Chapter 11 v Chapter 13 - Part 3

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 -

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.

 

Chapter 11 v. Chapter 13 Part 2

For part two on Chapter 11 v Chapter 13, I am going to dispose of lengthy discussions about exclusivity period, 1111(b) elections, disclosure statement hearings and absolute priority rules.  Instead, I'm going to do this law school style with a hypo.  This post will be about the Chapter 13 side to the hypo

So here are the facts:

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%.

So Joe files for Chapter 13.  When he retains his brilliant attorney, he pays him $2,000 and his counsel will receive $2,000 "through the plan".  Joe's plan proposes to pay $600 per month for 60 months.  This will pay his creditors the $30,000 they are required to recieve, his counsel gets his extra $2,000 and trustee gets his vig and there is a little left over.  All documents are in order, Joe brings his properly completed cashiers check to the 341a he is good to go, right?

No he is not.  While not specified in the code or really backed up by reality, the common law of Chapter 13s state "when a periodic obligation that is not treated under the plan is paid off, that amount of payment is disposable income more or less irrefutably".  So Joe would now being staring down a plan that looks something like:

Month 1-24:  $600 per month

Months 25 -36:  $800 per month (401k loan paid off)

Months 37-60:  $1100 (Car paid off)

Plan base is now $50,400.

Joe is good now, right?  He is only 60 months and 50 grand away from being back in the High Life....

Not quite.  The trustee's hands grabbing all that they can, will (usually) take possession of the Joe's tax

refunds.  Let's say Joe's average tax refund is $500 per year, so his outlay is now $55,400 (includes his $2,000 retainer to counsel).  For simplicity sake I am not going to present value this cash flow.

Next up is Chapter 11

Chapter 11 v Chapter 13 - Part I

    I have quasi advocating for sometime that for many if not most individuals who are filing a re-organization bankruptcy would be better served by Chapter 11 as opposed to the conventional wisdom of filing for Chapter 13.  This is a two part post.  The first part talks about some drawbacks of Chapter 13.

Yesterday, I watched the video of the oral argument of Danielson v. Flores in front of the Ninth Circuit sitting en banc.  I could tell the panel was largely uneducated in things Chapter 13.  I realized this when Judge Kozinski asked Elizabeth whether she represented the Debtor.   Not really.

     During the trustee’s oral argument, Judge Kozinski asked counsel multiple times if a Debtor has zero disposable income what is the Debtor is committing to?  And counsel did an excellent job of explaining why a Debtor might do this, owing the IRS, mortgage arrears, and the ubiquitous lien strip.  However, her best argument was what she didn’t say.

      The panel was not told by any party what really happens on the ground in Chapter 13.  The way it works is the Debtor completes form 22C.  If the Debtor is below median, then the “means test” doesn’t apply.  If the Debtor is above median, then form 22C is completed.  If the number is positive, then you multiply 60 times the number and that equals the amount general unsecured creditors must be paid over the life of the plan.  Further, the plan must be 60 months in duration.

      However,  if the Debtor is negative on projected disposable income then technically the Debtor does not have to pay anything to unsecured creditors.  The panel seemed to think that when a debtor was negative on projected disposable income, it would be obvious, unsecured creditors would get paid nothing and that would be that.

       However, while not at issue, the panel was not told what really happens when a negative projected disposable income debtor files for Chapter 13 for whatever reason.  What really happens, is the trustee will proceed to nickel and dime the Debtor on every expense on Schedules I and J.  This is done under the auspices of “good faith”.  Anyone who can run a query on westlaw (or google scholar) would find out that good faith is not defined by some measure of the reasonableness of expenses nor is Directv NFL Package per se unreasonable(if to watch Seahawks very reasonable, to watch 49ers unreasonable)  Rather, it is a combination of many factors of which expenses is just one area.

       The reason the nickel and diming is an effective strategy is that the trustee owns an immense tactical advantage over Debtors for many reasons.  First, Debtor’s counsel are underpaid like no tomorrow.  In order for a Chapter 13 to be profitable for counsel it really needs to be confirmed quickly with few hearings, or cases must be filed in large groups.  Forcing the Debtor’s counsel to attend multiple hearings simply wears down the Debtor counsel. 

       Second, and this is perhaps the trustee’s most potent weapon, is that the trustee can make an oral motion to dismiss at any hearing and on virtually any grounds.  Often these motions are based on technical aspects involving plan payments, mortgage payments, tax returns, credit counseling certificates, and a myriad of local concerns.   Very few Chapter 13s are dismissed on the merits i.e. failure to confirm a plan because of some missing 1325(a) element.

      Third is some judges just don’t like Chapter 13.  I can’t blame them.  The calendars are long and half the 

cases have zero chance of working.  Here is one judge who really doesn’t like Chapter 13s.

There are many more and those are just the three that came to mind.  I am not even going to get into all the 

post-confirmation problems like tax refunds, motions to modify / dismiss and the hurdles of actually getting 

the discharge order in hand. 

       Nor am I going to get into the limitations on bifurcation of secured claims, the 60-month limit (no more, 

no  less) on repayments and general inflexibility.

      The next installment will get to why in fact Chapter 11 is superior in many cases.

      Finally, I am not begrudging or criticizing any trustee or their counsel for doing the above things.  I 

respect the trustee’s business judgment, if they believe doing the above helps them further their 

responsibilities and duties, then I respect that and won’t question it at all.

Criminal Law

In a lot of ways, criminal is vastly more interesting than Bankruptcy, however probably less stressful, I deal with people who can't pay their bills, criminal law attorneys on both sides deal with life and death.  I couldn't live with putting a innocent guy in jail or getting a guilty person off. 

In order to be balanced, I usually read these two blogs-

This one is from right-wing hard asses.  I like their procedure posts and agree with most of them.  I am not as gung-ho about the death penalty as they are, nor do I believe in punitive punishment like they do.  I think with the exception of the very bad, most prisoners should have a shot a parole after 10 years or so, based on the assessment of their danger to the community.

I also think life without parole is overrated.  If someone is deserving of that sentence, I believe the death penalty is more appropriate.  Locking someone in a cage for 23-hours a day for the rest of their life is far more "cruel and unusual" than death. 

I also like their legal briefs, which again I mostly agree with the notable exception of the "war on terror" cases.  The laws of war are clear, we can't just unilaterally designate someone an "unlawful combatant" because Dick Cheney (or Barack Obama sadly as well) says so.  And, I'm not a fan of invading a country, capturing people and saying well since you are a Saudi in Afghanistan off to Guantanamo you go.  Different story if we catch them in the US.

On the other side......we have this sort of Sherlock Holmes guy.  I like his detailed looks at various cases and his goal to root out wrongful convictions.  His strategem for defense attorneys who have actually innocent clients is fantastic.  He also points out, the prosecution has a lot of subtle advantages that are often overlooked by the lay person who thinks "criminals have too many rights".

I think some of his analysis is a bit conclusory, and some of the people he claims are 100% innocent, I'm a bit skeptical of, with the exception of the fire guy in Texas.  The worse crime to be wrongfully convicted of is arson.  There is no one else out there to be caught.  If you get convicted, you are screwed.  Something needs to change for the admissibility of evidence on that.

He seems a little arrogant like taking credit for turning an initial 11-1 vote for guilty into an acquittal.  But maybe he has the gift of persuasion. 

Anyway, check it out if you care.

Another mass killing......

There was another school shooting today.  It certainly seems like there have been a lot of mass shootings lately.  Off the top of my head, I can think of the Virginia Tech, Tuscon, Colorado Movie Theater, and this one all over the past 2-3 years.  I was curious whether mass shootings are increasing in either number or severity over the past 10 years.  It sure seems like it from the news, but perhaps it is just our society remembering the more recents ones, and forgetting that others occurred.  So I decided to look it up, and by one standard there have been 62 mass killings in the United States since 1982. 

This has a pretty good summary with a chart of some interesting factoids about mass shootings.  I am not a psychiatrist, social worker, or sociologist, but here are a few of my observations about some common themes of the shootings:

1)  most of them occur either at a school or work (current or former)
2)  the assailant often commits suicide
3)  they do not appear clustered in any particular part of the country
4)  family members seem to be more often than not to be victims

I draw two conclusions from this -  (1)  The shooters are very angry (2) The shooters do not value their own lives.

I tried to see if there was a comprable analysis for similar killings in Europe.  Here is one.  Not being satisfied with this, I checked out wikipedia and hit the mother lode.  This wiki lists all sorts of mass killings from around the world.  While, it may be stated that school shootings are something new and horrible in our society and were absent in the days of yore, the worse school shooting in the United States happened in 1927. 

Again, I perused the list and it seemed many of the killings were work, school, or family related and the erstwhile assailant again seemed to more often than not commit suicide.

I am dismayed by what I have found (but somewhat suspected) - mass killings follow a relatively basic pattern and are by no means new or limited to any particular area of the world. 

Based on my "research" (using quotes because I'm chuckling at the thought of a second career as a sociologist), it appears some extremely small percentage of people when faced with an educational, professional or family crisis proverbially "snap".  Instead of committing suicide immediately, for whatever reason they decide to take a bunch of people with them.  Therefore, my overall conclusions are -

1.  limiting access to firearms will not stop these killings.  I believe the assailants use whatever means available to enact their rage.
2.  it is impossible to "deter" these killings.  the perpetrator does not intend to get away with the crime. 
3.  it is probably impossible to identify in 99% of the cases who might become an assailant.

which leads to the final and ultimate and perhaps unfortunate conclusions that -

Mass killings have been around for a long time and probably will be around for a long time going forward.  It isn't guns, it isn't the lack of God, it isn't bad parenting, it isn't society, it isn't heavy metal, it isn't religious extremism.  I wish it was one of those, because then at least we'd have something to look at it to make it stop -  what a mass killing really is, is a very, very bad reaction to certain situations that seems universal to human nature.  I doubt we can ever stop them.  I suppose the only good news is in the grand scheme of the amount of deaths caused each year, it is probably still infinitely safer to be at an elementary school than cross the street in downtown Los Angeles.

Same Sex Marriage Part One Million

My occasional insomnia sometimes leads me to research controversial topics.  In case anyone cares, you can get a good summary of the pro here, and the con here.

The various recent legal opinions are as follows:

Golinski v. U.S. Office of Personnel Management

Gill v. U.S. Office of Personnel Management

Perry v. Brown (Prop 8 case).

Windsor v. United States




The Supreme Court is supposedly conferencing to decide what if, any of these cases hear.

My "I got an A- in con law 8 years ago" opinion is as follows:

1.  The Prop 8 case can easily be punted on Romer.  It will have the effect of legalization same sex marriage in California, and that is it.  I would be surprised if SCOTUS wastes time on this.

2.  Section 3 of the Defense of Marriage Act is probably a goner on any theory, but the easiest and least controversial way to adjudicate is hold states decide who is married and who is not because states have historically been the authority to determine what a marriage is.  Some states have common law marriages, some don't, some you can marry your cousins and some you can't and so forth -  a simple argument is the Feds have no business determining what the states can determine marriage to be.

3.  However, the real issue is whether DOMA as a whole is unconstitutional and going to the next step whether any state ban on same sex marriage is constitutional.  I believe it is clear both DOMA and any ban on same sex marriage fails the "strict scrutiny" or "intermediate scrutiny" test.  However, I think there is some flimsy merit to the "rational basis" test, it is a pretty low bar to pass and I think some of the myriads of arguments about encouraging heterosexual couples to not have kids out of wedlock might pass muster.  Judge Faler would apply one of the higher levels so it would be moot. 

4.  I am certain the liberal wing of SCOTUS is chomping at the bit to take the DOMA cases as is the conservative wing, both for opposite reasons.  However, this puts CJ Roberts in a bind.  Justice Kennedy who authored Romer and Lawrence is probably likely to find some part of DOMA unconstitutional.  If he authors the opinion it could range from very narrow to overturning Section 3, or very broad overturning the entire thing.  While, I don't agree with the CJ on much, he is unlike Scalia / Thomas intellectually honest.  My guess is his preferred option is to let the states sort it out, however with the issue on his desk, he will probably join the majority and attempt to craft some sort of narrow plularity opinion holding homosexuals as a class are only entitled to rational basis review and on those grounds Section 3 is unconstitutional and then not rule on the rest and hope it doesn't come back for awhile.  Then there will be a bunch of concurrences and dissents that will be entertaining but as binding as a tentative ruling on a relief stay motion.  End result is really no binding precedent.

I don't envy CJ Roberts position.  He is going to piss off a large, passionate group of people one way or the other.  However, he already did this on the Obamacare case, so he probably doesn't care about that.  I am certain he knows that same sex marriage is the way of the future, but he believes it should be resolved in the legislative process and not by the courts.  Unforuntately, for him he will be forced to make a decision he doesn't think he should make.

5.  This is my last point.  The anti-same sex marriage offers a lot of reasons for their position ranging from tradition, procreation, saving the government money and encouraging two parent households.  All of these arguments are largely devoid of support and/or legal merit.  The only possible answer for their strident opposition to same sex marriage is they don't like gay people.  Maybe they think gay people are just making a lifestyle choice (as an aside, who cares?  People choose their religion and that gets strict scrutiny), or they are sinners who will burn in hell.  People used to say the same things about inter-racial marriage.  That got overturned in 1967.  It is time to do the same. 

P.S. -  I find the Golinski matter even more fascinating as the illustrious Judge Koz apparently not only serves as the 9th Cir. Chief Judge, he also is in charge of administrative decisions, and in this case Golinski had to goto a lower court to get a writ of mandate on Judge Koz's administrative decision to give her benefits.  I've said this many times, I heart Judge Koz for so many reasons I can't list here.  Why he isn't on the Supreme Court is beyond me.

P.P.S -  I should amend point 5 a bit.  A lot of conservatives fully support same sex marriage ranging from Dick Cheney, Ted Olsen (counsel for Plaintiffs in Prop 8 case), and the troupe of conservative legal scholars here.  Putting it bluntly only religious conservatives are against it, the same group holding Republicans back...coincidence??

P.P.P.S. -  No discussion of con law issues is complete without a look to see what contracts professor / conservative legal guru, Tom Smith has to say on the topic.  Sadly, I was unable to find anything on point.  But for entertainment value, read his posts discounting Nate Silver pre-election and his later half-ass mea culpa.  Almost as good as Dick Morris.  He also quotes R.E.M. in a post, which means TS and I agree on at least one musical selection. 

Why Evolution Matters

Marco Rubio, potential 2016 Republican President contender, gave an interview recently on a myriad of topics.  A lot has been said about his response to how old the earth is.  Also, a representative from Georgia who is also a medical doctor had some rather harsh things to say about evolution.

Rubio and Broun are not stupid or uninformed.  Both of fully aware of evolutionary theory and the concepts behind it.  And both seem to have rejected it on some level.  I assume they believe in some variation on the Christian creation story.  They are fully entitled to this belief.  However, given that they clearly use logic and the scienific method in other aspects of their lives, it is disturbing they appear to discount the evidence on this point.

The problem with this is that when they encounter some evidence which contradicts some belief of theirs, they tend to look the other way.  This is not a trait I would expect from any leader in the public or private sector.  We elect people and pay CEOs the big bucks to solve problems.  We expect them to use rational and systematic thinking.  Or at least I do. 

In short, I can't trust someone who ignores evidence of the existence of some particular trend, theory, or fact for any reason.  Let me give you a hypothetical question -  A CEO of a company has to make a decision how to invest some money.  You are a shareholder of this company.  Presumbably, you would want the CEO to make a decision which will in most likliehood increase the value of your shares.  Would you prefer the CEO to justify his decision based on what the Bible says or would you prefer the CEO base his decision on research, logic, and the like?  I think I know the answer to that.

I am not wedded to any particular answer to any problem.  I am serious.  The primary reason I vote democratic is because I see too many conservatives deny science, be it evolution, global warming, and the like.  Another set of examples, to illustrate my point -

Example 1)  Health Care in the United States.  This is a complicated problem.  Thankfully, to assist ourselves in addressing it, we have numerous other industrialized nations that have a variety of health care systems.  I believe this would be the starting point for any analysis.  However, it seems on the right, we start from this assumption that government run health care is inherently bad and inferior to our current system.  So I ask conservatives why is our system superior?  What evidence suggests this?  What metrics should be used in the analysis?

Example 2)  Budgets, Taxes, and the like.  Liberals say raise taxes on the rich, conservatives say cut taxes on all.  Sometimes defecits matter, sometimes they don't.  Sometimes government spending is bad, sometimes it is good -  see Defense spending.  Again, there is a lot of data to help us in making the correct decision.  We as a nation have had a long history of various tax rates.  Other nations have had challenges with defecits and taxes.  Both of these items should be the starting point for the discussion.  Both liberals and conservatives fail to really use any evidence to support their views. 

Example 3)  Crime and Punishment.  I perceive that most of America is of the "tough on crime" mentality such as long prison sentences, death penalty, "victims rights", no parole and a general attitude that more jails equal less crime.  This topic is a little different than the previous two, as there is some hard to define moral concept i.e. a criminal must be punished, not to deter others or make society safer, but to "punish" the offender.  The concept of punishment in my opinion is beyond anything that can be rationalized and everyone believes in punishment on some level.

Therefore if you strongly believe in punishing criminals the analysis really stops there.  The debate then is about the severity of the punishment not about what creates the greatest benefit to society or any other putative objective of the criminal justice system.

I am in the definite minority in that I do not believe in punishment for punishments sake.  I believe the primary if not sole objective of the criminal justice system is to reduce crime.  Obviously, a big part of this is incarerating criminals for various periods of time.  In my opinion, I think an individuals sentence should be of sufficient length to dissuade him from commiting future crimes and dissaude others from commiting crimes.  If that has the side effect of punishing him, then so be it.  However, these are just my opinions.  I'd like to see the stats from various states and countries -  which systems really reduce crime?  Given my objective I am open to all options. 

Ok, I kind of rambled at the end, but perhaps my crime and punishment stuff should be for another post.  However, evolution matters because the scientific method matters and following logic only when you agree with it, is in fact illogical.