Question Post-Discharge Contact with Debtor and other questions - Long

[attyny1234]

I represent Plaintiff against Defendant in a New York State contract action. Defendant/Debtor filed Chapter 7 individually (we are also suing him in the same action in his corporate identity) prior to that matter being filed (and in fact that matter is still ongoing).

Debtor is appearing pro-se in my contract action but is represented in his bankruptcy case. Debtor did not list my client as a creditor in his initial bankruptcy filings.

Then when the debtor was granted a discharge my client's name - actually in his personal and corporate identities - appear as creditors on debtor's creditor list and my client is now receiving notices in debtor's case, including that the notice that assets have been discovered and a proof of claim may be filed.

BUT the bankruptcy trustee says that because my contract action was not filed prior to debtor's bankruptcy filing a proof of claim is per se a violation of the automatic stay.

So is this a violation? If so, why is my client appearing as a creditor (unsecured) and receiving notices? And how did my client get on that list anyway? The trustee will not tell me. If I can file a proof of claim for litigation in progress what must I submit to the court as supporting documentation? I would imagine a verified summons and complaint for starters.

Further, the defendant/debtor has tried to contact me several times for an as-yet unknown reason. I am extremely reluctant to speak with him because he is represented in his bankruptcy and the subject matter of my contract action might be said to be the subject matter (partially) of the bankruptcy case. As debtor is represented in the bankruptcy action NY Rules of Professional Conduct might prohibit conduct with debtor. I have tried repeatedly to contact his bankruptcy attorney - emails, calls, faxes, certified letters - all to no avail.

But another reason I don't think I can speak with the debtor is 11 U.S.C.A. § 524 :

(a) A discharge in a case under this title--
(2) operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived; and

I understand I can be held in contempt and sanctioned if I speak the a discharged debtor under my facts. But in NY I cannot ethically hold the debtor in default as defendant in my contract action if he is trying to make a good faith effort to settle that action with me, but I am prohibited from speaking with him.

So can the § 524(a)(2) barrier be overcome? If so, I will then make my own way trying to navigate NYS' ethical rules.

Thanks for your time and expertise.

[tobee43]

welcome to the forum attyny1234!

for what you described and how you provided the timeline, i do believe it to be a violation under § 524(a)(2).

(a) A discharge in a case under this title—(2) operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived; and ...


hopefully des, one of resident attys, or another will be on to advise you if there is a way around the code. i have to chuckle a bit, we on this forum are usually the debtor so our perspective is someone blinded by our position and the way we view yours. although, i find it most interesting you would come to the site for the answer, it's actually quite a unique opportunity for many to view the opposing position.

while some may appreciate that, most would delight in letting you know; you have absolutely no change of collecting from this debtor, and if you pursue..and maybe after a few sweet C & D's, have sanctions and fines imposed on your client and yourself.

again welcome! and again, hopefully one of our resident atty will reply. please continue to post, it's most interesting and informative for many.

[attyny1234]

Hi tobee and thanks for your perspective. After I posted I searched around and realized this is a pro-debtor forum. In any case, I am not a bankruptcy attorney. And it is my client's position that the debtor did some things to breach their contract that sounded in fraud, which would definitely affect his bankruptcy case.

And IMHO I think the debtor is calling me to spew a few choice words, and not to settle. But you never know.

[tobee43]

well everyone is welcome here! you can't say we are discriminatory in any way

you know, as well as i, especially in ny and nj the burden is on your client about proving the fraud, and unless you have some real compelling and ironclad proofs it's going be an uphill battle to get the fraud past the judge.

i believe unfortunately for you, this may be a moot situation as you did not file an objection timely. that is, if i understand you correctly. if you still have time to file the objection then you have a shot at it.

i have actually seen fraud ( consumer fraud triple damage cases succeed), and know it's certainly not impossible to accomplish, and yes, it most certainly would have the UST taking a closer look at the debtors petition as a whole. however, that being said, if you are too late at this point i think it will be hard pressed to think any bk judge would allow you to continue your plight.

and, while you never know, the debtor calling you could be a trap. odd his/her bk atty not responding to you to at least give you professional courtesy.

[attyny1234]

yes fraud is an uphill battle. i thought maybe the only way I could speak to him was by making it clear i am speaking to him as an officer of his corporation. but i am not sure that would fly to get past the bankruptcy statute and in any case we are suing his company and him individually, so the ny ethical rules would apply.

believe me i certainly thought it was a trap, but I have a duty to report any non-frivolous settlement offer to my client. and believe me his attorney's discourteous behavior will be remembered.

[AngelinaCat]

Perhaps it isn't too late to file an Adversary Proceeding based on 11 USC § 523 - Exceptions to discharge:

http://www.law.cornell.edu/uscode/text/11/523

You probably have already seen this, but I thought I would put it out there anyway.

Though we are a pro-debtor forum for the most part, no one here likes to see someone else try to 'game' the system. Those that do come on here for those types of purposes are found out quickly and dealt with.

[tobee43]

yes fraud is an uphill battle. i thought maybe the only way I could speak to him was by making it clear i am speaking to him as an officer of his corporation. but i am not sure that would fly to get past the bankruptcy statute and in any case we are suing his company and him individually, so the ny ethical rules would apply.

believe me i certainly thought it was a trap, but I have a duty to report any non-frivolous settlement offer to my client. and believe me his attorney's discourteous behavior will be remembered.

well if you can file the objection and the time hasn't run out, you'll be able to present those proofs at the AP hearing. i agree, if you did speak with him, because you are apparently, ethical, a rare and wonderful quality in any atty, it could compromise you and your clients position. one would likely think, if the intent of the debtor was a possible settlement, he/she would have left a message making it clear. remember, even after discharge, although a debtor is no longer legally bound to pay back those creditors that are applicable to the discharge, it doesn't mean they can't pay you back.

[AngelinaCat]

If the case isn't CLOSED yet, it may be possible still to file the AP. And I have read on here, through the years, that it might be possible to petition the BK Court to re-open the case after it has been closed. It has to be a very compelling reason, with evidence, to back that petition up.

Also, if you can file an AP on behalf of your client, it will certainly mess the debtor up. Adversary Proceedings are typically a separate issue (but linked to) the BK. The debtor will have to enter into a separate agreement with his/her attorney to defend against the AP. APs typically can cost thousands of dollars to defend.

[tobee43]

If the case isn't CLOSED yet, it may be possible still to file the AP. And I have read on here, through the years, that it might be possible to petition the BK Court to re-open the case after it has been closed. It has to be a very compelling reason, with evidence, to back that petition up.

Also, if you can file an AP on behalf of your client, it will certainly mess the debtor up. Adversary Proceedings are typically a separate issue (but linked to) the BK. The debtor will have to enter into a separate agreement with his/her attorney to defend against the AP. APs typically can cost thousands of dollars to defend.

we are being naughty...LOL!!

[attyny1234]

I have to thank you all. I am not a bankruptcy attorney and believe me lawyers have to become experts in different fields of law on a frequent basis. But this area is a monster unto itself. I will have to research the potential of the adversary proceeding. We are talking a large sum at issue in the contract action but the plaintiff is a family friend with deep pockets, and very, very angry and willing to drop a lot of money strictly on principle.

[tobee43]

I have to thank you all. I am not a bankruptcy attorney and believe me lawyers have to become experts in different fields of law on a frequent basis. But this area is a monster unto itself. I will have to research the potential of the adversary proceeding. We are talking a large sum at issue in the contract action but the plaintiff is a family friend with deep pockets, and very, very angry and willing to drop a lot of money strictly on principle.

we use to call the the "perfect" client in our law office.

it's difficult to become experts in all the different areas of the law, and indeed, this type of law is a monster and never ending. you won't need to go far to find out your only ave will be the AP in the bk court. as ms cat states if your proofs are that compelling you may ask for the case to be re-opened based on the evidence you present. if you are successful at the AP hearing the debtor will be found guilty of fraud and then will be forced by the courts to work out a settlement or payback. again, i'm hoping des will come on this evening and give some input into this situation. if not, then as a good friend you should tell him to keep his money.

[AngelinaCat]

Feel free to come on and ask any questions. And like tobee43 says, I hope Des will come on later and see this.

[LadyInTheRed]

If the cause of action occurred before the debtor filed BK, I don't see how filing a proof of claim would be a violation of the automatic stay. If your client knew about the BK before filing the civil action, then the filing of the civil action against the individual was a violation of the stay. But, I really don't think that makes the filing of a proof of claim a violation of the stay. I don't know that for certain. I'm only applying logic to what I know about the automatic stay. Don't take the trustee's word for it!

You should not continue to prosecute the contract action againt the individual unless you get relief from the stay and/or have the debt ruled not discharged. Assuming you think your client's claim can be excepted from discharge under Section 523, I think you need to petition the court to revoke the discharge of your client's claim and have it declared non-dischargeable. Until you do that, proceeding with the state action against the individual, including obtaining a default judgement, would be a continued and willful violation of the stay (or permanent injunction until the discharge is revoked). Again, I'm assuming the cause of action existed at the time the BK was filed.

Maybe you could write to the debtor explaining why you haven't returned his calls. Include a disclaimer that your letter is not an attempt to collect a debt and ask him to put in writing whatever he was calling about. Mention that you have tried unsuccessfully to contact his bankruptcy attorney. Advise him that whatever he says can be used as evidence in the civil preceding against the corporation, and eventually against him if the suit proceeds against him. Recommend that he consult with his own attorney before communicating with you. Does that help with your ethical concerns?

Keep in mind that it may be that the corporation is the asset that the trustee discovered. If the corporation was not listed as an asset in the BK petition and the debtor's attorney didn't know about it, the trustee's discovery of the corporation may have led to an amendment of the petition to add your client as a creditor. By the time the trustee is done liquidating assets, a judgement against the coporation may not be worth anything.

FYI, I am not an attorney. I'm a paralegal in another area of law. My favorite part of the job is analyzing and discussing legal issues with the attorneys I work with. I've learned a lot of about bankruptcy from my own bankruptcy, reading this board and doing research to help answer questions. So, take my suggestions for what they are worth.

If your client is willing to spend some money, why not pay a bankruptcy attorney who represents creditors for a half hour of his time to discuss these issues? I bet a creditors' attorney would be able to give you advice off the top of his head on how to proceed. It would probalby be more cost-effective than paying you to become an instant expert in BK law. Or are you working on a contingency?

ETA: In the future, you may want to do a PACER search for a defendant's name before filing a complaint to make sure they haven't filed BK. Seems like a good, low-cost practice.

[attyny1234]

Thank you Lady. I will read and absorb this.

The corporation's only assets are likely a business that was purchased by the debtor, said purchase being brokered by my client. We have not had a note of issue in the case yet. And the case is hung up on a motion to change venue.

Thanks again.

[tobee43]

attyny1234: Debtor is appearing pro-se in my contract action but is represented in his bankruptcy case. Debtor did not list my client as a creditor in his initial bankruptcy filings.

i think this is key. in bk law it is quite clear that ALL creditors MUST be notified in writing. period.

otherwise, if there was a dispute how would one be able to file the AP. i'm sorry i missed it in your post. this is the most relative part of your position with the bk courts, the petitioner failed to list you on the list of creditors.

while i have heard many times on this site. oh, it's okay you didn't list that creditor it's all covered when you filed. well, NOT when push comes to shove the law is very clear on this matter. Crditors must be listed or they can re-open your case and present the discharge and close of the the case. (one exception the “no harm, no foul” rule would apply if this is after a discharged chapter 7 no asset case, as there would be nothing for a creditor to collection from ).


" The Supreme Court Addressed the issue of an unlisted creditor in its decision in Birkett v. Columbia Bank
in 1904. In analyzing §17 of the Bankruptcy Act, the Court construed the language regarding notice by requiring actual notice to be given to all creditors. The creditor in Birkett had notice of the bankruptcy after the discharge was entered; however it still would have had time under the Act to seek to revoke the discharge and add its name to the list of creditors receiving a dividend.The Court held that this knowledge and especially the timing of the receipt of the knowledge was not sufficient for the debtor to receive a discharge of the particular debt under the Act. The Court further held that the excuse offered for failing to list the creditor (inadvertent neglect) was irrelevant because the Code required that a debtor give notice to his known creditors.14Thus, the debt in Birkett was not dischargeable under the precursor to §523(a)(3). The Second Circuit, in Milando v.Perrone,15 addressed this again 40 years later and strictly applied §17(a)(3) of the Bankruptcy Act, holding that there were no exceptions to the Birkett doctrine.The Milando court held that §17(a)(3)prevented the discharge of a creditor’sclaim, even though the debtor sought the right to amend the schedule and it wasa no-asset case where no creditor had received any dividend 16 In the In the 1978 Bankruptcy Dode, former §17 (a) (3) was recorded as §523(a)(3). The “failure to list”provision is very similar to the language of the 1898 Act and in relevant part,prohibits the discharge of debt that was“neither listed nor scheduled...in time to permit...timely filing of a proof of claim, unless [the] creditor had notice or actual knowledge of the case in time for timely filing "

... read on.http://www.abiworld.org/AM/Template....ONTENTID=59066 this goes on with more case law that may be of use to you.

i should have caught that!