The casual observer sitting in a bankruptcy courtroom would observe a
variety of courtroom battles. Many would have the same theme. Here
is a discussion of the main events that occur.
341
MEETINGS The most common activity in the bankruptcy process does
not even involve the court. Every chapter for relief requires that a
debtor appear at a meeting of creditors. Chapters 7, 12 and 13 cases are
presided over by the case trustee. Chapter 11's are conducted by a
representative of the office of the U.S. Trustee. Many times no
creditors appear.
These are not a critical stage in the process. While a trustee may act
after the meeting based on information obtained at the meeting, no formal
decisions occur at or because of the meeting. Appearance is required by
bankruptcy code section 341, hence the name.
Individual debtors are best advised not to fret over attending a meeting.
No property right should be held in abeyance until the meeting (e.g. use of a
checking account). Rarely an antagonistic creditor will appear, but for
the most part, the treatment of debtors by trustees is clinically professional,
with the utmost of respect and dignity.
Our Colorado clients are asked to produce picture identification and verify
their social security numbers.
Most 341 meetings are conducted in conjunction with other settings at the same
time. This "stacking" can mean a 2:00 PM meeting takes place
closer to 3:00 PM and they have been known to occur later if there is a
complex case on the docket.
Counsel must appear in person with the client at these meetings. This office
appears at 341 meetings with debtors represented by other attorneys for their
convenience from time to time. Frequently this firm hires local counsel to
appear on our behalf. We have a good working relationship with bankruptcy
counsel in our geographic area. Clients lose no measure of quality
representation when this sharing of service occurs. Many clients enjoy the
opportunity for second opinions and repeat advice.
STAY RELIEF
The primary showdown in most bankruptcy cases occurs when a secured creditor
attempts to remove its collateral from the effects of the bankruptcy protective
order--the automatic stay. The process is by simple motion and the request
is for relief from the automatic stay. It occurs so often in the
bankruptcy court that it has its own filing fee--currently $75.00.
In opposition to the request, the trustee (which includes debtors-in-possession)
can resist by offering adequate protection to the creditor. The term
adequate protection is not defined by the bankruptcy code and, as a result, the
parties are able to conduct broad spectrum negotiations. The debtor has
the burden of proving all aspects of the adequacy issue once the movant proves
the collateral value. The standard changes for unnecessary property and
property which has no equity. If the creditor's collateral is cash that
the debtor desires to use, the burden is very high--the "indubitable
equivalent."
Often times, the key step in a successful Chapter 11 is the adequate protection
agreement with the debtor's principal secured creditor.
VALUATION The bankruptcy
code defines a secured claimant, as secured to the extent of collateral value, and
unsecured for any debt in excess of collateral value. The consequence is
that bankruptcy judges hear countless hours of appraisal testimony.
TRUSTEE AVOIDANCE POWERS
Many of the proceedings brought in the bankruptcy court are by trustees seeking
to enhance the contents of a debtor's estate by using the extraordinary powers
of their office to gather property that a debtor no longer possesses. Many of
these hinge on the propriety of a security interest, as the trustee is presumed
to have a perfected interest ahead of all those that are not perfect. Issues
involving the Uniform Commercial Code and mortgage law are common.
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