Wednesday, December 28, 2011

Chapter 7 Bankruptcy in Divorce 235-1970

How the the court decides to Dismiss or Convert your chapter seven.

DID YOU KNOW   11 USC 707 authorizes the dismissal or conversion of a Chapter 7 case under certain circumstances.

Posted here by Flint Bankruptcy Attorney Terry Bankert 235-1970. See Http://


In general, a case may be dismissed or converted for cause under 11 USC 707(a), which may include failure to file documents in a timely manner, undue delay that is prejudicial to creditors, failure to pay statutory fees, or for abuse. See In re Zick, 931 F2d 1124 (6th Cir 1991).


The  court may also dismiss a bankruptcy case under 11 USC 707(b) if the case would be “an abuse of the provisions” of Chapter 7 and if the debtor’s obligations are primarily consumer debts.


The Bankruptcy Code contains an elaborate formula to determine whether a case is presumptively abusive, brought in by the Bankruptcy Reform Act of 2005, called the means test. 11 USC 707(b). The test is applied only if the debtor’s current monthly income, as defined in 11 USC 101, is above the safe harbor provision set forth in 11 USC 707(b)(7).


 If it is, the debtor must perform a complicated set of calculations to determine whether the debtor’s income, minus certain standardized expense deductions, is above a certain threshold. If so, the case is presumed to be an abuse.


 However, if the debtor’s income is less than the median income for a family the size of the debtor’s, the debtor meets the safe harbor provision and does not need to perform the means test calculations. Similarly, if the debtor’s debts are primarily business debts, the debtor need not perform the means test calculations.


This test is designed to keep filers with higher incomes from filing Chapter 7 and instead force them into Chapter 13. The idea was to restrict access to Chapter 7 liquidations to those who are truly unable to pay their debts and to require people who have the ability to repay their debts to do so.
11 USC 707(b)(3) may be used to dismiss a case even if a debtor is found to be eligible for relief under 11 USC 707(b)(2)—the means test. In essence, if the court believes that it would be an abuse of the Bankruptcy Code to grant the debtor relief under Chapter 7, it may deny such relief under this provision.

Michigan Family Law ch 17 (Hon. Marilyn J. Kelly et al eds, ICLE 7th ed 2011), at
(last updated 12/16/2011).

Tuesday, November 15, 2011


The matter before the Court is Evangelical Christian Credit Union’s Objection to
Debtor’s Second Amended Combined Plan and Disclosure Statement (Docket No. 66). For the
indicated reasons, the Creditor’s Objection is sustained.
Christian Love Fellowship Ministries, International (“Debtor”) filed its Chapter 11
bankruptcy petition on November 12, 2010. On May 25, 2011, Debtor filed its Second Amended
Combined Plan and Disclosure Statement (Docket No. 61) and on May 27, 2011, the Court
entered an Order Granting Preliminary Approval (Docket No. 63) of such. On July 5, 2011,
Evangelical Christian Credit Union (“ECCU”) filed an Amended Objection to Debtor’s proposed
Plan (Docket No. 68). The Court held a confirmation hearing on July 7, 2011, at which it heard
that objection.
Debtor’s Plan is confirmable except for ECCU’s objection, which relates to its
classification in the Plan. ECCU holds mortgages on Debtor’s properties located at 1601
Stamford Road, Ypsilanti, Michigan and 3936 Palisades Boulevard, Ypsilanti, Michigan, with
reference to which it filed a secured proof of claim for $4,139,966.49. The secured portion of
ECCU’s debt is treated in the plan in a manner that payments thereon, slightly in excess of
accruing interest, would be paid monthly for five years, at which time the entire balance will
become due and payable – it being Debtor’s expectation that it will be able to refinance at that
time, notwithstanding the fact that the principal balance of the secured debt will be fairly close to
what it is today. The unsecured portion of ECCU’s claim, representing its deficiency claim, is
approximately $2,671,966.49.
Debtor’s Plan contemplates the availability of $250,000 to be paid to all unsecured
creditors over the five-year life of the plan. Debtor classified the unsecured creditors as follows:
(1) Class II – all unsecured creditors other than ECCU, and (2) Class III – the unsecured
deficiency claim of ECCU. As originally filed, Debtor’s Schedule F listed some 20 unsecured
creditors, most, if not all of which could be called trade creditors, whose claims total $73,462.28.
On Debtor’s Schedule F, included in that group of unsecured creditors was a single claim of JP
Morgan Chase Bank covering an unsecured line of credit of $42,400.59. The post claims filing
deadline claims register shows eight filed claims, two of which are the secured claim of ECCU
and a secured claim filed by JP Morgan Chase Bank, and the remaining six claims are unsecured
and are essentially those of trade creditors, such as a lawn service provider, phone systems, and a
pest control provider, totaling some $24,785.39 (and included in that amount is some $10,000
owed to one creditor and some $13,000 owed to another, both appearing to cover leased office
equipment). ECCU argues that it is improper for its claim to be separately classified in Class III
and that it should be classified along with the other unsecured claims in Class II, the result of
which would be that ECCU would likely receive a materially larger distribution over the life of
the plan. The issue is whether ECCU’s claim can be separately classified from the other
unsecured claims under 11 U.S.C. § 1122.
A plan of reorganization may be confirmed if all of the requirements of 11 U.S.C. §
1129(a) have been met. Section 1129(a)(8) requires that all impaired classes vote in favor of the
plan. That requirement can be avoided if a Debtor proposes confirmation under § 1129(b),
which imposes the same requirements as § 1129(a), except for (a)(8), but requires that the plan:
(1) “not discriminate unfairly”; and (2) be “fair and equitable, with respect to each class of
claims or interests that is impaired under, and has not accepted, the plan,” and further requires
that at least one impaired class vote in favor of the plan. In this case, Class II as proposed voted
in favor of the plan.
11 U.S.C. § 1122 provides:
(a) Except as provided in subsection (b) of this section, a plan may place a claim
or an interest in a particular class only if such claim or interest is substantially
similar to the other claims or interests of such class.
(b) A plan may designate a separate class of claims consisting only of every
unsecured claim that is less than or reduced to an amount that the court approves
as reasonable and necessary for administrative convenience.
The parties do not disagree with the proposition that “[i]n classifying claims, the general rules
are that ‘[d]issimilar claims may not be classified together; [and] similar claims may be
separately classified only for a legitimate reason.”
(Bankr. E.D. Mich. 2009) (quoting
“The proponent of the plan must demonstrate a justification for its classification scheme and that
the classification is not motivated by the purpose of gerrymandering an affirmative vote of an
impaired class.”
warrant having a separate classification of similar claims, the debtor must advance a legitimate
reason supported by credible proof.”
Debtor argues that its proposed separate classification is justified because Class II
consists of all of its trade creditors with which, during the course the plan period and thereafter,
it expects to continue to do business. Therefore, to justify a separate classification, it argues that
those claims are of a sufficiently different nature or character than ECCU’s deficiency claim.
To appreciate the practical ramifications of the issue in this case, it is noted that, based on
originally scheduled claims (1) Class II would consist of scheduled potential claims amounting
to some $73,462.28, one half of which ($36,731.14) would be paid in sixty equal monthly
payments; and (2) the Class III deficiency claim held by ECCU of some $2,671,966.49 would
receive a 5% payment, totaling $133,598.32, which would be paid in twenty equal quarterly
payments. Debtors have indicated that there is a total of $250,000 for distribution to unsecured
creditors. A calculation of the distribution to Class II and Class III under the express terms of
the proposed plan, based on the scheduled claims, would leave an additional $79,670.54 (out of
the total distribution of $250,000) to be distributed to unsecured creditors. It is clear that, at the
time the proposed plan was drafted, Debtor anticipated a higher total of general unsecured debt
in Class II. If those two classes were combined, based on the scheduled claims, the total amount
of claims would be $2,745,428.80, of which ECCU’S portion would be about 97%. That percent
of the available $250,000 would be approximately $242,500, which is substantially more (some
In re Griswold Bldg., LLC, 420 B.R. 666, 707In re Chateaugay Corp., 89 F.3d 942, 949 (2nd Cir. 1996).Id. (quoting In re Porcelli, 319 B.R. 8, 10 (Bankr. M.D. Fla. 2004). “[T]oId. (quoting In re Chateaugay Corp., 89 F.3d at 949).
$108,901.68) than what ECCU would receive as a member of Class III under Debtor’s proposed
Plan. The remaining 3% of the available $250,000, totaling approximately $7,500, would go to
the other members of that class, and that is a sharp decrease from what they would receive as a
member of Class II under the Debtor’s proposed Plan.
To further fully appreciate the potential ramifications based on actually filed claims
opposed to originally scheduled claims): Class II would consist of actually filed unsecured
claims amounting to $24,785.39, one half of which ($12,392.70) would be paid in sixty equal
monthly payments; and (2) as noted, the Class III deficiency claim held by ECCU of some
$2,671,966.49 would receive a 5% payment, totaling $133,598.32, which would be paid in
twenty equal quarterly payments. A calculation of the distribution to Class II and Class III under
the express terms of the proposed plan, based on the filed claims, would leave an additional
$104,008.98 (out of the total distribution of $250,000) to be distributed to unsecured creditors.
As already noted above, it is clear that, at the time the proposed plan was drafted, Debtor
anticipated a higher total of general unsecured debt in Class II.
combined, based on the filed claims, the total amount of claims would be $2,696,751.90, of
which ECCU’S portion would be about 99%. That percent of the available $250,000 would be
approximately $247,500, which is substantially more (some $113,901.68) than what ECCU
would receive as a member of Class III under Debtor’s proposed Plan. The remaining 1% of the
available $250,000, totaling approximately $2,500, would go to the other members of that class,
and that is a sharp decrease from what they would receive as a member of Class II under the
Debtor’s proposed Plan.
As this Court views the unsecured claims classification law in this circuit, it is that (a)
section 1122(a) does not demand that all similar claims be in the same class; (b) the bankruptcy
court has substantial discretion to place similar claims in different classes if there is a reason to
do so; and (c) where it appears that the classification sought is primarily to create a class of
consenting creditors to be able to assure acceptance and confirmation, separate classification is
Co. (In re U.S. Truck Co.)
F.3d 648 (6th Cir. 2002). One commenter has stated that:
1 (as2 If those two classes wereSee Teamsters National Freight Industry Negotiating Committee v. U.S. Truck, 800 F.2d 581, 586 (6th Cir. 1986); In re Dow Corning Corp., 280
The claims bar date has passed.
It is clear that these plan provisions would need to be amended to account for these differences.
the clear trend in the courts of appeals is that the unsecured mortgage deficiency
claims of an undersecured mortgage lender cannot be classified separately from
unsecured trade creditors’ claims when the sole purpose for the separate
classification is to manipulate class voting and to create an impaired class of
unsecured claims willing to accept a proposed plan. These courts have held that
the mere fact that some claims arise as a result of undersecured portions of claims
does not distinguish such undersecured claims from other unsecured claims so as
to justify separate classification.
6 Norton Bankruptcy Law and Practice 3d § 109.4 (citations omitted). In the noted
U.S. Truck
case, the separate classification of a claim arising out of a collective bargaining agreement and
the debtor’s relationship with the union involved was justified because of the “virtually unique”
interest of the union employees in their ongoing relationship with the debtor and continuing
collective bargaining process.
anticipated ongoing relationship with its indicated trade creditors over the life of the plan is
likewise to be distinguished from its relationship to ECCU, justifying a different claim treatment
and consequent separate classification.
This Court disagrees for a number of reasons. First, there are trade creditors in most
Chapter 11 cases and in many, if not most, of those same cases there are also undersecured
claims giving rise to deficiency claims. If the separate classification were to be upheld in this
case, it would be the rare case where it would not be. Second, the facts with regard to the small
number and identity and type of the unsecured creditors and the amounts of their claims lend
credence to the argument that the proposed classification in this case is primarily for the purpose
of obtaining a consenting class which approves the proposed plan. Third, with respect to the
ECCU deficiency claim and the claims of the other unsecured creditors, there is little to
differentiate them other than by their source or how they arose, and there are not the kind of
“unique” differences as, for instance, justified the separate classification in the
It appears to be the case that the Debtor’s rationale for the difference is the potential of a
continuing relationship with the other unsecured creditors over the life of the plan. In this case,
Debtor has also built a continuing relationship with ECCU, one that the plan proposes will
continue for the life of the plan. If it wants to, Debtor can continue to do business with the small
number of other unsecured creditors, whose services are not unique and are readily available in
the market place, and, if the service providers want to continue to do business with the Debtor
(neither of which is required), they free to continue or discontinue any ongoing relationship
U.S. Truck, 800 F.2d at 586. In this case, Debtor argues that itsU.S. Truck case.
(unlike the continuing essentially mandated collective bargaining agreement relationship in
normal course of post-confirmation business and during the life of the plan militates against the
Debtor’s argument in this case, which would afford to the more certain continuing relationship
an inferior result. In any event, the differences, if any, between ECCU’s deficiency claim and
the other unsecured creditor’s claims, do not sufficiently justify either overcoming the
gerrymandering purpose (evident from the indicated claims analysis and other facts) in this case,
or the conclusion that whatever differences one can articulate are of insufficient substance and
materiality to justify distinguishing between them requiring or permitting dissimilar treatment.
U.S.). Indeed, the fact that some or all of those relationships may or could easily end during the
For those reasons, the Court concludes that ECCU’s objection to confirmation of
Debtor’s Second Amended Combined Plan must be sustained. In view of this result, a status
conference on the future of this case will be held on November 30, 2011 at 9:45 a.m.
Signed on November 09, 2011

In re:
Case No. 10-74467
Christian Love Fellowship Chapter 11
Ministries, International, Hon. Walter Shapero

Monday, November 7, 2011


Terry Bankert of “OCCUPY FLINT”11/7/11

Civil disobedience inevitable in the Occupy FLINT  Movement? Yes! What do you think?

FYI the following.

Civil disobedience is the active, professed refusal to obey certain laws, demands, and commands of a government, or of an occupying international power. Civil disobedience is commonly, though not always,[1][2] defined as being nonviolent resistance. It is one form of civil resistance. In one view (in India, known asahimsa or satyagraha) it could be said that it is compassion in the form of respectful disagreement.


Any effort by a tiny minority to break the unity of action of our movement must be repelled. Anything short of strict nonviolence will play into the hands of the right-wingers in the police department, and into the hands of Wall Street.
There is nothing Wall Street and right-wingers at all levels of government would love more than to have today's public anger against them turn into its very opposite.

When engaging in civil disobedience, let's employ non-violent tactics that will galvanize broad unity with the people of Oakland and nation.
Tactics that will win over even misguided working people and students influenced by Fox television and other media outlets at the service of Wall Street and the far right.

Atlanta (CNN) -- Occupy protesters returned to the streets of Atlanta on Sunday night, a day after a police crackdown on a gathering organized by the movement resulted in the arrests of 19 people....Those arrested Saturday included two people who refused to leave Woodruff Park after the 11 p.m. closing time and 17 others charged with obstructing traffic after the crowd poured onto nearby streets, the Atlanta Police Department said
…..The group may change gears and use other ways to convere no people protesting, if banks start failing again because of Greece, they will come back to the government for a bailout. The government needs to know people are watching.".....New York has made 555 arrests in the Occupy Wall Street movement on charges ranging from minor vioy its message, including "occupying" banking facilities and homes facing foreclosure, according to Chidi.
….."The financial services industry is not being properly regulated or overseen," said the 38-year-old consultant. "We are cruising toward another 2008 meltdown."
And the protests will send a strong message, he said.
"We have not learned a lesson from the last catastrophe. If there alations to felonies, the district attorney's office said. New York City Police said last week they charged a 26-year-old Brooklyn man with sexual abuse for inappropriately touching an 18-year-old woman at Zuccotti Park, the home base for the protests. In Oakland, California, demonstrators and police clashed last week, prompting authorities to use tear gas on protesters who defied orders to disperse.

ATLANTA -Atlanta police said one protester draped in an American flag inside Woodruff Park was arrested after refusing to leave by a Sunday night curfew, and four other people on bicycles were arrested near the park - three for traffic violations and one for obstruction of a law enforcement officer.

HPD arresting Occupy Honolulu Protestors from sidewalk. Beretania Street
Nov 6, 2011 by Euronews At least 20 people have been arrested after scuffles broke out during an Occupy Wall Street protest in New York.
Police and Occupy DC protesters are offering conflicting accounts about a weekend incident in which a motorist struck three protesters near a downtown demonstration.
Police arrested roughly a half dozen protesters after organizers of the Occupy Honolulu movement attempted to establish an encampment at a local park.
Some 20 police officers arrived late Saturday at the city’s Thomas Square. Members of Occupy Honolulu had said earlier Saturday that they planned to begin camping at the park starting at its 10 p.m. closing time. About 40 protesters were gathered at the site when authorities began telling them to leave.
…..Honolulu organizers said they also stood “in solidarity” with the homeless who are being forced from the streets and parks as the city prepares this week to host the Asia-Pacific Economic Cooperation.
Portland Police Bureau chief Mike Reese has told members of Occupy Portland that concerns about their security in camp and on marches are warranted, but says protesters must work more closely with police......
The Occupy Wall Street movement has spurred demonstrators in Cincinnati to form their own political party.
Spokesman Tyrone Givens tells The Associated Press that he and other Cincinnati-based protesters traveled to New York’s Occupy site to pitch the idea. He says the party is vetting six potential candidates for local office from Ohio, New York and Kentucky.
Givens says the ultimate goal is to elect members of the “Occupation Party” to Congress.
Several hundred protesters marched through the financial district in Los Angeles to protest the banking industry as part of “Bank Transfer Day,” a grassroots movement that has been championed by the Occupy Wall Street protests.
…..The march ended with a teach-in by former labor secretary Robert Reich.
Meanwhile, a downtown Oakland branch of Wells Fargo bank closed its doors for the day Saturday as immigrant rights protesters crowded the entrance to condemn the bank’s ties to private companies that run immigrant detention centers.

More than 100 protesters marched a block from the Occupy Oakland encampment to the bank branch Saturday morning. A few protesters briefly tussled with bank security guards who stood in front of the locked entrance. Police were on the scene but made no arrests.
Dozens of anti-Wall Street protesters marched Saturday through downtown Indianapolis, chanting slogans and holding signs berating the nation’s big banks after a rally where they urged people to transfer their money to local banks and credit unions.
About 80 protesters marched from the Indiana Statehouse to Monument Circle, where they stopped outside two banks and loudly chanted “This is democracy in action!” before continuing.
Fifteen campers set up tents Saturday at the Old Ada County Courthouse lawn in downtown Boise with some planning to stay for as long as they can.
The Idaho Statesman reports that the protesters met with state officials earlier in the week and agreed to ground rules limiting the number of campers to 15 until more services are put in place.
About 200 protesters marched to Parliament on Guy Fawkes Day, the annual commemoration of the English revolutionary who tried to blow up the building in the 17th century.
Many of Saturday’s protesters in London were wearing a grinning, somewhat sinister mask of Guy Fawkes that has become an icon of the Occupy Movement around the world. The rally was largely peaceful, but the group was kept from getting close to Parliament by a heavy police presence.
…..Many of the demonstrators had marched from St. Paul’s Cathedral in London, where the Occupy movement has set up camp for weeks to protest social inequality and the excesses of the banking industry. Two protesters were arrested for suspected criminal damage and unlawful protest, police said.

Sunday, November 6, 2011



In your Chapter Seven Bankruptcy most credit card, medical, and legal debts are discharged. Also eliminated are  most court judgements and loans.

Presented by Flint Bankruptcy Attorney Terry Bankert 810-235-1970 , Contact Bankruptcy Lawyer Bankert at

Some of your debt cannot be  discharged like:

[1] debts to pay non discharge-able taxes ,

[2] court imposed fines and resitutions to include driver responsibility fines,

[3] back child support and alimony,

[4] debts owed to an ex spouse a a result of a divorce or separation,

[5] loans owed to a retirement plan such as a 401 (k) (because you are the creditor as well as the debtor in this situation.

[6] student loans ( unless you can show that repaying the loans would be an undue hardship.)

[7]  federal and state taxes that were  first due less that three years before you filed your bankruptcy.

[8] Debt for personal injuries or death resulting from your drunk driving.

Specific debts will survive your bankruptcy if the creditor  seeks an order from the court to exclude it.

These excluded would be  debts arising from your fraudulent actions, recent credit card transactions for luxery items, and willful and malicious actions causing personal injury or property damage.

Most of your property  except  pension and retirement plans becomes  part of your bankruptcy estate when you file.

This is property you own or are entitled to own. The bad news is this include property you tried to protect by  selling to family or friends for a reduced rate in the last two years. This includes certain types of property  you have come to dis own  within 6 months before you filed.  This is also true of marital property even if only one spouse files.

When you go to your “ Meeting” the bankruptcy trustee is looking  for property when sold will generate a profit to pay the trustee and your creditors.  If you owe more on your car or house than it is worth the trustee will not be interested in it.

Yes you can keep your car  and house if:

[1] you are current on  the mortgage or auto loan.

[2] You have no  significant  equity in the house or car.

To keep after bankruptcy you must sign an affirmation agreement. You effectively remove them from the  bankruptcy and say you will pay the balance. If  your bankruptcy is completed with a discharge of debt you cannot file again for bankruptcy for 8 years.

For additional information contact Terry Bankert 810-235-1970.
, .

Sunday, October 16, 2011


Need a Flint Bankruptcy,  call Terry Bankert 810-235-1970
2. Core Proceedings
§1.7    Bankruptcy judges may hear and decide all core proceedings and may enter orders and judgments in those proceedings subject to appellate review. 28 USC 157(b)(1). Examples of core proceedings are listed in 28 USC 157(b)(2) and include (1) motions to lift the automatic stay, (2) actions to recover fraudulent conveyances and preferences, and (3) determinations whether certain debts are dischargeable. Also included on the list are “other proceedings affecting the liquidation of the assets of the estate or the adjustment of the debtor-creditor or the equity security holder relationship.” 28 USC 157(b)(2)(O). For decisions construing the scope of core proceedings, see In re Pioneer Inv Servs Co, 946 F2d 445 (6th Cir 1991); Bliss Techs, Inc v HMI Indus  (In re Bliss Techs, Inc), 307 BR 598 (ED Mich 2004); and In re Marshall, 118 BR 954 (WD Mich 1990).

Flint Genesee MI Attorney / Lawyer practicing in Family Law, Divorce, Bankruptcy. 810-235-1970

In Stern v Marshall, ___ US ___, 131 S Ct 2594 (2011), the U.S. Supreme Court ruled that 28 USC 157(b)(2)(C), which provides for state law counterclaims by the bankruptcy estate against persons filing claims against the estate, is unconstitutional with respect to a state law counterclaim that is not resolved in the process of ruling on a creditor’s proof of claim because non–Article III bankruptcy judges do not have the power to make final judgments on such claims. Stern calls into question the authority of bankruptcy courts to decide any state law claims and possibly even some core functions of the bankruptcy courts. See also Meoli v Huntington Nat’l Bank  (In re Teleservices Group, Inc), No HG 05-00690, 2011 Bankr LEXIS 3128 (Bankr WD Mich Aug 17, 2011) (analyzing impact of Stern).
In In re Moses, 225 BR 360 (ED Mich 1998), District Judge Gerald Rosen held that the bankruptcy court had subject-matter jurisdiction to determine the validity of a claim against a nondebtor corporation whose stock was held by a bankruptcy trustee. This proceeding was held to be “core” under 28 USC 157(b)(2).

Michigan , Flint Genesee, Lawyer / Attorney , Bankruptcy, 810-235-1970, Divorce and Family Law

3. Related Proceedings
§1.8   Noncore or related proceedings are not defined in the Code. Nevertheless, Congress declared that a proceeding should not automatically be classified as related merely because “its resolution may be affected by State law.” 28 USC 157(b)(3). For decisions addressing the nature of related proceedings, see Robinson v Michigan Consol Gas Co, 918 F2d 579 (6th Cir 1990). See also Thelen v Cushion, 156 BR 786 (Bankr WD Mich 1993); In re Pal Nissan, Inc, 126 BR 966 (Bankr WD Mich 1991).
For decisions construing the broad scope of “related to” jurisdiction, see Celotex Corp v Edwards, 514 US 300 (1995); BN1 Telecomms, Inc v Lomaz  (In re BN1 Telecomms, Inc), 246 BR 845 (6th Cir BAP 2000); Lindsey v O’Brien, Tanski, Tanzer & Young Health Care Providers  (In re Dow Corning Corp), 86 F3d 482 (6th Cir 1996), cert denied, 519 US 1071 (1997) (district court, sitting in bankruptcy, had related jurisdiction over breast implant claims asserted against nondebtors); and 8300 Newburgh Rd P’ship v Time Constr  (In re Time Constr), 43 F3d 1041 (6th Cir 1995).

Flint Family Law and Bankruptcy Lawyer , Attorney Terry Bankert 810-235-1970,

4. Practical Effect of the Distinction Between Core and Related Proceedings
§1.9   Although the distinctions made between core and related proceedings often vary with each bankruptcy judge, they are extremely important to the bankruptcy practitioner. First and foremost, if an action is classified as a core proceeding, the bankruptcy judge may enter final orders and judgments in that action, subject only to appellate review. 28 USC 157(b)(1). In related proceedings, however, bankruptcy judges may only submit proposed findings of fact and conclusions of law to the district court, which then reviews the entire matter de novo and enters a final judgment or order. 28 USC 157(c)(1). Nevertheless, if the parties consent, this intermediate step may be eliminated and the bankruptcy judge may enter a final judgment in a related proceeding. 28 USC 157(c)(2); see DuVoisin v Foster  (In re Southern Indus Banking Corp), 809 F2d 329 (6th Cir 1987). The procedures for objecting to a bankruptcy judge’s proposed findings of fact and conclusions of law are set forth in Bankruptcy Rule 9033. See generally Boyd v Sachs, 133 BR 384 (Bankr WD Mich 1991).
The bankruptcy judge, either on his or her own motion or on the timely motion of a party, determines in the first instance whether a particular matter should be classified as core or related. 28 USC 157(b)(3). Bankruptcy Rule 7008(a) requires all pleadings in adversary proceedings contain a statement that the proceeding is core or related. If it is related, the pleader must state that it does or does not consent to the entry of a final order or judgment by the bankruptcy judge.

Bankruptcy, 810-235-1970, Flint, Bay CIty, Saginaw, Owosso, and Burton. Genesee Flint Lawyer / Attorney also Family Law and Divorce

5. Sovereign Immunity
§1.10   Section 106(a) of the Bankruptcy Code, 11 USC 106(a), prescribes that a state governmental unit may waive its sovereign immunity guaranteed by the Eleventh Amendment to the U.S. Constitution with respect to certain sections of the Code, including 11 USC 523, which governs dischargeability of debts. In Scarborough v State of Michigan Collection Div  (In re Scarborough), 229 BR 145 (Bankr WD Mich 1999), Bankruptcy Judge Jo Ann Stevenson ruled that Congress did not act pursuant to a valid exercise of power when it enacted this provision and, consequently, that the bankruptcy court lacked jurisdiction to determine the dischargeability of student loan debts.
In 2004, the U.S. Supreme Court expressly declined to decide whether a bankruptcy court’s exercise of personal jurisdiction over a state would be valid under the Eleventh Amendment. Tennessee Student Assistance Corp v Hood, 541 US 440 (2004). However, in a later decision the U.S. Supreme Court held that a proceeding initiated by a bankruptcy trustee to set aside preferential transfers by the debtor to state agencies was not barred by sovereign immunity:
The relevant question is not whether Congress has “abrogated” States’ immunity in proceedings to recover preferential transfers. See 11 USC 106(a). The question, rather, is whether Congress’ determination that States should be amenable to such proceedings is within the scope of its power to enact “Laws on the subject of Bankruptcies.” We think it beyond peradventure that it is.
Central Virginia Cmty Coll v Katz, 546 US 356, 379 (2006).
Sovereign immunity may be waived by the consent of the governmental unit, such as by filing a proof of claim in a bankruptcy case when the cause of action asserted by the bankruptcy estate against the governmental unit relates to the unit’s claim against the estate. 11 USC 106(b); see also First Union Nat’l Bank v MCA Fin Corp  (In re MCA Fin Corp), 237 BR 338 (Bankr ED Mich 1999) (other grounds for consent).

Flint Michigan, Terry Bankert 810-235-1970 Flint Lawyer Attorney practicing in Family Law and Bankruptcy

C. Withdrawal of Cases and Proceedings
1. In General
§1.11   Although the jurisdictional provisions of the Bankruptcy Code and the local rules for both the Eastern and Western Districts of Michigan automatically refer all bankruptcy cases and proceedings to the bankruptcy judges, under certain circumstances a federal district court may withdraw the reference of a particular case or proceeding. The district court then proceeds to adjudicate the matter that has been withdrawn. This withdrawal is either permissive or mandatory. 28 USC 157(d); NLT Computer Servs Corp v Capital Computer Sys, Inc, 755 F2d 1253 (6th Cir 1985).

Flint DIvorce Family Law Attorney / Lawyer 810-235-1970

2. Permissive Withdrawal
§1.12   The district court may, in its discretion, withdraw a bankruptcy case or proceeding. 28 USC 157(d). However, a party must demonstrate cause for withdrawal. What constitutes cause depends in part on the philosophy of the particular judge. Decisions that address this discretionary power of the district court include Gold v Dobday Mfg Co  (In re Solar Stamping & Mfg, LLC), No 08-13433, 2008 US Dist LEXIS 68868 (ED Mich Sept 10, 2008); Lucre, Inc v Verizon N, Inc, No 1:07-CV-120, 2007 US Dist LEXIS 36846 (WD Mich May 21, 2007); In re Auto Specialties Mfg Co, 134 BR 227 (WD Mich 1990); and In re Michigan Real Estate Ins Trust, 87 BR 447 (ED Mich 1988).

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3. Mandatory Withdrawal
§1.13   The reference of a proceeding must be withdrawn by the district court from the bankruptcy court on the timely motion of a party when both the Bankruptcy Code and another federal law “regulating organizations or activities affecting interstate commerce” must be considered to resolve the dispute. 28 USC 157(d). However, that the proceeding involves consideration of a law affecting interstate commerce does not by itself mandate the withdrawal of the reference. The legislative history of 28 USC 157(d) and the caselaw decided under it require mandatory withdrawal only when the resolution of a case or proceeding depends on a consideration of the non-Code federal statutes. See, e.g., Lucre, Inc v Verizon N, Inc, No 1:07-CV-120, 2007 US Dist LEXIS 36846 (WD Mich May 21, 2007); In re Auto Specialties Mfg Co, 134 BR 227 (WD Mich 1990); In re Michigan Real Estate Ins Trust, 87 BR 447 (ED Mich 1988).
In Laborers’ Pension Trust Fund–Detroit & Vicinity v Kiefer  (In re Kiefer), 276 BR 196 (ED Mich 2002), Federal District Judge Paul V. Gadola withdrew the reference of an adversary proceeding filed against a debtor. Plaintiff’s complaint asserted claims against defendant for breach of fiduciary duty under the Employee Retirement Income Security Act of 1974. In its decision, the court rejected other authority that withdrawal of the reference is mandatory only where the claims asserted require “substantial and material consideration” of non–Bankruptcy Code federal statutes.

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4. Procedure for Withdrawal
§1.14   Bankruptcy Rule 5011(a) provides that the district judge, rather than the bankruptcy judge, hear motions for the withdrawal of cases and proceedings. The filing of such a motion does not stay either the administration of a case or the progress of a proceeding. Bankruptcy Rule 5011(c). A motion for a stay pending a determination of the withdrawal motion “ordinarily shall be presented first to the bankruptcy judge.” Id. If a stay motion is filed with the district court judge, that motion must state “why it has not been presented toD. Abstention
1. Permissive
§1.15   The jurisdictional provisions of the Bankruptcy Code include provisions for permissive and mandatory abstention by a bankruptcy judge from deciding a particular matter. The court may abstain from hearing any matters connected to a bankruptcy case “in the interest of justice, or in the interest of comity with State courts or respect for State law.” 28 USC 1334(c)(1). For recent decisions construing the power of a bankruptcy court to abstain from hearing matters on permissive grounds, see Kmart Creditor Trust v Conaway  (In re Kmart Corp), 307 BR 586 (Bankr ED Mich 2004); In re DC Equip, Inc, 112 BR 855 (Bankr WD Mich 1990). See also James P Barkman, Inc v Granger Constr Co  (In re Barkman, Inc), 170 BR 321 (Bankr ED Mich 1994).
2. Mandatory
§1.16   Under 28 USC 1334(c)(2), a court must abstain from deciding a bankruptcy matter involving a “State law claim or State law cause of action” if certain requirements are met. First, a timely motion for abstention must be made by a party to that proceeding. Second, the proceeding must be based on a state law claim or cause of action. Third, the proceeding must not have been commenced in a federal court on an independent ground for federal jurisdiction, 28 USC 1334(b). Thus, if there is any other basis for federal jurisdiction, such as diversity of citizenship, mandatory abstention does not apply. Fourth, the action must have been pending in state court as of the date the bankruptcy case is commenced (although the statutory language is somewhat ambiguous on this point). Fifth, it must appear that the state court action can be “timely adjudicated”; to determine whether it can be, the bankruptcy court must consider the state court’s calendar, the state of the bankruptcy proceeding, and the complexity of the issues involved.
Bankruptcy Rule 5011(b) provides that a motion for permissive or mandatory abstention must be heard by the bankruptcy judge and is governed by Bankruptcy Rule 9014.
The mere filing of an abstention motion does not stay the case or proceeding that is the subject of the motion. Bankruptcy Rule 5011(c). A motion for a stay is ordinarily presented first to the bankruptcy judge, who may stay proceedings pending the disposition of the motion. Id. If a stay motion is filed with the district judge, the motion must state “why it has not been presented to or obtained from the bankruptcy judge.” Id. For decisions on mandatory abstention, see Kmart Creditor Trust v Conaway  (In re Kmart Corp), 307 BR 586 (Bankr ED Mich 2004); Haworth, Inc v Sunarhauserman, Ltd/Sunarhauserman Ltee, 131 BR 359 (Bankr WD Mich 1991); and In re Adams, 133 BR 191 (Bankr WD Mich 1991). or obtained from the bankruptcy judge.” Id. ED Mich LR 83.50(b)(1) also requires that the district court hear all withdrawal of reference motions. See also In re Pal Nissan, Inc, 126 BR 966, 973 (Bankr WD Mich 1991).
LBR 5011 (WD Mich) sets forth a detailed procedure governing motions to withdraw the reference of a bankruptcy case or proceeding in the Western District.

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E. Venue of Bankruptcy Cases and Proceedings
§1.17   In general, a debtor who seeks bankruptcy relief may file a bankruptcy petition in the court for the district in which the debtor’s domicile, residence, principal place of business, or principal assets have been located for 180 days before the date of filing. 28 USC 1408. In the Eastern District of Michigan, LBR 1071-1(a) (ED Mich) establishes three administrative units (Detroit, Flint, and Bay City) for cases filed in that district. If a case is filed in the wrong administrative unit—for example, if a corporation headquartered in Bay City files its petition in Detroit—the bankruptcy judge may transfer that case to the proper administrative unit. LBR 1071-1(c)(1) (ED Mich); see, e.g., In re Romzek, 50 BR 720 (Bankr ED Mich 1985). The Bankruptcy Court for the Western District of Michigan has adopted a similar local rule. See LBR 1014 (WD Mich).
Special venue provisions for core and noncore proceedings are set forth in 28 USC 1409. The most important of these are in subsections (a) and (b). It is generally required that all core and noncore proceedings be brought in the court in which the bankruptcy case is pending. 28 USC 1409(a). Thus, if a bankruptcy trustee seeks to recover a fraudulent conveyance under 11 USC 548, the trustee should file an adversary proceeding with the bankruptcy court from which the debtor’s estate is being administered. A trustee may commence a proceeding to recover a money judgment or property worth less than $1,100 (increased to $1,175 effective April 1, 2010) or a consumer debt of less than $16,425 (increased to $17,575 effective April 1, 2010) only in the district court for the district in which the defendant resides. 28 USC 1409(b). For example, if a Michigan bankruptcy trustee seeks to recover a $900 preference from a creditor residing in San Diego, California, the trustee must commence the adversary proceeding in the Southern District of California.
Finally, it should be noted that 28 USC 1412 permits a district court to transfer a bankruptcy case or proceeding to another district court “in the interest of justice or for the convenience of the parties.” In addition, in the Eastern District of Michigan and the Western District of Michigan, a bankruptcy judge may “in the interest of justice or for the convenience of the parties” transfer a case or proceeding to any other court location in the district, but only after notice and a hearing. LBR 1071-1(c)(1) (ED Mich); LBR 1014 (WD Mich); see also Bankruptcy Rule 1014; see generally Blachy v Butcher  (In re Butcher), No 1:91-CV-979, 1993 US Dist LEXIS 12119 (WD Mich Aug 16, 1993), rev’d and remanded on other grounds, Nos 95-CV-70325-DT, 95-CV-70349-DT, 1995 US Dist LEXIS 11782 (ED Mich July 31, 1995), aff’d in part and rev’d in part on other grounds, 221 F3d 896 (6th Cir 2000), cert denied, 532 US 994 (2001); Cook v Cook, 215 BR 975, remanded, 220 BR 918 (Bankr ED Mich 1997); In re Macatawa Hospitality, Inc, 158 BR 82 (ED Mich 1993).

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F. Removal and Remand of State Court Proceedings
§1.18   A party to an action pending in a state or federal court may remove that action to the district court where the civil action is pending, provided that the district court has jurisdiction over that action under 28 USC 1334. 28 USC 1452(a). However, U.S. Tax Court proceedings and civil actions to enforce governmental units’ police or regulatory power may not be removed under this provision.
To illustrate the operation of this provision, assume that before bankruptcy, a debtor commences a claim and delivery action in state court for the recovery of property he alleges he owns. The defendant in that action then files an answer denying that the property is owned by the debtor and counterclaims for damages. If the debtor then files a Chapter 11 petition, either the debtor or the defendant may remove this action to the federal district court for the district in which the state court action is pending. That action would then be referred to the bankruptcy judge assigned to the debtor’s Chapter 11 case, provided that the debtor filed his petition in that same district. If the debtor’s case is pending in another district, the action may be transferred to the home district after it has been removed pursuant to 28 USC 1412.
Bankruptcy Rule 9027 sets forth the procedure to remove a proceeding under 28 USC 1452(a). A party seeking the removal of an action to the bankruptcy court may file a notice of removal with the bankruptcy court clerk in the district where the action is pending. Bankruptcy Rule 9027(a)(1). This notice must contain a statement that “upon removal of the claim or cause of action the proceeding is core or non-core and, if non-core, that the party filing the notice does or does not consent” to the entry of a final order or judgment by the bankruptcy judge. Id. After filing the notice of removal, the party filing the notice must serve copies of it on all parties to the removed action. Bankruptcy Rule 9027(b). A removal bond is not required.
After filing the notice of removal, the party seeking removal must then file a copy of that notice with the clerk of the court from which the action was removed. Bankruptcy Rule 9027(c). On completion of this filing, the action is effectively removed and all further proceedings in the first court are stayed. Id.
Bankruptcy Rule 9027 also establishes strict time limits for removal. Bankruptcy Rule 9027(a)(2) requires that if the action is pending in a non–bankruptcy court before the filing date, the application for removal must be filed by the latest of (1) 90 days after the date on which the order for relief was entered; (2) 30 days after the entry of an order terminating the automatic stay, provided that the action was subject to the stay; or (3) 30 days after a Chapter 11 trustee qualifies for appointment, but no later than 180 days after the filing date. Bankruptcy Rule 9027(a)(3) prescribes time limits for the removal of actions that were commenced after the bankruptcy petition was filed.
Even if an action has been removed to the district court and referred to the bankruptcy judge for decision, it may later be remanded to the court in which it was first filed “on any equitable ground,” such as judicial economy. 28 USC 1452(b). A decision to remand or not to remand such an action is not reviewable by appeal or otherwise. Boone Coal & Timber Co v Polan, 787 F2d 1056 (6th Cir 1986).
A party seeking remand of the removed action must file a motion with the bankruptcy court, and the resulting contested matter is governed by Bankruptcy Rule 9014. The motion for remand must be served on all parties to the removed action. Bankruptcy Rule 9027(d); see generally Frank & Stefani, PC v Vanderbeke, No 94-CV-70960-DT, 1994 US Dist LEXIS 12562 (ED Mich June 30, 1994); In re Atron, Inc, No 1:93-CV-133, 1993 US Dist LEXIS 6848 (WD Mich Mar 9, 1993); In re Adams, 133 BR 191 (Bankr WD Mich 1991); Haworth, Inc v Sunarhauserman, Ltd/Sunarhauserman Ltee, 131 BR 359 (Bankr WD Mich 1991).
The procedure governing a removed action in bankruptcy court is set forth in Bankruptcy Rule 9027(e). In general, the bankruptcy judge is empowered to issue “all necessary orders and process” to bring all parties before the court. Bankruptcy Rule 9027(e)(1). The bankruptcy judge may require the party filing the notice of removal to file with the bankruptcy court clerk all records and proceedings relating to the removed action in the first court. Bankruptcy Rule 9027(e)(2). No later than 14 days after the notice of removal is filed, every other party to the removed action must file with the bankruptcy court clerk and serve on all parties a statement “admitting or denying any allegation in the notice of removal that upon removal of the claim or cause of action the proceeding is core or non-core.” Bankruptcy Rule 9027(e)(3). If this statement alleges that the proceeding is noncore, it must also indicate whether that party consents to the entry of final orders and judgment by the bankruptcy judge. Id.
For decisions discussing the scope of the removal power set forth in 28 USC 1452(a), see Things Remembered v Petrarca, 516 US 124 (1995), and Cook v Cook, 220 BR 918 (Bankr ED Mich 1997).

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G. Appeals
§1.19   Final orders and judgments entered by bankruptcy judges in core (and, with the consent of the parties, noncore) proceedings may be appealed as of right to the federal district court sitting in that same district. 28 USC 158(a)(1). Orders entered on motions for permissive or mandatory abstention (other than decisions not to abstain on mandatory grounds) are not reviewable on appeal. 28 USC 1334(d). Appeals from interlocutory orders and decrees increasing or reducing the time periods under 11 USC 1121(d) are appealable as of right. 28 USC 158(a)(2). Parties may appeal all other interlocutory orders and decrees of the bankruptcy judge only on the leave of the district judge. 28 USC 158(a)(3); see generally In re Pilch, No 1:07-CV-306, 2007 US Dist LEXIS 41796 (WD Mich June 8, 2007); Official Comm of Unsecured Creditors v Qwest Communications Corp  (In re AP Liquidating Co), 350 BR 752 (ED Mich 2006); In re PHM Credit Corp, 99 BR 762 (ED Mich 1989). With the consent of the parties, appeals may be heard by an appellate panel consisting of three bankruptcy judges if the judicial council of a circuit has authorized and established an appellate panel service. 28 USC 158(b). Federal circuit courts of appeal are granted jurisdiction to hear and decide appeals from “final decisions, judgments, orders, and decrees” of the district courts. 28 USC 158(d). Circuit courts of appeal have jurisdiction to decide appeals from interlocutory orders issued by district courts sitting as courts of appeal in bankruptcy. Connecticut Nat’l Bank v Germain, 503 US 249 (1992). In Fidelity Bank, Nat’l Ass’n v MM Group, 77 F3d 880 (6th Cir 1996), the Sixth Circuit Court of Appeals restated and reaffirmed the “person aggrieved” doctrine that determines whether a person has standing to appeal from an order of the bankruptcy court. See also Harker v Troutman  (In Re Troutman Enters, Inc), 286 F3d 359 (6th Cir 2002).
The procedure to be followed on bankruptcy appeals to the district court is prescribed in Bankruptcy Rules 8001–8019. If you are involved in an appeal, you should read these rules carefully and follow them strictly. A notice of appeal must be filed with the bankruptcy court clerk within 14 days of the date on which the order or judgment is entered by the bankruptcy judge. Bankruptcy Rule 8002(a). See form 1.1. If this deadline is not met, the appeal may be dismissed. See, e.g., In re Superior Metal Shredders, Inc, No 1:93-CV-658 (WD Mich Mar 23, 1994).
A party who receives notice that its adversary has appealed may file a cross-appeal. The appellant must then submit to the bankruptcy court clerk, within 14 days after the notice of appeal is filed, a designation of items to be included in the record on appeal and a statement of issues to be presented. Bankruptcy Rule 8006. After the bankruptcy court clerk assembles the record on appeal, it is transmitted to the district court. Bankruptcy Rule 8007. Parties are normally required to file briefs, and after that oral arguments are normally held before the district judge assigned to hear the appeal. Bankruptcy Rules 8009, 8012. The district court may then affirm, modify, or reverse the ruling of the bankruptcy judge or may remand the matter to that judge with instructions for further proceedings. Bankruptcy Rule 8013.
LBR 8001-1 (ED Mich) contains particular requirements governing appeals to the federal district court. See also LBR 8006-1 (WD Mich) (designation of record and issues on appeal). Appellants are required to file with the bankruptcy court clerk the original and four copies of the notice of appeal with two U.S. District Courts civil cover sheets. Appellants are also required to file a “sufficient number” of copies of the notice of appeal with the clerk to enable the clerk to serve all parties interested in the appeal.
Note that Bankruptcy Rule 8020 provides that, if a federal district court or a bankruptcy appellate panel determines that an appeal is “frivolous,” that court may award “just damages and single or double costs to the appellee.”
The Judicial Council of the Sixth Circuit Court of Appeals has authorized the creation of bankruptcy appellate panels by the federal district courts in this circuit. The districts establishing these panels began operations on January 1, 1996. Thus, unless one of the parties to an appeal elects to have the matter determined by the federal district court, the appeal will be heard by a panel consisting of three bankruptcy judges. 28 USC 158(b) and (c). Once the bankruptcy appellate panel renders its final decision in the appeal, the matter may be taken to the Sixth Circuit Court of Appeals for review. 28 USC 158(d). The federal district judges in the Western District have created these panels ( while the Eastern District has not.
H. Electronic Filing of Cases and Pleadings
§1.20   On February 3, 2004, the U.S. Bankruptcy Court for the Western District of Michigan adopted Administrative Order No 2004-02, which provides for the electronic filing, signing, verification, and service of documents. This order provides that the electronic filing of a document in accordance with the Administrative Procedures “constitutes the filing of the document for all purposes.” On July 14, 2004, this court followed with Administrative Order No 2004-06, which requires “all petitions, pleadings and other papers filed in all cases and proceedings, whether pending or new,” to be filed electronically beginning on January 1, 2005. The Administrative Order was incorporated into and was superseded by the February 1, 2007, comprehensive revisions to the Western District Local Rules. Similarly, the Eastern District implemented electronic filing on a mandatory basis on January 1, 2006, and electronic filing is covered in the Eastern District’s local rules.

IV.   Parties in Interest in Bankruptcy Cases
A. In General
§1.21   In every bankruptcy case, there are certain persons, called parties in interest, who perform their statutory duties and attempt to enforce their rights and privileges. They are the debtor, the trustee, the U.S. trustee, secured creditors, unsecured creditors, and, in certain cases, creditors’ committees and equity security holders.
B. Debtors
1. Chapter 7 Cases
§1.22   In Chapter 7 cases, a debtor may be an individual, a partnership, a corporation, or some other artificial person. However, only an individual may receive a discharge of debts in Chapter 7 cases; other entities may not. The 2005 amendments require that a debtor receive an individual or group briefing that outlines the opportunities available for credit counseling. The briefing must have been received within the 180-day period preceding the filing of the bankruptcy case. 11 USC 109(h)(1). This requirement is commonly referred to as the requirement for prefiling credit counseling.
Chapter 7 debtors must file certain documents with the bankruptcy court; must appear for questioning by creditors, the bankruptcy administrator, and the trustee at the meeting of creditors; and must perform other duties specified in the Code and the Bankruptcy Rules. If the individual debtor performs these duties and is not guilty of any bad acts as defined in the Code, the debtor will be granted a general discharge of prepetition debts and will retain exempt property to be able to make a fresh start in life.
After the debtor meets the duties specifically required under the Code, the debtor is required to complete an instructional course concerning personal financial management to obtain a discharge. 11 USC 727(a)(1). This is another requirement added by BAPCPA.
2. Chapter 11 Cases
§1.23   Individuals, partnerships, and corporations all qualify for relief under Chapter 11 of the Code. A Chapter 11 debtor is normally retained as debtor-in-possession at the outset of the case and, as such, continues to operate its business as a fiduciary for all creditors within the guidelines prescribed by the bankruptcy court. The debtor, if not displaced by a trustee, then negotiates with its secured and unsecured creditors the terms of a plan calling for either the reorganization or the liquidation of the debtor’s assets and the adjustment of the rights of creditors and stockholders. This plan is sent to all creditors for a vote, and, after the votes are tallied, the plan may be confirmed and given effect by the bankruptcy court. Special rules apply for small businesses. See chapter 6.
In 2005, BAPCPA enacted comprehensive revisions to 11 USC 1112 and 1104, addressing conversion or dismissal and appointment of trustees. As amended, 11 USC 1112 provides that the courts “shall” rather than “may” convert or dismiss a case if it is in the best interests of creditors and if the movant establishes cause. Comprehensive examples of cause are set forth in the provision, and, in the event that the court decides that there is a basis or cause to dismiss or convert, the court has the alternative of appointing a Chapter 11 trustee or examiner.
3. Chapter 12 Cases
§1.24   Only “a family farmer or family fisherman with regular annual income” may be the subject of a Chapter 12 case. 11 USC 109(f). The term family farmer includes individuals, partnerships, and corporations but does not encompass all entities that are engaged in farming operations. 11 USC 101(18). Family farmers who seek relief under Chapter 12 normally file their reorganization plans soon after their case has been commenced. Chapter 12 plans provide for payments to be made on secured and unsecured debt over a period that may last as long as five years. Confirmation of the plan does not result in the family farmer’s discharge; this is granted only when the debtor completes making payments under the plan or qualifies for a hardship discharge.
Although Congress retroactively extended Chapter 12 in 2004 ( Pub L No 108-369, 118 Stat 1749 (2004)), BAPCPA made Chapter 12 a permanent provision of the Code.
4. Chapter 13 Cases
§1.25   Only “individuals with regular income” may file Chapter 13 petitions and propose plans providing for the composition and extension of debts. Relief under this chapter is not available to artificial persons, nor is it available to individuals who do not receive regular income or are carrying heavy debt loads. 11 USC 109. A Chapter 13 debtor normally files, along with a voluntary petition, a proposed Chapter 13 plan, in which the debtor proposes to pay all or a portion of the debts over time with regular income. Unlike the Chapter 7 debtor, the Chapter 13 debtor is not required to surrender nonexempt property to the trustee for liquidation; the plan may propose that the debtor keep this property while he or she pays the debts. Unlike the Chapter 11 debtor, the Chapter 13 debtor does not receive a discharge once the plan is confirmed; discharge is granted only when the debtor performs all the obligations under the plan or otherwise qualifies for a hardship discharge.
As of April 1, 2007, the eligibility requirements for Chapter 13 debtors have been increased. Only individuals with regular income who have, on the date of filing a Chapter 13 petition, noncontingent and liquidated secured debts in an amount less than $1,010,650 and noncontingent and liquidated unsecured debts in an amount less than $336,900 are eligible for Chapter 13 relief. 11 USC 109(e). The debt limits are adjusted every three years, 11 USC 104(a), and increased to $1,081,400 and $360,475 effective April 1, 2010. See generally In re Pisczek, 269 BR 641 (Bankr ED Mich 2001); In re Faulhaber, 269 BR 348 (Bankr WD Mich 2001).
C. Trustees
1. Chapter 7 Cases
§1.26   In Chapter 7 cases, the U.S. trustee appoints an interim trustee on the entry of an order for relief, which generally occurs when the bankruptcy petition is filed. The trustee is selected from the panel of trustees for the judicial district in which the Chapter 7 petition has been filed by or against the debtor. The U.S. trustee may serve as trustee in a Chapter 7 case if none of the panel trustees are able or willing to serve. At the meeting of creditors, the creditors may vote either to allow the interim trustee to continue as the permanent trustee or to replace that person with another from the panel. See generally In re Lindell Drop Forge Co, 111 BR 137 (Bankr WD Mich 1990). If no voting takes place, the interim trustee becomes the permanent trustee.
The trustee is a representative of the debtor’s estate and as such is required to investigate the debtor’s affairs and liquidate his or her nonexempt property for the benefit of creditors. The trustee may also seek to augment property of the estate by filing actions to recover preferences, fraudulent conveyances, and other voidable transfers made by the debtor to third parties. Once this property is collected and reduced to cash, the Chapter 7 trustee files a final report and account with the bankruptcy court in which the trustee proposes how these cash proceeds should be distributed. When the court approves this final report and account, the trustee distributes the cash to creditors and closes the Chapter 7 case. See chapter 5 for further discussion of the trustee’s role in Chapter 7 cases.
2. Chapter 11 Cases
§1.27   Trustees are appointed in Chapter 11 cases only when the bankruptcy court, after notice and a hearing, finds either that sufficient cause exists or that the appointment is in the best interests of creditors, equity security holders, and the estate. Cause is defined in the Code as including “fraud, dishonesty, incompetence, or gross mismanagement” by the debtor-in-possession. 11 USC 1104(a)(1). 11 USC 1104(c) permits a party in interest to call a meeting of creditors to elect a trustee within 30 days after the bankruptcy court has ordered the appointment of a Chapter 11 trustee. A trustee is required to investigate the debtor’s affairs and, “as soon as practicable,” file a Chapter 11 plan or explain to the court why he or she cannot do so. The trustee may also operate the debtor’s business. See chapters 6 and 7 for further discussion of the trustee’s role in Chapter 11 cases.
3. Chapter 12 Cases
§1.28   The U.S. trustee appoints trustees to serve in Chapter 12 cases. 11 USC 1202(a). If a standing Chapter 12 trustee has not been appointed, the U.S. trustee may appoint a disinterested person to serve as trustee in a particular Chapter 12 case. If necessary, the U.S. trustee may serve as trustee in the case. If the bankruptcy court removes a family farmer as debtor-in-possession for cause, which includes fraud, dishonesty, incompetence, and gross mismanagement, the trustee is required to operate the farm in the debtor’s absence. See 11 USC 1202(b)(5), 1204.
4. Chapter 13 Cases
§1.29   The U.S. trustee, not the bankruptcy court, appoints trustees to serve in Chapter 13 cases. 11 USC 1302(a). If a standing Chapter 13 trustee has not been appointed for a particular district, the U.S. trustee may then appoint a disinterested person to serve as trustee in a Chapter 13 case. If necessary, the U.S. trustee may serve as trustee in a case. These trustees must perform certain duties specified in the Code, including appearing at all confirmation hearings and making sure the debtor begins making timely payments under the plan. The standing trustee also disburses to creditors the funds the debtor pays the trustee in accordance with the terms of the confirmed Chapter 13 plan.
D. Secured Creditors
§1.30   Secured creditors are those entities who hold allowed secured claims against the debtor in a bankruptcy case. See 11 USC 101(5), (10); 11 USC 506. These claims are collateralized by either a security interest in or a lien on the debtor’s real or personal property. 11 USC 101(37), (51). Creditors who hold claims against the debtor in an amount that exceeds the value of their collateral are considered partially secured or undersecured creditors (i.e., they hold a secured claim to the extent of the collateral’s value and an unsecured claim for any remaining deficiency). This does not apply to secured claims for (1) motor vehicles for personal use where the debt was incurred within 910 days preceding the filing or (2) other collateral if the debt was incurred within one year preceding the filing. 11 USC 1325(a).
Secured creditors are normally very active in bankruptcy cases. In Chapter 7 cases, secured creditors usually seek to recover their collateral from the trustee and the debtor to liquidate that property themselves, or they cooperate with the trustee in arranging for the sale of that property in the bankruptcy court. In Chapter 11, 12, and 13 cases, secured creditors demand adequate protection of their interests in collateral at the outset of the case, especially if that collateral is cash collateral. For a Chapter 11, 12, or 13 plan to be confirmed, secured creditors must generally either recover all their collateral or be paid its present value under the plan.
E. Unsecured Creditors
§1.31   Unsecured creditors hold allowed claims against the debtor without the benefit of any collateral or hold collateral the value of which is less than the amount of their claims. Unsecured creditors are normally not entitled to include in their claims any interest that accrues on their claims after the date the bankruptcy petition is filed. In Chapter 7, 12, and 13 cases, unsecured creditors generally file their proofs of claim and wait to receive any distributions from the Chapter 7 trustee or under the confirmed Chapter 12 or Chapter 13 plans. In Chapter 7, Chapter 12, and Chapter 13 cases, they may also file an adversary proceeding to have the debt forming the basis of their claim deemed nondischargeable. In Chapter 11 cases, unsecured creditors also file proofs of claim and may elect to serve as members of the creditors’ committee appointed by the bankruptcy court. In addition, unsecured creditors are entitled to vote on any proposed Chapter 11 plan and must receive under any confirmed plan a sum not less than what they would receive if the debtor were liquidated under Chapter 7.
In In re Valentine, 196 BR 386 (Bankr ED Mich 1996), Bankruptcy Judge Rhodes held that creditors lack standing to request the bankruptcy court to make a report to the U.S. attorney under 18 USC 3057(a). This statute permits a judge to refer a possible criminal matter involved in a bankruptcy case to the U.S. attorney.
F. Creditors’ Committees
§1.32   Creditors’ committees are organizations of entities holding unsecured claims against the debtor; they are appointed by the U.S. trustee. In every Chapter 11 case, the U.S. trustee must normally appoint at least one such committee “as soon as practicable” after the case commences. 11 USC 1102(a)(1). Creditors’ committees may also be appointed in Chapter 7 cases, although that is rarely done. The U.S. trustee may appoint additional committees of creditors or of equity security holders in Chapter 11 cases. Id. If the bankruptcy court orders the appointment of additional committees to ensure adequate representation in Chapter 11 cases, the U.S. trustee appoints the members of those committees. 11 USC 1102(a)(1). On the request of a party in interest, the bankruptcy court may order the appointment of additional committees to “assure adequate representation” of creditors or equity security holders. 11 USC 1102(a)(2). The members of these additional committees must also be appointed by the U.S. trustee. Id. Creditors’ committees may not be appointed in Chapter 12, Chapter 13, or small business cases.
The membership of a creditors’ committee in a Chapter 11 case normally consists of persons who are willing to serve and who hold the largest unsecured claims against the debtor. If a committee is organized before the Chapter 11 case is commenced, the committee must have been chosen fairly and be representative of all unsecured claims. 11 USC 1102(b)(1). The Pension Benefit Guaranty Corporation and the Resolution Trust Corporation may serve on creditors’ committees. 11 USC 101(41). Committee members are fiduciaries to the class of unsecured creditors and must be free from conflicts of interest when acting in their official capacity. See, e.g., In re Tucker Freight Lines, Inc, 62 BR 213 (Bankr WD Mich 1986). They are charged with the duties of consulting with the debtor-in-possession, investigating the debtor’s affairs and the operation of its business, and participating in the formulation of a Chapter 11 plan. 11 USC 1103(c). If a trustee is appointed in a Chapter 11 case, the committee coordinates its activities with the trustee.
For decisions on the composition and powers of a creditors’ committee, see Canadian Pac Forest Prods v JD Irving, Ltd  (In re Gibson Group), 66 F3d 1436 (6th Cir 1995); American Specialty Cars Holding, LLC v Official Comm of Unsecured Creditors of ASC Inc  (In re ASC Inc), 386 BR 187 (ED Mich 2008); In re Dow Corning Corp, 212 BR 258 (ED Mich 1997); and Official Unsecured Creditors Comm of Long Dev v Oak Park Vill Ltd P’ship  (In re Long Dev), 211 BR 232 (Bankr WD Mich 1994).
G. Equity Security Holders
§1.33   In general, equity security holders are the ownership class of the debtor, such as shareholders of a corporation or limited partners of a limited partnership. They are last in line to receive any distributions under Chapter 7, Chapter 11, and Chapter 12. However, equity security holders are not powerless in bankruptcy cases. For example, the U.S. trustee may permit them to form a committee and to retain professionals to represent their interests in a Chapter 11 case.
H. U.S. Trustees
§1.34   Daniel M. McDermott is the U.S. trustee for this region, and assistant U.S. trustees sit in each federal judicial district in the region. These assistants are authorized to act on behalf of the U.S. trustee. The assistant U.S. trustee for the Western District of Michigan is Matthew Cronin. The assistant U.S. trustee for the Eastern District of Michigan is Marion Joseph Mack, Jr. These assistants employ a staff to aid them with their duties.
The U.S. trustee is a new party in interest who “may raise and may appear and be heard on any issue” in any bankruptcy case or proceeding. 11 USC 307; see also In re Revco DS, 901 F2d 1359 (6th Cir 1990). However, the U.S. trustee may not file a plan in Chapter 11 cases. 11 USC 307. The U.S. trustee for the region is not required to appear in person in bankruptcy cases or proceedings but may act through a “designee” such as the assistant. 11 USC 102(9). Any references to the U.S. trustee should be read to include the assistant U.S. trustee.
The duties of the U.S. trustee are specified in 28 USC 586. Those duties include the following:
  • establishing, maintaining, and supervising a panel of private trustees for each judicial district
  • serving as trustee when required to do so in a particular bankruptcy case and performing the trustee’s statutory duties in that case
  • reviewing fee applications in bankruptcy cases in accordance with national guidelines promulgated by the Executive Office of the U.S. Trustee
  • commenting on these fee applications and, if appropriate, objecting to them
  • monitoring plans and disclosure statements filed in Chapter 11 cases and commenting on them
  • monitoring plans filed in Chapter 12 and 13 cases and commenting on them
  • monitoring creditors’ committees
  • monitoring the progress of bankruptcy cases and taking actions to prevent undue delay in that progress

Any proceeding to contest an act of the U.S. trustee or the failure of the U.S. trustee to act is a contested matter. Bankruptcy Rule 2020. Bankruptcy Rules 2002(k) and 9034 mandate that copies of certain pleadings filed in bankruptcy cases be served on the U.S. trustee. For example, applications for the employment and compensation of professionals must be served on the U.S. trustee. Bankruptcy Rule 9034(d), (e). These notices must be served within the time periods required by the Bankruptcy Rules. Bankruptcy Rules 2002(k), 9034. In addition, the U.S. trustee may request that other papers be served on him or her. Id. LBR 5005-3 (WD Mich) and LBR 2002-1(b), 2002-4, and 9013-1(b) (ED Mich) prescribe other pleadings that must be served on the U.S. trustee in bankruptcy cases pending in Michigan.
The assistant U.S. trustees for the Eastern and Western Districts of Michigan have adopted a number of written forms to assist them in the performance of their statutory duties. These forms are available from their offices on request.
The U.S. Trustee System is operated through the creation of a special fund designated as the “United States Trustee System Fund.” 28 USC 589a. This fund is used to pay the expenses incurred by U.S. trustees in performing their statutory duties. Expenses properly payable from this fund include salaries, travel, the rental of space, books, furniture, printing, and “miscellaneous services, including those obtained by contract.” 28 USC 589a(a)(8). The fund is financed by the allocation of monies paid for filing fees, trustee’s fees, and a new quarterly fee paid in Chapter 11 cases. 28 USC 589a(b).
In In re Brookover, 352 F3d 1083 (6th Cir 2003), the Sixth Circuit Court of Appeals held that the U.S. trustee has the authority to accept the resignation of a Chapter 12 trustee in a pending case without bankruptcy court approval. In Joelson v United States, 86 F3d 1413 (6th Cir 1996), the Sixth Circuit Court of Appeals held that the decision of a U.S. trustee to remove a former trustee from active case rotation was not subject to judicial review.
In Robiner v Danny’s Mkts, Inc  (In re Danny’s Mkts, Inc), 266 F3d 523 (6th Cir 2001), the Sixth Circuit Court of Appeals held that the fees payable to the U.S. trustee under 28 USC 1930(a)(6) are to be calculated on the basis of postconfirmation operating expenses in Chapter 11 cases.

V.   Special Role of Counsel
§1.35   All the parties in interest listed and defined in §§1.21–1.34 may retain counsel to represent them in bankruptcy cases. When you are asked to represent a secured or unsecured creditor in a case, your attorney-client relationship is normally not subject to the bankruptcy court’s scrutiny. However, that is not the case when you represent the interests of a debtor, trustee, or committee in a bankruptcy case.
To represent a Chapter 11 debtor, a trustee in any chapter proceeding, or a creditors’ committee, you should be retained pursuant to a specific order entered by the bankruptcy court. If this order is not entered, the court may later refuse to permit you to receive payment for legal services rendered in the bankruptcy case. In addition, to represent any of these entities, you may not hold an interest adverse to the bankruptcy estate and must be a “disinterested person” as defined by 11 USC 101(14). See generally In re Eagle-Picher Indus, Inc, 999 F2d 969 (6th Cir 1993); Childress v Middleton Arms LP, 934 F2d 723 (6th Cir 1991); In re Butterfield Ltd P’ship, 131 BR 67 (Bankr ED Mich 1990). Although you are not automatically disqualified from representing a Chapter 7, 11, or 12 trustee because of your representation of a creditor in the same case, the bankruptcy court may deny the request for your appointment if another creditor objects and if the court finds an actual conflict of interest. 11 USC 327(c).
The Bankruptcy Reform Act of 1994 and BAPCPA amended 11 USC 330(a) to specify six “relevant factors” to be considered by a bankruptcy court in determining the reasonableness of requested professional fees. These factors are as follows:
  1. the time spent
  2. the rates charged
  3. whether the services were necessary to the administration of the bankruptcy case or beneficial when the service was rendered toward the completion of the case
  4. whether the services were performed within a reasonable amount of time
  5. whether the compensation is based on “the customary compensation charged by comparatively skilled practitioners” in non–bankruptcy cases
  6. whether the applicant is board certified or has otherwise demonstrated skill and expertise in the bankruptcy field

The local bankruptcy rules for the Eastern and Western District of Michigan contain specific provisions governing the retention and compensation of attorneys and other professionals retained by trustees, debtors, and creditors’ committees. LBR 2014-1 (ED Mich); LBR 2014 (WD Mich). Professionals who seek to be compensated from estate funds must strictly comply with these provisions. See, e.g., In re Doors & More, Inc, 126 BR 43 (Bankr ED Mich 1991); see also In re Doors & More, Inc, 127 BR 1001 (Bankr ED Mich 1991). LBR 2016 (WD Mich) governs the procedure to be used on fee applications filed by professional persons.
The court must approve compensation for your services as counsel to a debtor, trustee, or committee from estate funds. You will jeopardize your right to receive this compensation if you have not been retained by court order or if you have a conflict of interest. See, e.g., In re Gray, 64 BR 505 (Bankr ED Mich 1986). In addition, as counsel to a debtor under any chapter of the Code, you must disclose to the court, in writing, a statement of the compensation paid or agreed to be paid to you by the debtor. 11 USC 329(a); Bankruptcy Rule 2016. If the court finds this payment or agreement to be excessive, it may order the return of the payment to the extent that it is excessive or may cancel the agreement. 11 USC 329(b); see, e.g., In re Riverview Fin Servs, Inc, 67 BR 714 (Bankr ED Mich 1986).
The Bankruptcy Court for the Western District of Michigan issued a Memorandum Regarding Allowance of Compensation and Reimbursement of Expenses for Court-Appointed Professionals containing rules for fee applications filed in all bankruptcy cases. This may be found on the court’s Web site at Note that these guidelines were amended effective January 1, 2010.
The U.S. Supreme Court has held that 11 USC 330(a)(1) does not authorize compensation awards to debtors’ attorneys from estate funds, unless they are employed as authorized by 11 USC 327. If the attorney is to be paid from estate funds in a Chapter 7 case, he or she must be employed by the trustee and approved by the court. Lamie v United States Tr, 540 US 526 (2004); accord In re TLI, Inc, 292 BR 589 (Bankr WD Mich 2003). For decisions on the retention of professionals and compensation of attorneys in bankruptcy cases, see Nischwitz v Miskovic  (In re Airspect Air, Inc), 385 F3d 915 (6th Cir 2004); United States v Schilling  (In re Big Rivers Elec Corp), 355 F3d 415 (6th Cir 2004); Henderson v Kisseberth  (In re Kisseberth), 273 F3d 714 (6th Cir 2001), clarified, No 00-3715, 2002 US App LEXIS 812 (6th Cir Jan 15, 2002); Specker Motor Sales Co v Eisen, 300 BR 687 (WD Mich 2003), aff’d, 393 F3d 659 (6th Cir 2004); In re New Boston Coke Corp, 299 BR 432 (Bankr ED Mich 2003).
The Sixth Circuit Court of Appeals, in reversing the bankruptcy and district court decisions rendered below, held that a bankruptcy attorney admitted to the Texas bar but not to the Michigan bar could nevertheless practice bankruptcy law in Michigan under WD Mich LCivR 83.1. Rittenhouse v Delta Home Improvement, Inc  (In re Desilets), 291 F3d 925 (6th Cir 2002).

VI.   The National Bankruptcy Review Commission
§1.36   The Bankruptcy Reform Act of 1994 established a National Bankruptcy Review Commission composed of nine members appointed by the President of the United States, the Chief Justice of the U.S. Supreme Court, and Congressional leaders. Bankruptcy Reform Act of 1994, Pub L No 103-394, 108 Stat 4106 (1994), §604(a). The commission members were charged with four separate duties:
  1. to investigate and study issues and problems relating to the Code
  2. to evaluate proposals and arrangements concerning those issues and problems
  3. to prepare and submit to Congress, the chief justice, and the president a report containing the commission’s findings, conclusions, and any recommendations for legislative or administrative action
  4. to solicit divergent views of all parties concerned with the operation of the bankruptcy system

In addition, they were to submit a report not later than two years after the commission’s first meeting, which was held on October 20, 1995. The chair person of the committee was Bradley Williamson, who appointed Steven H. Case as executive director; Elizabeth Warren was appointed the reporter for the commission.
The commission held approximately 35 meetings at different locations throughout the United States at which testimony was given by various constituents involved within the bankruptcy process. Debtors’ attorneys, creditors’ attorneys, counsel for unsecured creditors’ committees, debtors, and creditors testified before the commission. Interim reports were issued and specific issues were reviewed at the various meeting that were held. The meetings culminated in a report that was issued on October 20, 1997. The commercial recommendations were noncontroversial and most were incorporated into the 2005 amendments to the Bankruptcy Code. On the other hand, the consumer provisions recommended dramatic changes to the consumer provisions, specifically radical changes in Chapters 7 and 13, and as a result, in September 1997 HR 2500 was introduced in the House. HR 2500 was an attempt to limit access to the bankruptcy system by individuals who had the means to repay their debts. Eventually, this provision after modification was passed by Congress in 2005, creating barriers and limitations in the relief granted to individuals in Chapter 7 and 13 cases. See chapters 2 and 3 for further discussion of the 2005 amendments (BAPCPA).

Handling Consumer and Small Business Bankruptcies in Michigan ch 1 (Richardo I. Kilpatrick et al eds, ICLE 2009), at (last updated 10/07/2011).