The Issue: debtor files bankruptcy, but does not disclose in his or her schedules an accrued claim or cause of action. Some time goes by, and debtor files suit is state or federal court on the claim.

The Argument: because the debtor, in one court proceeding, failed to disclose the claim or cause of action as an asset, he or she should be estopped to raise it in a subsequent proceeding. In part, the rule is intended to insure some degree of finality, and to prevent abusive use of the legal system.

The Decision: the case is Robinson v. Tyson Foods, Inc., . The plaintiff had filed a Chapter 13 case, but did not list an employment claim against Tyson. The debtor's plan was confirmed, she completed her payments, and received her discharge. She never, however, amended her schedules to reflect the claim against Tyson.

The Eleventh Circuit affirmed summary judgment for Tyson, holding that plaintiff was barred by the doctrine of judicial estoppel from pursuing her undisclosed claim. The court noted that while each case will be evaluated on its merits, there are typically three factors enumerated by the Supreme Court in New Hampshire v. Maine, 532 U.S. 742 (2001) which are controlling: (1) whether the present position is clearly inconsistent with the former position; (2) whether the party persuaded an earlier court to accept the position then asserted, indicating that the court was misled; and (3) whether the party advancing the inconsistent position would gain an unfair advantage. Essentially, the court in Robinson was satisfied that plaintiff had intentionally deceived the earlier court by not disclosing the employment law claim against Tyson, and also not disclosing a workers' compensation claim. Had the plaintiff amended fairly early on, and explained here omission as inadvertent, the result would surely have been different.

The Robinson case is, of course, applicable only in Federal court. The Alabama Supreme Court has been, shall we say, a little more tolerant of plaintiffs who have failed to disclose claims in their bankruptcy petitions. You will just need to look at your particular case on its merits, but certainly, the Robinsonposition should be persuasive.

The court in In re Holter, 401 B.R. 372 (Bankr. W.D. Wis. 2009), applying state law, held that the terms "bequest," "devise" and "inheritance" meant property that passed by will or by intestate succession. The POD account was a contractual payment that just happened to be triggered by the death of the account's owner. The payment was on a contract right, and since it accrued post-petition, it was not property of the bankruptcy estate. And again, while it was a good try on the part of the trustee, the legal conclusions of the bankruptcy judge strike me as pretty solid.

No. In BMJA, LLC v. Murphy, decided January 10, 2010, the Alabama Supreme Court held that recording a judgment accomplishes nothing. In order to create a lien pursuant to Section 6-9-210, you must record a certificate of judgment. The decision is predicated upon a strict construction of the language of Section 210.

It is common practice today for the clerk's office to generate a Certificate of Judgment in recordable form without your having to request one. In the old days, you had to ask for a certificate. But, for those who represent themselves, be warned that recording your judgment does nothing other than make the County a few dollars.

In In re Royce Homes, LP. 2009 WL 3052439 (Bkrtcy. S.D.Tex.), the debtor provided trustee access to the storage area where files were located, but did little more. The trustee asked for specific information which debtor declined to provide, and trustee filed a motion to compel.

Judge Bohm cited Section 521(a)(3) which requires debtors to cooperate with the trustee "as necessary to enable the Trustee to perform Trustee's duties." The court also looked to Section 704 and Bankruptcy Rule 4002(a)(4) in support of the requirement that a debtor render affirmative assistance. And finally, the court invoked its broad, inherent powers pursuant to Section 105(a) to fashion remedies it deemed necessary in furtherance of the rights and obligations created under the Bankruptcy Code.

The court then ordered the debtor to provide the specific information sought by the trustee, rather than allowing the debtor so simply grant access to documents and say "here, you find it." The debtor's obligations rise above the basic requirement of providing documents; debtor has an affirmative duty to assist by providing specific information requested.

And again, for Alabama Middle attorneys who might read this blog, I am grateful for the high degree of cooperation which I generally receive from the Bankruptcy Bar. To the debtor with the more casual attitude, however, please understand that with the benefits of bankruptcy (and they are many) comes a fairly high degree of responsibility.

The Bankruptcy Code does not provide a right of set-off since it would be preferential on its face, favoring one creditor over others. The Bankruptcy Code does, however, provide in Section 553 that rights of set-off existing under state law are enforceable (and hence not preferential) under certain circumstances.

What about triangular set-offs? This occurs when A, B and C agree that A may set-off amounts owed by A to B against amounts owed to A by C. The case currently "in the news" is In re SemCrude, L.P., a decision handed down by the Delaware bankruptcy court in January 2009. In a carefully reasoned opinion, the court held that triangular set-offs are not permissible under Section 553 and are avoidable.

I write to this particular subject because the decision in the bankruptcy court was appealed in April of 2009. A quick PACER check today reveals that all briefs were filed back in September of 2009, so a ruling from the District Court is probably likely in the very near future. As both a trustee with a triangular set-off case pending in Alabama Middle, and a creditor's attorney with an interest in the issue, the result of the appeal strikes me as very important. I'm not aware of any 11th Circuit authority on point, but have noticed that decisions coming out of the Bankruptcy Court for Delaware seem to be highly regarded. It will be interesting to see if the District Court agrees.

The case is In re WVF Acquisition, LLC, --- B.R. ---, 2009 WL 4281487, Bkrtcy. S.D. Fla. 2009. The judge wasted little time in finding a stay violation, finding it to be wilful, and awarding punitive damages. The more troublesome issue for the court was whether it was empowered under Section 105 of the Bankruptcy Code to award punitive damages in a case involving a corporate debtor, and if so, what damages were appropriate on the facts of the case (turns out 50,000 dollars was a nice round figure).

The creditor argued that Jove Eng.'g., Inc. v. IRS, 92 F.2d 1539 (11th Cir. 1996) effectively precluded the bankruptcy court from awarding punitive damages to a corporate debtor for a 362(k) violation. This because Section 362(k) specifically limits its application to an individual.

Judge Kimball decided, however, that the court had the inherent authority under Section 105 of the Bankruptcy Code to enter an award of punitive damages. The court was convinced that the decision of the Eleventh Circuit in Jove was never intended to limit a bankruptcy court's contempt authority under Section 105. At this writing I don't know if the decision has been appealed, but given the amounts involved an appeal may well be forthcoming. If so, I'll follow up with subsequent posts.

5 days are now 7.
10 days are now 14.
15 days are now 14.
20 days are not 21.

For years, we've thought of our rules in 1, 10, 15, 20 or 30 day increments. It's a new world now.

For further information, visit the newly redesigned website for Bankruptcy, Middle District at: http://www.almb.uscourts.gov/main.html.

You would think that by now, the vast majority of creditors would fully understand the effect and duration of the automatic stay of 11 U.S.C. Section 362. Admittedly, Section 362 is about a zillion pages long, and has been a fruitful source of litigation. And certainly, most clients do not have the time or the inclination to follow such matters closely. That's why they have attorneys. Here are some of the misconceptions I hear most often:

A. "I didn't get notice": my stock answer is "what is it about the word automatic that you don't understand?" The stay is effective upon filing.

B. "I repossessed before the filing": there are a few folks out there who assume that once repossession is effected, title has passed and the property is no longer subject to the stay. Title does not pass until a disposition of the asset occurs in accordance with applicable state law.

C. "My customer told me it was OK to come get the tractor": if you think this will work, I can't help you.

D. "The told me they weren't going to bankrupt on my debt": the stay is not dependent upon the claim or debt. The stay is intended to protect property of the bankrutpcy estate, a term very broadly defined by Section 541 of the Bankruptcy Code. Anything that is property of the bankruptcy estate is protected by the stay, notwithstanding claims or liens.

E. "I filed the garnishiment before bankruptcy--it's not my fault the employer continued withholding": if you file a writ of garnishment or execution, and debtor files bankruptcy, you have an affirmative duty to dismiss or stay the proceeding immediately. If, with notice of bankruptcy, you do nothing, you are at risk for sanctions. Myers v. Miracle Finance, AP case number 08-1061, Chapter 13, Middle District of Alabama, March 6, 2009. Question: what if you have referred an account for collection? Do you have an affirmative duty to terminate those collection efforts? I think you do.

F. "Someone told me that once discharge enters, the stay is over": It is not quite that simple. Generally speaking, the stay of an act against property of the estate continues until such property is no longer property of the estate. The stay of any other act continues until the earlier of (a) the time the case is closed; (b) the time the case is dismissed; or (c) the time discharge is granted or denied. Frankly this subject is too involved to cover in a blog post, so you might want to take a look at my web site where I've posted a detailed paper on the automatic stay.

I've rambled on long enough. My advice is to always err on the side of caution, seek stay relief when there is any question, and call your attorney before taking action. The old adage "pay me now or pay me later" is very applicable to stay violations.

The argument was that the debtor was not actually making a transfer. It was more in the nature of a "lender to lender" transfer, and did not have a detrimental effect on the Bankrutpcy Estate. The 11th Circuit made fairly short work of the argument, holding that the transfer was subject to the debtors direction and did diminish the estate, and was hence preferential.

What interests me more than the decision is the reaction of the industry to the decision. Since Egidi was released, I've been watching to see if there was a noticeable decline in balance transfers being reported by debtors. This seems to be the case, at least in Chapter 7 cases. Since this past summer, I can't recall a single instance of a debtor reporting a balance transfer within 90 days of filing. It may be a coincidence, but I doubt it. Folks who use credit cards to make balance transfers are on presumptively shaky financial ground, and are candidates for bankruptcy. The industry has probably figured out that allowing a five or six thousand dollar balance transfer to someone in a difficult financial position is unwise. Ya think?

The Act contains a wide range of provisions designed to offer protection to homeowners facing foreclosure. My focus here, however, will be the "Protecting Tenants in Foreclosure Act of 2009," popularly known as the other "Title VII."

The purpose of the other Title VII is to afford protection to tenants at will or lessees who occupy property that is foreclosed. The legislation applies to the foreclosure of any federally related mortgage loan, or, to the foreclosure of any "dwelling or residential real property." The party taking title at forclosure takes subject to certain rights in favor of tenants or lessees which may be summarized as follows:

A. Bona fide tenant at will must be given 90 days before eviction.
B. If there is a bona fide lease in place, the tenant may remain until the end of the term, except that the lease may be terminated and the tenant evicted after the 90 day notice if the purchaser at sale will occupy the property as a primary residence.
C. A tenant or lessee is "bona fide" when:
1. The lease is to someone other than the mortgagor, or mortgagor's child, spouse or parent;
2. The lease or tenancy resulted from an arm's length transaction;
3. The rent payable is not substantially less that fair market value.

It is worthy of note that in Alabama most leases are never recorded, nor are they required to be in writing. I make it a practice to announce at foreclosure sales that the property is subject to any unrecorded leases, whether written or oral, and include appropriate language in my foreclosure notice and any deed given. While I don't expect this legislation to pose a significant problem for most of my lending clients, here is a question that bears mentioning: In Alabama, following foreclosure, many occupants will hold over. You can give them the notice to vacate or risk losing their redemptive rights (big deal, huh!), or, ultimately evict. Does the Other Title VII mandate a 90 day notice? I think not, given the requirements that the tenancy is "bona fide." I think this would require mutual agreement that a tenancy exist. But be warned that if you acquiesce in the occupant remaining, you may risk creating a tenancy that implicates the Other Title VII. The good news is that the Other Title VII provisions sunset in December 31, 2012.