Privacy, Business and Law

Pandab is an online newsletter summarizing the top news articles on privacy, law and business.

When Can You Trust Your Bank?

In the recent N.J. Appellate Division opinion of UJB v. Kensey, the court held that typically, a bank does not have a fiduciary relationship with a customer that requires the bank to disclose information within its files, such as an appraisal, concerning the financial viability of the transactions their potential loan customers are about to enter into. (Read more…)

Is fraud liability discharged in bankruptcy?

Yes, in chapter 13. In chapter 7, an individual debtor will be discharged from liability for fraud unless prompt action is taken in the bankruptcy case. The deadline to file a complaint to determine the dischargeability of a debt is 60 days after the date first set for the meeting of creditors.

Should I serve on a creditor committee?

In chapter 11 cases, the largest unsecured creditors are invited by the United States Trustee to serve on a committee, which is sometimes known as the “OCC” (for “Official Creditor’s Committee”). The function of the committee is to investigate the affairs of the debtor, assist in formulating a plan, and to take positions on all matters that come up during the chapter 11 case. For example, the OCC is liable to be heeded by the Court on issues like proposals to compensate the debtor’s officers or borrow money during the bankruptcy case. The committee is permitted to hire an attorney at the expense of the debtor. Generally, it is good to serve on the OCC if you are willing to devote the time and attention necessary.

Should I attend the meeting of creditors?

All debtors in bankruptcy are required to attend a meeting of creditors and submit to questioning under oath by creditors and by the bankruptcy trustee or United States Trustee. Questioning at the meeting of creditors may not concern the specifics of a particular claim, only the financial affairs of the debtor, in particular the nature and location of the debtor’s assets. (Read more…)

Why does the Court tell creditors not to file a claim?

The form notices mailed to creditors at the start of a bankruptcy case by the Clerk of the Court in the Southern District of California instruct creditors not to file proofs of claim unless instructed by the Clerk in a later notice. The purpose of this is to avoid the expense and inconvenience to creditors and the Clerk which would arise if all creditors filed claims in cases where claims will never be paid. Since the vast majority of bankruptcy cases are “no asset” cases in which claims are never paid, this notice makes sense from that perspective. The problem is that an “asset” case may lie dormant for months or even years before the clerk sends a second notice asking that claims be filed. Although the first bankruptcy notice received by a creditor is usually attended to, subsequent notices from the Court may “slip through the cracks” in the creditor’s administrative process. The creditor’s address might change, records may become unavailable, etc. If you have a large claim in a commercial case and are concerned about these things, you should file a proof of claim. The Clerk will accept it for filing despite what the bankruptcy notice says.

How do chapters 7, 11 and 13 differ?

Chapter 7 is sometimes referred to as “straight bankruptcy.” The debtor files a bankruptcy petition, hands over non-exempt assets to the bankruptcy trustee, and receives a discharge. The availability of liberal exemptions to debtors who are individual persons means that almost all consumer chapter 7 cases are “no asset” cases. (Read more…)

Can I put a debtor into involuntary bankruptcy?

The Bankruptcy Code provides that an involuntary petition may be filed against a debtor that is “not generally paying its debts as such debts become due.” In the case of a debtor with twelve or more creditors, at least three creditors must join in the petition. The alleged debtor may oppose the petition and if successful, is entitled to recover damages, attorney fees and even punitive damages from the petitioning creditors. Aggressively pursuing remedies under state law, like attaching the debtor’s bank account, may drive the debtor into bankruptcy immediately, or exact special concessions from a debtor who is desperately trying to avoid bankruptcy, without the risk and other disadvantages of an involuntary petition.

Can the debtor’s assets be immediately frozen?

That depends on several things. If a creditor’s claim arises from a contract entered into in connection with the debtor’s trade, business or profession, a court can issue a prejudgment right to attach order. The order can be obtained on an emergency basis, and under rare circumstances without notice to the debtor. (Read more…)

What happens if one of the parties to a lawsuit files a bankruptcy petition?

The filing of a bankruptcy petition operates as an automatic stay, which is the equivalent of an order of the bankruptcy court that parties stop collection efforts against the debtor. Parties must stop prosecuting all pending lawsuits against the debtor until the bankruptcy court grants permission to proceed (permission to continue actions against the debtor is called “relief from stay”). The bankruptcy of one defendant does not stop the lawsuit from continuing against defendants who are not in bankruptcy. Particularly where a lawsuit involves multiple parties, a bankruptcy court may be inclined to allow the lawsuit to go forward. A judgment taken against the debtor in such a case becomes a claim in the bankruptcy.

How long will it take before my case is resolved?

In San Diego County Superior Court, over 90% of lawsuits are disposed of by dismissal or judgment within one year after the date on which the case is commenced. The time to trial will typically be a bit longer in the federal courts. Our district suffers from a lack of judges and facilities to dispose of civil matters, because criminal matters must receive priority on the calendar.

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