Category: Bankruptcy

Bankruptcy: repeat filings

A question we get frequently, especially after a debtor files a second or third bankruptcy as a delay strategy, is just how many times can a debtor get away with filing for bankruptcy? We refer to these folks, not so affectionately, as “serial filers.” While not perfect, there are some restrictions for debtors filing multiple bankruptcies:

180 days: A debtor can’t file a second bankruptcy case for 180 days if the debtor’s case was dismissed (i.e., the bankruptcy wasn’t completed) for the following reasons: (1) by the court for willful failure of the debtor to abide by orders of the court, or to appear before the court in proper prosecution of the case; or (2) the debtor requested and obtained the voluntary dismissal of the case following the filing of a request for relief from the automatic stay.

Two bankruptcies in one year: When a debtor files a second bankruptcy within one year of the dismissal of the first case, the automatic stay expires 30 days after filing (11 U.S.C. § 362(c)(3)). There’s one exception, which is if the debtor can prove to the court that the second case was filed in good faith (meaning the debtor didn’t file repeatedly to delay collection by a creditor), the court has discretion to extend the automatic stay.

Three bankruptcies in one year: When a debtor files a third bankruptcy within one year of the dismissal of the first case, the automatic stay doesn’t take effect at all upon the third filing (11 U.S.C. § 362(c)(4)).

After successful completion of a bankruptcy (i.e., a discharge): For a Chapter 7 bankruptcy, a debtor is not eligible for a discharge if the debtor received a discharge in another Chapter 7 filed within the prior eight years, or in a Chapter 13 case filed in the prior six years (unless the prior Chapter 13 payment plan either paid 100% of the unsecured claims or paid 70% of the unsecured claims). For a Chapter 13 bankruptcy, a debtor is not eligible for a discharge if the debtor received a discharge in another Chapter 13 case filed in the prior two years, or in a Chapter 7 case filed in the prior four years.

Miscellaneous note: The one-year period for either termination or non-application of the stay begins to run from the date of dismissal of the first case. In a joint case, if only one of the debtors had a prior case dismissed in the year before filing, the automatic stay is affected only as to the debtor with the prior case. Section 362(c) (3) and (4) apply to the acts of a specific debtor rather than joint debtors in the aggregate.

Please call us if you need clarification or have any questions.

In Georgia: What To Do When Your Tenant Files for Bankruptcy?

Over the years, we’ve learned that for landlords, time is money. A three-day delay to file an eviction can mean losing a month’s rent. Similarly, when a delinquent tenant files bankruptcy, this can cause a two or three month delay, during which time most tenants pay no rent. For a landlord, dealing with a non-paying tenant, and trying to navigate the rules and laws of bankruptcy court, is a challenge. To make things worse, this is not an easy area of law, even for practicing bankruptcy lawyers.  “Executory contracts” have been described as the most “psychedelic” law in bankruptcy. Jay Lawrence Westbrook, Article: A Functional Analysis of Executory Contracts, 74 Minn. L. Rev. 227, 228 (1989)

While there are many issues you can handle without a lawyer, this is one in which you are most likely best served by getting professional advice. This blog only scratches the surface. Please call us for a free consultation if you find yourself in this situation.

Examples of executory contracts are long-term purchase agreements; service contracts; settlement agreements; insurance contracts; employment contracts; and construction contracts. When a party to an executory contract files a bankruptcy, an “automatic stay” of all collection and enforcement proceedings goes into effect at the time of filing. The automatic stay prevents eviction proceedings or other legal action – either for possession or for money damages. As a general rule, if this happens, approval from the bankruptcy court is required to proceed in the underlying action. This means moving for relief from stay. But sometimes filing a motion for relief from stay is unnecessary.

Section 365 is the place in the bankruptcy code that provides guidance on these issues. The rationale behind section 365 is to give the debtor and/or the trustee ample opportunity to decide which prepetition contracts and unexpired leases are beneficial to the bankruptcy estate and should be assumed and retained or assigned, and which are detrimental and should be rejected. Different executory contracts and unexpired leases receive different treatment and are subject to different requirements under section 365.

1. Unexpired Residential Real Property Leases and Unexpired Personal Property Leases in Chapter 7: Under section 365(d)(1), if the trustee does not assume or reject an executory contract or lease within 60 days after the order for relief (or within such additional time as the court may fix for cause), then the contract or lease is deemed rejected. This can be helpful to a landlord, especially if the 60 days is approaching.

2. Unexpired Residential Real Property Leases and Unexpired Personal Property Leases in Chapter 11 or 13: Under section 365(d)(2), executory contracts and unexpired residential real property and personal property leases can be assumed or rejected prior to, and including, plan confirmation. However, 365(d)(2) provides that the nondebtor party may request the court to order the trustee of debtor-in-possession either accept or reject within a specified time period.

3. Unexpired Non-Residential Real Property Leases Sections 365(d)(3) and (d)(4) provide extensive protection for nondebtor parties to non-residential real property leases: Upon filing the petition (the original bankruptcy filing), the Code requires the debtor or the trustee in Chapter 7 cases to timely perform all obligations of the lease from that date until the lease is assumed or rejected. If the debtor or trustee fails in that duty, the landlord may seek relief from the automatic stay and proceed with its remedies, which include an action for possession of the premises. The trustee or debtor-in-possession cannot retain possession of the nonresidential real property without paying rent or incurring an administrative expense claim for the payment of rent in the amount called for under the lease that accrues after the order for relief. Section 365(d)(4) provides that if a lease of non-residential real property (where the debtor is the lessee) is not assumed by the earlier of (a) 120 days from the order of relief, or (b) the entry of the confirmation order – it is deemed rejected and the property must be immediately surrendered to the lessor.