Kirby & McGuinn is not a “debt relief agency.” We do not represent debtors whose debts consist primarily of consumer debts.
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. There is no distribution to unsecured creditors.
Chapter 13 is available to individual debtors with a regular income, and was formerly known as the “wage earner’s plan.” Under chapter 13, the debtor makes payments equal to his or her disposable income (i.e., income less reasonable living expenses) for a period of at least three and no more than five years. The payments are disbursed to creditors according to their legal priorities under a plan approved by the Court. One of the primary reasons for the filing of a chapter 13 case is to reduce or reorganize payments on secured debt such as auto loans.
Chapter 11 is a reorganization chapter primarily used for businesses. A trustee is not automatically appointed in a chapter 11 case. The debtor usually continues to operate its business, and proposes a plan to pay all or a part of its debts.
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, it is usually advisable to file a proof of claim. The Clerk will accept it for filing despite what the bankruptcy notice says.
There are rare cases in which it is inadvisable for a creditor to file a proof of claim, including situations in which substantial counterclaims may exist.
Bankruptcy law presumes that it is more just to distribute the assets of an insolvent company ratably among creditors. Creditors who receive payments of just debts on the eve of bankruptcy may be required to return those payments because they had the effect of “preferring” that creditor over others who did not receive a payment.
There are many substantial defenses to liability on a preference. If you are subjected to a demand to repay a preference, or you are sued to recover a preference, you should consult an attorney immediately.
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 functions of the committee include investigating the affairs of the debtor, negotiating and in some cases even proposing a chapter 11 plan, and taking positions on most material 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 OCC is permitted to hire an attorney at the expense of the debtor. Kirby & McGuinn has acted as counsel for the OCC in many chapter 11 cases.
Generally, it is good to serve on the OCC if you are willing to devote the time and attention necessary. Service on the Committee gives a member access to timely information on the progress of the bankruptcy. In deciding whether to serve on the OCC, it is important to remember that the Committee has a duty to act in the interest of all unsecured creditors.
A creditor wishing to serve on the OCC should contact the office of the United States Trustee as soon as possible after a case commences. Once the OCC is appointed, it may be difficult to be added as a member.
In chapter 7 or chapter 13, 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.
It is important to remember that individuals who commit fraud while acting in their capacity as officers or directors of an insolvent company are still personally liable for their own fraudulent acts.
Kirby & McGuinn is NOT a “debt relief agency,” as that term is defined in section 101(12A) of the Bankruptcy Code. The Firm does not render bankruptcy assistance to any person whose debts consist primarily of consumer debts.
We have accepted representation of individuals who have complex commercial or tax liabilities, provided that these individuals do not fall within the definition of an “assisted person” under section 101(3) of the Bankruptcy Code.
We have represented chapter 11 debtors on occasion. However, our practice generally emphasizes creditor rights.