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I Went to a Chapter 7 Bankruptcy Auction

By Jonathan on June 22, 2008

[mc src=”http://www.thebklawyer.com/thebkblog/media/2008/06/22/i-went-to-a-chapter-7-bankruptcy-auction/Ch7auction.flv” width=”320″ type=”video”/] This past Saturday, June 21, 2008, I went to a bankruptcy auction of a Chapter 7 debtor’s property. The sale arose from the bankruptcy of a business promoter who filed bankruptcy after his project failed. I recorded a short video describing the type of property that was being auctioned, which is at the top of this post.

The business was a media company that was going to stream on-line videos to individuals – kind of a self-help program delivered by video. The promoter apparently solicited investments from dozens of people, but apparently the money ran out before subscription income could sustain the business.

Originally the promoter filed a Chapter 11, reorganization, but it was converted to Chapter 7 because there were insufficient income streams to reorganize.

This case was set up as an “asset case” as the debtor owned personal assets beyond what he could claim as exempt property that could be liquidated for the benefit of creditors. The trustee hired an auction company and the auction was scheduled for 9:00 am on June 21 at the debtor’s house.

I found out about this because a good friend of mine lives in the same neighborhood as the debtor and he had heard rumours about what might be inside. I decided to join him at the auction.

We arrived at the debtor’s house around 8:30 AM and there was a line of about 30 people in front of us. Some were from the neighborhood, but most were not. Cars were lining the streets in the subdivision, and security was present.

Right at 9am, the doors opened and people streamed in. The first thing I noticed upon entering was that all of the items for sale were tagged. This was not an auction in the traditional sense – basically the auctioneer had priced the various items and if you got there first, you could buy the item. I suspect that as the week goes on, the liquidator would be open to offers, but I wonder how much stuff will be left at that point.

While there was plenty of stuff left by the time I got in, there were people there who obviously knew what they wanted.

Because the proceeds of the auction go to the bankruptcy estate (to pay creditors and the Chapter 7 trustee), the liquidator was not giving anything away, but I suspect that there were some decent deals if you knew what you wanted. If I had to guess, I would say that most of the small items were going for 60 to 70 cents on the dollar.

The second thing I noticed – the debtor’s house was pretty much left as it was found when the trustee seized possession. There was food in the refrigerator, dirty clothes in the hamper, etc. It was a little creepy, to be honest.

I walked around for about 30 minutes, but did not buy anything. There were a couple of items that seemed like good deals, but nothing that was worth standing in a 30 minute line to pay.

I would like to stress that this type of situation – an auction of personal belongings at one’s house – is fairly unusual. Firstly, most Chapter 7 cases are “no-asset” cases, meaning that all of the debtor’s personal property is exempt. Secondly, this case involved an investment promotion failure (the Chapter 7 trustee refers to it as a Ponzi scheme in his pleadings), and the trustee in this case may have been trying to send a message.

What is the “New Bankruptcy Law”

By Jonathan on June 9, 2008

Bankruptcy attorneys like me will frequently refer to something called the “new bankruptcy law.” The “new” law is now 3 years old and not really so new. Officially named (or misnamed) the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 or “BAPCPA,” this law has been the subject of many posts on my blog, on bankruptcy lawyer blogs all over the country and on multi-author blogs like the Bankruptcy Law Network Blog and the Credit Slips blog, which is written by law professors and other academics.

Although the commentary about BAPCPA is not likely to stop soon, I thought it might be helpful to take a break from the analysis in order to review the history. With important elections on the horizon, this might be a good time to let your elected representatives know what you think. In case you were wondering, I think BAPCPA is an awful law, punitive in nature, and causing the cost and complexity of consumer bankruptcy filings to increase unnecessarily. If there is any “consumer protection” in this law, I have yet to find it!

Attorney Mark Neis, the husband and law partner of my Bankruptcy Law Network colleague Jill Michaux, has written an informative post about the history of BAPCPA. If you were ever of the opinion that our laws were crafted by diligent lawmakers concerned only for the public good, you will be disappointed to find out that is not how it works.

Homebuilders Facing Financial Crisis or Bankruptcy

By Jonathan on June 5, 2008

I received a call today from a reporter at the Atlanta Journal/Constitution. He is looking to speak with homebuilders (small or large) who are struggling financially. He is preparing a feature on the local real estate market and the struggles of local home builders and developers. You would not have your name published if you prefer. If you would like to speak with this reporter, please contact me offline and I’ll put you in touch.

Using Bankruptcy to Discharge Tax Debts

By Jonathan on June 3, 2008

The video below was recorded by my friend and colleague Darrin Mish of Tampa, Florida as part of the video section of his Get IRS Help web site. I met Darrin several years ago at a tax problem resolution seminar and I regularly refer tax problem clients to him. Unlike most areas of the law, tax problem lawyers can represent taxpayers all over the country – Darrin’s office happens to be in Tampa, Florida, but he assists clients all over the country. Darrin also publishes a helpful blog about solving IRS problems.

In this video, Darrin discusses how bankruptcy can be used to discharge tax debts. He was nice enough to mention this blog in his video and I am reproducing it below:

Why Does My Ex-Wife Have to Get Notice About My Bankruptcy Filing?

By Jonathan on June 1, 2008

My husband and I are filing a chapter 7 bankruptcy in Georgia. During the 1st consultation our lawyer notified us that the court would notify his ex-wife about us filing bankruptcy. She resides in South Carolina. We are up to date on child support and have never been late. The child support is not included in the bankruptcy. Why does she have to be notified? Shouldn’t this be our personal business? Please explain if this is a law or something. Thanks!

Jonathan Ginsberg responds: the 2005 changes to the bankruptcy laws added a requirement that if there is a
claim for a domestic support obligation in a case, the trustee (either the Chapter 7 trustee or the Chapter 13 trustee) must provide written notice (with certain required information) to (1) the holder of the domestic support obligation claim, and (2) the applicable State Child Support Enforcement Agency established by §§ 464 and 466 of the Social Security Act. A notice at the time of filing and a second notice at the time of discharge are required. In the notice to the holder of the domestic support obligation, the trustee must provide contact information for the State Child Support Enforcement Agency.

In Chapter 13 cases filed in the Northern District of Georgia, the standard plan used by all three trustees has a place where the debtor has to check off that he does or does not owe a domestic support obligation and if he does, the address where he sends the money.

You cannot get your Chapter 13 case confirmed if there is a domestic support delinquency that is either unresolved or not addressed in your case.

If you did not realize this, the information contained in your bankruptcy filings is public record. Other than Social Security numbers, your credit card account numbers, and the names of children, pretty much everything else in your bankruptcy petition can be accessed by anyone.

When the BAPCPA changes were being debated in Congress, a number of elected representatives expressed concerns about the plight of custodial parents and instances where debtors used the bankruptcy laws to avoid paying support. Previously, for example, debt arising from a divorce that was in the nature of property division could be discharged – this has been changed and this type of debt is now non-dischargeable.

Is it Legal for a Judgment to Survive Bankruptcy?

By Jonathan on May 15, 2008

For bankruptcy lawyers, the word “judgment” raises red flags. This is especially true when the judgment comes from another State. He is a question I received from a non-Georgia resident that raises a lot of questions about judgments.

My question is this-my father has a judgment against him by Bank of New York due to an unpaid debt. The debt was discharged in bankruptcy however, the judgment is still on the public records in New York. My father is now trying to buy a home, however, the title company wants the judgment released from the public records or at least subordinate to them. How can I make the Bank of New York release their judgment from the public records?

Here is how I would analyze this situation: first, you say that “the debt was discharged in bankruptcy.” If the debt was discharged prior to a judgment being entered, the judgment is void and the creditor’s act of obtaining the judgment is a violation of the automatic stay. If this is the case I would contact the New York bank and demand that the judgment be vacated post haste. If this creditor was included in your father’s petition, I would ask for damages as well.

If the judgment was rendered prior to the bankruptcy, I would look to see if the debtor’s attorney filed a Motion to Avoid Lien. These motions are fairly common in the Northern District of Georgia, where I practice, but may not be as common in different filing districts. If a Motion to Avoid Judicial Lien was filed, the Order avoiding the lien should be filed in the appropriate New York public record, and a copy of the Order along with proof of county record filing sent to the creditor with a demand that the judgment be vacated.

If the judgment was rendered prior to the bankruptcy and no Motion to Avoid Lien was filed, I would take the position that any personal (in personam) liability for the debt has been extinguished. However the in rem part of the judgment (against property) may remain viable. Is this in rem judgment enforceable, and, if so, in what amount are questions of law for a New York attorney. Might the bankruptcy angle give you leverage for settlement? Perhaps.

Sometimes a strongly worded demand along with a reference to the bankruptcy and the unpleasant consequences of a discharge violation action may be enough to encourage the creditor and/or its lawyers to vacate the judgment. This is probably a situation where you should contact a consumer protection lawyer in New York. My friend and colleague, Jay Fleischman might be a good resource to contact about this.