This is the next part in this series. There will be at least a part 4, because I didn't get all I wanted to into this. In this part, Joe Sixpack has decided (or been talked into) to filing for Chapter 11. Before, I get to this, I must say I have been very appreciative of the positive feedback I have gotten on this and I welcome any further commentary positive or negative. However on to the merits....
Here is Joe Sixpack's factual scenario again -
Here is Joe Sixpack's factual scenario again -
The Debtor Joe Sixpack has $90,000 in unsecured debt. His non gerrymandered form 22C gives him projected disposable income of $500 per month. He has a car payment of $300 per month for the next 36 months. He also has a 401k loan of $200 per month that ends in 24 months. Further, his non gerrymandered and properly re-allocated schedules I and J show a positive $600. The Chapter 13 trustee's vig is estimated to be 5.0%.. One detail I forgot in my previous hypo was, we will assume that Joe's quarterly disbursements will require him to pay a United States Trustee fee of $675 every quarter.
So Joe files for Chapter 11. When he retains his brilliant attorney , he is fortunate that his Chapter 11 counsel is ridiculously cheap (or stupid) and only requires $5,000 up front plus the Chapter 11 filing of $1,246. Joe hims and haws and talks about some guy on a billboard heading east bound on the 10 says he will do a bankruptcy for $399, but our brilliant attorney does a masterful sales pitch, and Joe digs up the cash and pays up. Joe's attorney agrees to charge him $300 an hour and with standard cost reimbursements.
The case is filed. In Chapter 11, once a case is filed we have to do what are known as "7-day package" for the United States Trustee. This sounds a bit daunting, but it really isn't substantially different than the documents one would submit for a similar Chapter 13. One of the matters which is different from 13 to 11 is the Debtor (or really Debtor-in-possession) has to close out existing bank accounts on the day of filing and open what are called Debtor-in-possession accounts or for short, DIP accounts. I won't go into all the ins and outs of this, but this while being a pain in the ass, is not all that complicated. I suggest US Bank for this, they are easy to deal with and it is on the UST approved list.
While Joe is doing his bank account work, brilliant attorney ("BA" after this) has some work to do. He needs to get employed, so he will file an employment application. This is not rocket science, but it needs to get done, if BA wants to get paid. This motion is normally done on negative notice and you won't see any objections unless you have some screwy terms, or you are on the UST shit list. Try to stay off that. Also, some judges are pretty particular and make you follow the local rules to a "T", others rubber stamp absent objection. I suggest drafting a template that conforms to the local rules.
Often you and Joe will be required to attend an "initial debtor interview" or IDI. This is usually a couple weeks or so after you file the case, and is best described as a 341a pre-game show. The UST analyst makes sure your 7-day is in, and basically briefs you and the debtor on how things work in Chapter 11.
After this approximately 3 weeks later, you have the 341a hearing with either the UST analyst or staff attorney. This is like your standard Chapter 13 341a where ids are checked and the schedules are verified for completeness and there is some discussion about what the goal of the case is. This usually takes about 15 minutes and then you are on your merry way.
While this is going on, the Debtor has to file his monthly operating reports. Some debtors are good at this, some are not. A monthly operating report is really a spreadsheet that shows money in, money out and shows whether the debtor is going positive in cash flow (good) or negative in cash flow (bad).
Usually at some point somewhat after the 341a, there will be a status conference. BA will have to file a status report. The point of the conference is to ensure compliance with UST regulations and set some dates. The dates to be set are usually - claims bar date, deadline to file plan / disclosure statement, and sometimes deadline to object to claims. Some judges will waive your appearance if you get your status report in on time and you are current on operating reports and other requirements.
So about now, we are about two months deep into our case. Notice that no one has asked about why you pay $1200 a month for your daughters figure skating lessons (real expense from a chapter 7 of mine....) or asked about step ups or inquired about your plan payment status or asked about mortgage payments or threatened dismissals with a bar or presented you with 42 page manifesto on Chapter 11 procedure in a particular judge's court or referenced poorly reasoned cases like the BAP decision about 401k payments in Chapter 13s.
There is a reason for this and that is because ACCORDING TO 11 USC 1112(b)(2) A MOTION TO DISMISS OR CONVERT REQUIRES NOTICE AND A HEARING AND IT IS ACTUALLY ENFORCED. It is really amazing. Attorneys have to do stuff like file motions supported by real law and evidence, and amazingly oral assertions are not taken as gospel. Perhaps even most amazing, is for once BA gets to feel like a real attorney, where issues are actually decided on the law and not quizzical objections. It is really easy to sit behind a desk and rattle off objections on case after case, but when an attorney actually has to draft a motion, support it with evidence, come to a hearing that has been properly noticed, and respond to the other party's opposition, it makes flimsy motions to dismiss really not worth the time and effort unless you have legitimate grounds.
That concludes Part 3. Part 4 will get to the disclosure statement and hopefully confirmation, then I hope part 5 will be the cost-benefit analysis and I think there will be a Part 6 trying to wrap it all up.
The case is filed. In Chapter 11, once a case is filed we have to do what are known as "7-day package" for the United States Trustee. This sounds a bit daunting, but it really isn't substantially different than the documents one would submit for a similar Chapter 13. One of the matters which is different from 13 to 11 is the Debtor (or really Debtor-in-possession) has to close out existing bank accounts on the day of filing and open what are called Debtor-in-possession accounts or for short, DIP accounts. I won't go into all the ins and outs of this, but this while being a pain in the ass, is not all that complicated. I suggest US Bank for this, they are easy to deal with and it is on the UST approved list.
While Joe is doing his bank account work, brilliant attorney ("BA" after this) has some work to do. He needs to get employed, so he will file an employment application. This is not rocket science, but it needs to get done, if BA wants to get paid. This motion is normally done on negative notice and you won't see any objections unless you have some screwy terms, or you are on the UST shit list. Try to stay off that. Also, some judges are pretty particular and make you follow the local rules to a "T", others rubber stamp absent objection. I suggest drafting a template that conforms to the local rules.
Often you and Joe will be required to attend an "initial debtor interview" or IDI. This is usually a couple weeks or so after you file the case, and is best described as a 341a pre-game show. The UST analyst makes sure your 7-day is in, and basically briefs you and the debtor on how things work in Chapter 11.
After this approximately 3 weeks later, you have the 341a hearing with either the UST analyst or staff attorney. This is like your standard Chapter 13 341a where ids are checked and the schedules are verified for completeness and there is some discussion about what the goal of the case is. This usually takes about 15 minutes and then you are on your merry way.
While this is going on, the Debtor has to file his monthly operating reports. Some debtors are good at this, some are not. A monthly operating report is really a spreadsheet that shows money in, money out and shows whether the debtor is going positive in cash flow (good) or negative in cash flow (bad).
Usually at some point somewhat after the 341a, there will be a status conference. BA will have to file a status report. The point of the conference is to ensure compliance with UST regulations and set some dates. The dates to be set are usually - claims bar date, deadline to file plan / disclosure statement, and sometimes deadline to object to claims. Some judges will waive your appearance if you get your status report in on time and you are current on operating reports and other requirements.
So about now, we are about two months deep into our case. Notice that no one has asked about why you pay $1200 a month for your daughters figure skating lessons (real expense from a chapter 7 of mine....) or asked about step ups or inquired about your plan payment status or asked about mortgage payments or threatened dismissals with a bar or presented you with 42 page manifesto on Chapter 11 procedure in a particular judge's court or referenced poorly reasoned cases like the BAP decision about 401k payments in Chapter 13s.
There is a reason for this and that is because ACCORDING TO 11 USC 1112(b)(2) A MOTION TO DISMISS OR CONVERT REQUIRES NOTICE AND A HEARING AND IT IS ACTUALLY ENFORCED. It is really amazing. Attorneys have to do stuff like file motions supported by real law and evidence, and amazingly oral assertions are not taken as gospel. Perhaps even most amazing, is for once BA gets to feel like a real attorney, where issues are actually decided on the law and not quizzical objections. It is really easy to sit behind a desk and rattle off objections on case after case, but when an attorney actually has to draft a motion, support it with evidence, come to a hearing that has been properly noticed, and respond to the other party's opposition, it makes flimsy motions to dismiss really not worth the time and effort unless you have legitimate grounds.
That concludes Part 3. Part 4 will get to the disclosure statement and hopefully confirmation, then I hope part 5 will be the cost-benefit analysis and I think there will be a Part 6 trying to wrap it all up.
This was damn amusing man. Looking forward to episode 4.
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