What should you do with a Judgment when a debtor files for Bankruptcy?

Collections, Asset Recovery and Creditor Bankruptcy Representation

Last week Terry Ehrlich and Jean Arnold conducted a seminar on Seeking and Collecting a Judgment.  The following is an excerpt from Jean Arnold's seminar materials answering the question: 

What should you do with a Judgment when a debtor files for Bankruptcy?  The creditor should immediately determine the relevant time frames to take action in the bankruptcy.  The key determinations are:

A.                 First meeting of creditors.  Under Chapter 7 the first meeting of creditors shall be held not less than 20 nor more than 40 days after the Court enters the order for relief.  In Chapter 13 cases the first meeting of creditors shall be held not less than 20 nor more than 50 days after the order for relief enters.  The creditor should attend this meeting, after reviewing the schedules, and ask questions of the debtor who is under oath.  This limited questioning can alert the Trustee to issues in the bankruptcy and allow the creditor to gather important information as to the debtor’s intentions.    

B.                 Deadline to file proof of claim.  90 days after the first date set for the meeting of creditors under 11 U.S.C. § 341(a).  See Bankruptcy Rule 3002(c).  This deadline will be shown on the bankruptcy notice.  In case under Chapter 7 the notice will often state it is a “no asset” case and tell the creditor not to file a claim until directed by the Court.  The creditor will then need to pay particular attention to the bankruptcy proceedings and watch for any further notices of “bar date” for filing claims coming from the U.S. Trustee’s office.

C.                 Deadline to object to discharge of debt.  A complaint to determine the dischargeability of a debt under § 523(c) shall be filed no later than 60 days after the first date set for the meeting of creditors under § 341(a).  A new time period for filing complaints objecting to discharge commences when a Chapter 11 or Chapter 13 case is converted to a Chapter 7 case.  No new time period is available, however, if a case started in Chapter 7, and the applicable period expired in that original chapter, and the case thereafter was converted to Chapter 11 or 13 and then reconverted to Chapter 7.  See  Bankruptcy Rule 1019(3) and discussion in 10 Colo. Prac., Creditors' Remedies - Debtors' Relief § 9.32 (2010).   

D.                Determination of whether to seek relief from stay. If the creditor has a security interest in property of the debtor, the creditor must determine whether there is equity in the property.  If there is not or the creditor is not adequately protected due to declining value or misuse of the secured property, then the creditor may seek relief from stay.

COLLECTIONS: SEEKING AND COLLECTING A JUDGMENT

On April 25, 2011, Terry Ehrlich and Jean Arnold will be teaching at a seminar put on by National Business Institute at the Red Lion Inn at 4040 Quebec Street.  Terry will be teaching on Identifying Fraudulent Conveyances, Asset Searches and the Judgment Debtor Exam and Post-Judgment Collection Strategies.  Jean will be teaching on Creditor Remedies available in Bankruptcy, Fair Debt Collection Practices, and Averting Potential Ethical Problems in Collection.  If you want to learn about collection, this is the seminar to go to!

FRAUDULENT CONVEYANCES:  What happens if you are trying to collect from a debtor and you find that he/she recently transferred all or a large portion of their property to another person, most likely the spouse.  I recently became involved in litigation regarding just that issue.  The husband owned a large house in Elbert County with his wife.  As litigation loomed, he quit claimed his interest in the house to his wife, so that she is now the sole owner.  Is this a fraudulent transfer?  Colorado Statute defines a fraudulent transfer two ways: either a transfer made with actual intent to hinder, delay, or defraud any creditor, or a reasonably equivalent value was not given in exchange for the transfer and the debtor was engaged in a business or transaction in which the remaining assets of the debtor were unreasonably small in relation to the business or transaction. 

The second of these factors would eliminate a sale of an asset made to a unrelated third party for the value of the asset, such as a sale of real property.  In my situtation, there was no a sale to an unrelated third party.  How do we prove intent to defraud?  The Court can look at multiple factors.  Was the transfer made to an insider?  The wife is considered an insider.  Did the debtor retain control of the property after it was transferred?  Since his wife is the owner, it can be assumed that the use of the property is still available to the debtor.  Before the transfer was made, was the debtor sued or threatened with lawsuit?  The debtor had been sued personally in multiple lawsuits totalling hundreds of thousands of dollars. Was the transfer was of substantially all of the debtor's assets?  It was a large portion of his assets.  Did the debtor abscond?  This  debtor moved to Texas, which is very protective of debtors.  Did the transfer occur shortly before or after a substantial debt was incurred?  The transfer occurred shortly before subtantial judgments were entered  against the debtor.  Did the debtor become insolvent as a result of the transfer?  This fact is not known at this time. Was a reasonably equivalent value received for the transfer?  The wife has alleged that she gave her husband consideration, but she has has not given proof of what that consideration was.  Was this a fraudulent transfer?  Soon the judge will decide. that question, if the parties do not settle it before trial.

http://www.arnoldarnold.com/Practice-Areas/collections-and-creditor-bankruptcy.shtml                       

HB 11-1020 UPDATE - Prelien statute referred to Legislative Committee

On March 3, 2011 the House Economic and Business Development Committee on a 13-0 vote, referred HB 11-1020 - Colorado's proposed amendment to its prelien statute - to a Legislative Committee for further study.  The legislative committee will meet over the summer, study the issue and a revised bill will be presented in the 2012 Legislative Session.  Jean Arnold.

Debt Collection Litigation and Post-Judgment Enforcement

In the present economy, debt collection and post-judgment enforcement are popular topics in the legal field.  Too many people think going after a debt right now is a lost cause.  Fear not, there are many options available in our legal system that facilitate the collection of a debt or judgment.  There are also many creative solutions to collecting on a judgment from defendants that you believe are judgment proof. 

Partners Jean C. Arnold and Terry Ehrlich will walk everyone through debt collection litigation and post-judgment enforcement on April 25, 2011 with Onsager, Staelin, & Guyerson, LLC's Christian C. Onsager at an NBI Seminar. 

Register today!
800-930-6182
http://www.nbi-sems.com/

HB 11-1020 Colorado Prelien Statute

 I attended the meeting this morning to discuss the Utah model for the State Construction Registry.  There was a presentation by Colorado Interactive whose parent company handles the Utah portal and online State Construction Registry.  The presentation raised more questions – fee and cost concerns.

The group consensus was to refer the matter for further study over the summer with legislation to be introduced next session.  An amendment L008 is being drafted to accomplish this.  Meetings – with legislative participation – would occur after this session recesses at the end of June.  This issue is not “going away,” but all agreed more study was necessary to appreciate the cost vs. benefit. 

Colorado Prelien Statute - HB 11-1020

Pending HB 11-1020 adding a mandatory prelien notice to Colorado's existing statute - §38-22-102, C.R.S. - is not dead, but in limbo.  There is a meeting tomorrow morning at 7:30 a.m. at the State Capitol among those parties interested in this bill to discuss Utah's prelien registry and whether the registry is a good idea for Colorado will be the topic of tomorrow's meeting.  The meeting is hosted by the Colorado Association of Home Builders.  Jean Arnold.