collection Efforts
Collect Documents
Contact Counsel
Assess Relevant Deadlines
Review Initial Filings
Assess Lien Status
Assess Alternative Sources of Payment
Suggestion of Bankruptcy
Initial Steps
5/6/2015
32
Punch List for When a Bankruptcy is Filed
Meeting of Creditors
Filing Proof of Claim
File Notice of Continued Perfection
Reclamation Demand Made
Reaffirmation
Consider Serving on a Committee
Assess Leases and Executory Contracts
Assess Avoidance Exposure
Administrative Freeze
Additional Steps Depending on Case
5/6/2015
33
THANK YOU
MoBar CLE Next Step Series:
Creditors Remedies Webinar
Eric L. JohnsonSpencer Fane Britt & Browne LLP
1000 Walnut St., Suite 1400Kansas City, MO 64106
816‐292‐[email protected]
www.spencerfane.com
Michelle M. MasonerBryan Cave LLP
1200 Main St., Suite 1200Kansas City, MO 64105
816‐374‐[email protected]
www.bryancave.com