MoBAR CLE The Next Step Series: Creditors Remedies

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1 MoBAR CLE The Next Step Series: Creditors Remedies Bryan Voss, Moderator Blackwell & Associates Eric L. Johnson Michelle M. Masoner

2 Agenda Debtor Protection Statutes Pre Judgment Remedies Post Judgment Remedies Creditor Rights in Bankruptcy

3 Sources of Law Fair Debt Collections Practices Act Bankruptcy Code Title 11 General Chapters: 1, 3, and 5 Common Chapters: 7, 11, and 13 Specialized Chapters: 9, 12, and 15 Rules Federal Rules of Bankruptcy Procedure Federal Rules of Civil Procedure Federal Rules of Evidence Federal Rule of Appellate Procedure Local Rules and Standing Orders State Law Uniform Commercial Code Exemption Statutes Lien Statutes Uniform Fraudulent Transfer Act Missouri Merchandising Practices Act Case Law State and Federal Decisions Common law

4 Debtor Protection Statutes

5 Debtor Protection Statutes The Fair Debt Collections Practices Act (FDCPA) The Missouri Merchandising Practices Act (MMPA) Exemption Statutes The Bankruptcy Code

6 Fair Debt Collections Practices Act Enacted in U.S.C et seq. Purpose Eliminate abusive debt collection practices Eliminate competitive disadvantage for debt collectors who do not engage in abusive tactics Promote consistent State Action to protect consumers against debt collection abuse

7 Fair Debt Collections Practices Act Consumer Debt Applies only to natural persons obligations primarily for personal, family or household purposes Debt Collector any person who use any instrumentality of interstate commerce or the mails in any business in the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another. 15 U.S.C. 1692a(6) (emphasis added). Several Statutory Exceptions, including Creditor and Affiliate Exceptions Statutory Exclusion Exception Attorneys are not per se exempted.

8 FDCPA Permitted or Restricted Actions Improper Communications Time restriction Representation restriction Validation Notice Miranda Warning Communications with Third Parties and when a consumer is represented by counsel Other Proscribed Conduct Harassment or Abuse False or Misleading Statements Unfair Practices Venue Restriction

9 FDCPA Civil Liability Actual Damages Statutory Damages Individual: $1,000 per case Class Action $1,000 per individual Cap: the lesser of $500,000 or 1% of Debt Collector s net worth Attorney Fees Plaintiff can recover if successful Defendant can recover if brought in bad faith and for purposes of harassment Punitive Damages Not generally allowed Can be recovered for another claim joined with a FDCPA claim

10 Missouri Merchandising Property Act The MMPA, Mo. Rev. Stat et seq., serves as a supplement to the commonlaw claim of fraud.

11 MMPA To establish an MMPA claim, a plaintiff must allege: (1) purchased or leased merchandise; (2) for personal, family or household purposes; (3) suffered an ascertainable loss of money or property; (4) as a result of any deception, fraud, false pretense, false promise, misrepresentation, [or] unfair practice, or concealed, suppressed, or omitted any material fact[,] in connection with the sale or the advertisement of any merchandise in trade or commerce. Mo. Rev. Stat (1).

12 MMPA The Missouri Supreme Court s recent decisions: Watson v. Wells Fargo Home Mortgage, Inc., 438 S.W.3d 404 (Mo. 2014) Conway v. CitiMortgage, Inc., 438 S.W.3d 410 (Mo. 2014)

13 Exemptions Derive from both state and federal law Common Missouri Exemptions: Mo. Rev. Stat ; ; Homestead $15,000 Household Goods $3,000, Wedding Ring $1,500 Other Jewelry $500 Automobile $3,000 Tools of the Trade $3,000 Wages 75% or 90% (HOH) Social Security Unlimited Public Assistance Unlimited Wildcard $600

14 Exemptions Earned Income Credit Mo. Rev. Stat (10)(a) Public Assistance Benefit Unlimited In re Corbett, Slip Copy, 2013 WL (Bankr. W.D. Mo., April 2, 2013) In re Gray, Slip Copy, 2013 WL (Bankr. W.D. Mo., June 5, 2013)

15 Tenancy By The Entireties Form of ownership of property Creditor can only seek satisfaction from entireties property if both spouses have acted to jointly encumber property Presumption that all jointly owned property owned by husband and wife is held as tenants by the entirety 4 unities Interest Time Title Possession

16 Pre Judgment Remedies

17 Pre Judgment Remedies Article 9 Remedies Replevin Attachment Receivership Non Judicial Foreclosure

18 Article 9 Remedies Self Help Repossession Self Help Repossession permitted. Mo. Rev. Stat (b) Cannot Breach the Peace Act likely to produce violence Breaking an entering into business or residence Mere lack of consent does not constitute breach of peace

19 Article 9 Remedies Conduct foreclosure sale without judicial process Proceed against collateral and obtain deficiency judgment Ignore security interest and seek judgment against debtor without regard to collateral Practice Pointer: These remedies apply to collateral including goods, inventory, equipment, chattel paper, instruments and accounts. There are additional remedies available when foreclosing on collateral such as accounts.

20 Sale Options Article 9 Remedies Disposition of Collateral Private sale Public Sale Strict Foreclosure Unified Sale Lender must always act in good faith and in a commercially reasonable manner

21 Article 9 Remedies Commercially Reasonable All aspects of any disposition, including method, manner, time, place and other terms must be commercially reasonable. Notice of sale Conducting sale in a careful manner at a time and place selected to obtain a fair value for the goods.

22 Article 9 Remedies Notice When: After default and 10+ days before disposition What: Debtor & Lender Description of collateral Method of intended disposition (public v. private) Debtor is entitled to an accounting of indebtedness Time & Place of public sale Who: Debtor Guarantor Parties who had secured interest 10 days before notification date Safe Harbor Any party giving notice to secured creditor of interest in collateral

23 Replevin Mo. Rev. Stat , et seq. Definition Allows a creditor to regain personal property improperly held by another person Creditor has superior rights in property than debtor Requirements The property must be identifiable The property must be able to be seized Limitation The other person can defeat a replevin action by paying a bond Procedure Affidavit Notice Bond

24 Attachment Mo. Rev. Stat , et seq. Ability to seize property pre judgment in which the plaintiff has no interest. Used in circumstances where plaintiff concerned defendant is disposing of property or there will be nothing left to execute upon Procedure Affidavit Bond Grounds of a Just Claim Seizure Recovery of property by Defendant: Bond or by Motion

25 General Receivership Mo. Rev. Stat Procedure Ancillary Action Bond Entitlement in loan documents may be enough. See MIF Realty v. Pickett, 963 S.W.2d 308, 312 (Mo. App. W.D. 1997) A bar sponsored bill is currently in the general assembly that will bring uniformity and clarity with respect to Missouri general receiverships.

26 Non Judicial Foreclosure Mo. Rev. Stat , et seq. Power of Sale Procedure Notice Sale by Trustee Appropriate Bid Standard CAUTION: Foreclosures can move fast in Missouri

27 Post Judgment Remedies

28 Post Judgment Remedies Judgment Liens Writs of Execution Garnishment Debtor s Examination Fraudulent Transfers

29 Judgment Liens Judgments will give rise to automatic lien on real property in county where judgment was rendered. Exceptions Judgment must be registered in county where real estate is located Judgment from Associate Circuit Court will only give rise to lien upon payment of fee and judgment being registered in the permanent record Judgment entered by small claims and municipal courts do not give rise to a lien Preservation of Lien Conclusive presumption that every judgment presumed satisfied after 10 years from date of judgment Judgment creditor must revive judgment within such time. If properly revived, then judgment is valid an additional 10 years, but the judgment lien will expire in three years

30 Garnishment Definition The court orders a 3rd party to turn over the debtor s property that is in possession of the 3rd party Example Wages, Bank Accounts Who can be a Garnishee? Anyone (technically) What can be Garnished? Goods, Money, or Personal Property Process Court Judgment Notice Summons Timing

31 Writs of Execution Mo. Rev. Stat , et seq. The right to execute on a final judgment in Missouri arises upon rendition of the same. Procedure Levy Personal Property: Possession, or posting of notice, if possession impracticable. Real Property: Notice with Recorder of Deeds Claiming Exemptions Quashing the Execution: Application, Notice, Cause, Bond

32 Seizure and Sale by the Sheriff Selection and Order of Sale Location of Sale Notice of Sale Timing Content Publication Requirement Personal Service Requirement

33 Debtor s Examinations If a sheriff returns an execution unsatisfied or the judgment creditor is without sufficient knowledge to advise the sheriff where and on what to levy execution, the judgment creditor is allowed to conduct a debtors exam. A debtors exam requires that the judgment debtor appear and answer concerning his means of satisfying the judgment. Under Missouri law, there are several barriers to meaningful post judgment discovery, including, a higher burden imposed on a creditor where the judgment debtor has invoked the Fifth Amendment.

34 Fraudulent Transfers Missouri has adopted the Uniform Fraudulent Transfer Act Mo. Rev. Stat , et seq. Property, obligations and liens can be avoided Reach Back Period: potentially 4 years or more Actual Fraudulent Transfers Actual Intent to Hinder, Defraud, or Delay Creditors Intent usually not admitted = Badges of Fraud Constructive Fraudulent Transfers Debtor received less than reasonably equivalent value Insolvency Tests

35 Creditors Rights in Bankruptcy

36 The Bankruptcy System United States Supreme Court United States Court of Appeals Bankruptcy Appellate Panel United States District Court Key Statutes: 28 U.S.C , 1334, Bankruptcy Rule Reference: , United States Bankruptcy Court

37 The Bankruptcy Exchange Rate What is the Bankruptcy Exchange Rate: With certain limited exceptions, the actual value of a creditor s claim in bankruptcy is something less than its face value. Creditors spend real dollars in order to recover bankruptcy dollars What causes the Bankruptcy Exchange Rate: Significant unencumbered non exempt assets are rare and usually require substantial administrative expense to liquidate. Not all claims are created equal

38 Assets Available to Creditors Property of the Estate All legal or equitable interests of the debtor in property as of the Bankruptcy Filing Date Depending upon type of bankruptcy, includes assets acquired during or shortly after filing as well Exemptions Takes property out of the bankruptcy estate Missouri has opted out of the federal bankruptcy exemptions Bankruptcy Code establishes residency requirements and caps Objection Deadlines Primary Code Sections: 522 and 541 Bankruptcy Rule Reference: 1007, 1009, 6002, 6004, and 6006

39 Not All Claims Are Created Equal Secured Claims Oversecured/Undersecured Interest, attorney fees and other preferred rights Administrative Claims Generally post bankruptcy claims Motion or Application Priority Unsecured Claims Specified by Code Examples: Wage Claims Taxes General Unsecured Claims Most claims Limited rights and recoveries Subordinated Claims By Agreement Equitable subordination Equity Last in line Least amount of rights Primary Code Sections: , 726 Bankruptcy Rule Reference:

40 Types of Bankruptcy Voluntary Bankruptcy Majority of bankruptcies are voluntary Debtor must meet eligibility requirements Involuntary Bankruptcy Commenced by the Debtor s creditors (generally three or more) Creditors must meet eligibility requirements Only available for Chapter 7 and 11 Farmers and not for profits cannot be put into an involuntary bankruptcy Primary Code Sections: 109, Bankruptcy Rule Reference: 1002, 1003, 1015

41 Chapter 7 Purpose Liquidation of Non Exempt Assets Individuals: Discharge of Debts Key Players Debtor: Corporate or Individual Chapter 7 Trustee United States Trustee Creditors Typically secured will be more active Primary Code Sections: , 363, 521, Bankruptcy Rule Reference: ,

42 Purpose Chapter 13 Designed to allow individuals to keep their non exempt property while paying all or a portion of their debts over a 3 5 year period pursuant to a Plan. Some individuals have to file Chapter 13 because they are prohibited from filing Chapter 7. Key Players Debtor Individuals with regular income Subject to Debt Limitations Chapter 13 Trustee Creditors Typically Secured Primary Code Sections: 521, Bankruptcy Rule Reference: ,

43 Chapter 11 Purpose Traditional: Reorganization via plan Current Trend: Liquidation via 363 Sale Key Players Debtor in Possession ( DIP ): Individual or Corporate Different rules for small businesses and individuals Committees: Creditors or Equity Creditors: Unsecured and Secured Stalking Horse Purchaser United States Trustee Chapter 11 Trustee or Examiner Primary Code Sections: 363, 365, Bankruptcy Rule Reference: ,

44 Notice of Bankruptcy Usually first notice received by creditors Form will vary depending upon Chapter Tells the basics: who, what, when and where Contains key deadlines and creditors meeting date Version mailed to creditors will contain personally identifiable information Primary Code Sections:

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47 Proofs of Claim Deemed Allowed until objection Bar Dates Can be set at different times in a case A missed bar date may be fatal. Waiver Issues Filing may waive right to a jury Submit to equitable jurisdiction of the Bankruptcy Court Primary Code Sections: 501 and 502 Bankruptcy Rule Reference:

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49 Proofs of Claims Signed under Penalty of Perjury Fraudulent Claims = Fine up to $500,000, 5 years in prison, or both Primary Code Sections: 18 U.S.C. 152 and 3571 Bankruptcy Rule Reference: 3001(c) and (i)

50 Proofs of Claim and the FDCPA Issue: Is filing a proof of claim on a debt that is time barred by a statute of limitations a FDCPA violation? Split among courts It is a violation Crawford v. LVNV Funding, LLC, 758 F.3d 1254 (11th Cir. 2014) Brimmage v. Quantum3 Group LLC, 523 B.R. 134 (Bankr. N.D. Ill. 2015). It is not a violation Johnson v. Midland Funding, LLC, No WS C, 2015 WL (S.D. Ala. Mar. 23, 2015) LaGrone v. LVNV Funding, LLC (In re LaGrone), 525 B.R. 419 (Bankr. N.D. Ill. 2015)

51 Pitfalls for the Unwary Automatic Stay Discharge Injunction Notice of Continued Perfection Postpetition Effect of Security Interest Reclamation

52 The Automatic Stay The Automatic Stay Upon filing stays most actions against the debtor and property of the estate Specified exceptions Limited Duration Relief From Automatic Stay For Cause No Equity, Not Necessary for Reorganization Single Asset Real Estate and Landlord Tenant grounds Serial Filers Primary Code Sections: 361 and 362 Bankruptcy Rule Reference: 4001

53 Violation of the Automatic Stay Consequences for Stay Violation Renders Action Void or Voidable Willful Violation: Actual and Punitive Damages Attorney Fees Willful Violation No Specific Intent Required Creditor knew of the automatic stay Intended actions that constituted the violation Designated Notice Safe Harbor Primary Code Sections: 342(f) and 362(k) Bankruptcy Rule Reference: 2002, 4001

54 Notice of Continued Perfection Commencement of a lawsuit to enforce a mechanic s lien is often part of the perfection process under state law. The automatic stay prevents the commencement of a lawsuit. If enforcement is part of the perfection process, then a creditor needs to file a Notice of Continued Perfection If it does not, then it will lose its lien rights. Don t take a chance, file the Notice Primary Code Sections: 108, 362, 546(b) Bankruptcy Rule Reference: 4001

55 The Discharge The Discharge Bars creditor from collecting on debt Timing and eligibility vary and depend on circumstances Consequences for violating similar to stay violations Exceptions to Discharge Domestic Support Obligations Certain Taxes Debts for Really Bad Acts Affirmative Action by Creditor Required Unforgiving Deadlines Primary Code Sections: 105, 523, 524, 727, 1141, 1228, and 1328 Bankruptcy Rule Reference:

56 Postpetition Effect of Security Interest Property acquired post bankruptcy by debtor is not subject to pre petition security agreements. Exceptions: Proceeds, products, offspring, or profits from prepetition collateral Rents from prepetition property Hotel fees, charges, and payments for lodging, if covered by prepetition agreement Get Replacement Liens as Part of a Cash Collateral Order Primary Code Sections: 363 and 552 Bankruptcy Rule Reference: 4001 and 6004

57 Reclamation Allows a seller the ability to reclaim goods sold on credit if determined that buyer is insolvent UCC: Demand must be made 10 days after receipt unless seller received misrepresentation of solvency 3 months before deliver. Bankruptcy Code: 45 days or 20 days after commencement of case if 45 day period expires prepetition to make reclamation demand. Bankruptcy Code makes clear that reclamation claimants interests subordinate to secured creditor. Primary Code Sections: 546

58 Preferences Elements A transfer of an interest of the debtor in property; To or for the benefit of a creditor; For or on account of antecedent debt owed by the debtor before such transfer was made; Made while the debtor was Insolvent (presumed if 90 days); Made on or within 90 days before the petition date; or between 90 days and 1 year before the date of petition date, if the creditor was an insider; and Enable the creditor to receive more than such creditor would receive if the case were a Chapter 7 bankruptcy case, the transfer had not been made, and such creditor received payment of such debt to the extent provided by the provisions of the Bankruptcy Code. Primary Code Section: 547 Bankruptcy Rule Reference: ,

59 Common Defenses Preferences Transfers less than $6,225 (commercial) or $600 (consumer) Contemporaneous Exchange for New Value Ordinary Course Subsequent New Value 546(e) Safe Harbor Burdens of Proof Trustee on Prima Facie Elements Transferee on Defenses Insolvency presumed for the 90 days prior to filing Primary Code Sections: 547(c) and (g) Bankruptcy Rule Reference: ,

60 Preference Remedies Recovery: Property Transferred or Value of Such Property Transferee Liability Initial Transferee = Strict Liability Entity for Whose Benefit the Transfer was Made = Strict Liability Immediate Transferee Unless such transferee takes: For Value In Good Faith Without Knowledge of voidability Mediate Transferee Unless such transferee takes in good faith. Claim Disallowance Any avoided lien is preserved for benefit of the bankruptcy estate as to property of the estate Primary Code Sections: 550 and 551 Bankruptcy Rule Reference: ,

61 Avoidance Statute of Limitations 2 years after Order for Relief (usually petition date) 1 year after appointment of first Trustee (if within the 2 years) Recovery: 1 years after avoidance Equitable Tolling Primary Code Sections: 546(a) and 550(f) Bankruptcy Rule Reference: ,

62 Punch List for When a Bankruptcy is Filed Initial Steps Cease Collection Efforts Collect Documents Contact Counsel Assess Relevant Deadlines Review Initial Filings Assess Lien Status Assess Alternative Sources of Payment Suggestion of Bankruptcy

63 Punch List for When a Bankruptcy is Filed Additional Steps Depending on Case Meeting of Creditors Filing Proof of Claim File Notice of Continued Perfection Reclamation Demand Made Reaffirmation Consider Serving on a Committee Assess Leases and Executory Contracts Assess Avoidance Exposure Administrative Freeze

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65 THANK YOU MoBar CLE Next Step Series: Creditors Remedies Webinar Eric L. Johnson Spencer Fane Britt & Browne LLP 1000 Walnut St., Suite 1400 Kansas City, MO Michelle M. Masoner Bryan Cave LLP 1200 Main St., Suite 1200 Kansas City, MO