While it is not pleasant to contemplate, sometimes a debtor passes away before his case is completed. This raises the question of whether the case can go to completion and how to complete the financial management class. Judge Michael Parker addressed this issue in one of his first published opinions as a judge. (This is actually his third opinion, but the first one that I had the time to write about).  In re Ibarra, Case No. 19-52413 (Bankr. W.D. Tex. 6/1/2022), which can be found here.What HappenedThe Debtor filed Chapter 13 and confirmed a plan in 2019. The Debtor passed away on October 9, 2021 prior to completing payments under the Plan and before completing a personal financial management course. The debtor's probate estate representative and daughter made the remaining payments under the plan and moved for an order waiving the debtor's obligation to complete a financial management course. As the Judge succinctly stated, "Death prevents the Debtor from completing a financial management course." Opinion, p. 1.The Court's OpinionIt should come as no surprise that the Court granted the motion. The Court stated its analysis with Fed.R.Bankr.P. 1016, which states that is a Chapter 13 debtor dies "the case may be dismissed; or if further administration is possible and in the best interest of the parties, the case may proceed and be concluded in the same manner, so far as possible, as though the death . . . had not occurred."Judge Parker then explained:Because discharge is the usual conclusion of a chapter 13 case, Rule 1016 contemplates granting a discharge to a deceased chapter 13 debtor under qualifying circumstances. Here, plan payments are complete and “further administration” requires only the ministerial task of completing a financial management course. The Court notes that the Debtor’s death defeats the purpose of the course requirement, which is to prevent bankruptcy recidivism. Opinion, p. 3. The Rule allows the Court to consider the best interest of the parties. Here, neither the Trustee nor the creditors objected. The Court noted that the debtor's heirs would benefit from allowing the case to proceed. The next question was whether the personal financial management course could be waived. Section 109(h)(4) allows the Court to waive the personal financial management course due to "incapacity, disability, or active military duty in a military combat zone." A deceased debtor "suffers from the ultimate disability." Lessons From This CaseThe main takeaway from this case is that the requirement to complete a personal financial management course can be waived due to incapacity. This would apply in both Chapter 7 or Chapter 13. As Judge Parker pointed out, the purpose of the personal financial management course was to keep the debtor from filing future bankruptcies. Once the debtor has passed away, this  is no longer a problem. The statute also allows both the credit counseling briefing and the personal financial management course to be waived due to disability. Bankruptcy Rule 1004.1 expressly allows an infant or incompetent person who has a representative to file bankruptcy. This raises an interesting question as to how the personal representative can verify the schedules or testify at the creditor's meeting. However, the two rules combined allow the personal to file through their representative and waive the requirement of the pre-filing and post-filing certificates.One other practice point highlighted by the opinion is what to do when a debtor passes away prior to completing payments under a Chapter 13 plan. One option, as occurred here, is for the debtor's heirs to complete the payments for him. Another option alluded to by Judge Parker is to request a hardship discharge under 11 U.S.C. Sec. 1328(b). This is available where the failure to complete plan payments "is due to circumstances for which the debtor should not justly be held accountable." Losing a client during a case can be traumatic for the family and attorney alike. Judge Parker's Ibarra opinion provides some good guidance and how to handle this situation. 

 Bloomberg Law has an interesting post about InfoWars Case Spotlights Limits of Small Business Bankruptcy Law and Subchapter V small business chapter 11 filings. The article can be found at https://lnkd.in/gFH7fJE8Persons with questions about Subchapter V should contactJim Shenwick, Esq. 212 541 6224 jshenwick@gmail.com

A new announcement has just been submitted by the Clerk of the United States bankruptcy Court for the Northern District of Illinois. Going forward in the post-Covid future, the outlying collar county court calls will no longer be heard in those collar counties. The matters will be heard via Zoom for Government or a party+ Read More The post Bankruptcy Matters For The Collar Counties To Be Heard In Chicago appeared first on David M. Siegel.

 The 9th Circuit Bankruptcy BAP has ruled in RS Air, LLC that a profit motive is not required for a debtor to qualify for Subchapter V relief. An article about this case can be found at https://www.jdsupra.com/legalnews/profit-motive-not-required-for-9954771/?origin=CEG&utm_source=CEG&utm_medium=email&utm_campaign=CustomEmailDigest&utm_term=jds-article&utm_content=article-linkJim Shenwick, Esq.  212 541 6224   jshenwick@gmail.com

 No attorney wants to see his name mentioned prominently in an opinion. However, if it has to happen, it's better if its something like this:  "Chance McGhee is an experienced and competent attorney that has practiced consumer bankruptcy law for many years." Adv. No. 21-5036; Wilson v. Silva (In re Silva) (Bankr. W.D. Tex. 5/19/2022).  The opinion can be found here. As the opinion lays out, Mr. McGhee demonstrated how an experienced and competent attorney should handle a potentially difficult case.What HappenedDanny Wilson, the Plaintiff, took out a loan to help the Defendant, Arthur Silva, acquire an insurance agency. Part of their deal was that commission checks would be deposited into an account controlled by Wilson. This was important because Wilson had pledged the commissions on a loan that he took out to fund Silva's acquisition of the agency.About eight months into the deal, Silva stopped depositing the commissions into the Wilson account. Wilson sued for breach of contract and eventually recovered a judgment for over $616,000. Silva filed a Chapter 13 petition in 2020 which was dismissed and then a Chapter 7 case in 2021. Wilson filed a complaint under 11 U.S.C. Sec. 523(a)(6) and Sec. 727(a)(4). The parties did not submit a joint pre-trial order which meant that there were not any stipulated facts.  (Practice tip: Always submit a joint pre-trial order). The Plaintiff submitted 149 exhibits. Three witnesses testified: Wilson, Silva and attorney Chance McGhee. The Debtor waived attorney-client privilege to allow Mr. McGhee to testify.The Willful and Malicious Ruling On the willful and malicious injury claim, the Plaintiff was required to show that Silva's actions in diverting the commission checks created either "an objective substantial certainty of harm" or "a subjective motive to cause harm." Williams v. International Brotherhood of Electrical Workers Local 520 (In re Williams), 337 F.3d 504, 509 (5th Cir. 2003). At trial, Wilson's counsel failed to ask Silva any questions about his intent. Mr. McGhee, recognizing that Wilson had the burden of proof, wisely refrained from asking any questions of his own. This is the first lesson from this case. If your opponent doesn't meet his burden of proof, don't provide the evidence for him.  The Court stated:The Court recognizes that Silva breached the agreement and was liable for damages caused to Wilson. What is unclear to the Court is whether Silva acted objectively or subjectively to cause harm to Wilson. The Court notes that the breach of a contract gives rise to damages, but there is insufficient evidence to find that Silva’s breach of the agreement demonstrates subjectively or objectively an intent to harm Wilson. Based on the evidence provided, the Court cannot find that Silva had a subjective motive by acting deliberately and intentionally in knowing disregard of Wilson. There is insufficient evidence on subjective intent to cause harm. Additionally, the Court cannot find that Silva’s actions were objectively substantially certain to cause injury. Wilson did discuss how the diversion of Allstate payments impacted him, but there is insufficient evidence that Silva’s actions were certain to cause harm. As such, the Court finds that Wilson has not met his burden by a preponderance of the evidence that Silva’s liability to Wilson is nondischargeable under § 523(a)(6).Opinion, at 13-14.The Objection to DischargeThe Plaintiff seized upon a number of inconsistencies between the Debtor's two bankruptcy filings as well as amendments to the schedules to assert that the Debtor had made a false oath in his bankruptcy case. However, the Plaintiff failed to meet the five-part test for denial of discharge and some of his allegations left the Court scratching its head. The test for denial of discharge under 11 U.S.C. Sec. 727(a)(4) is:   "(1) [the debtor] made a statement under oath; (2) the statement was false; (3) [the debtor] knew the statement was false; (4) [the debtor] made the statement with fraudulent intent; and (5) the statement related materially to the bankruptcy case.’” Cadle Co. v. Pratt (In re Pratt), 411 F.3d 561, 566 (5th Cir. 2005). Thus, a false statement standing alone is not sufficient to deny discharge. Notably, “Bankruptcy Courts have not construed § 727(a)(4) generally to impose strict liability for the schedules and false statements.” (citations omitted). Innocent mistakes and inadvertence are generally not sufficient to result in denial of a discharge.Opinion, p. 14. The Court went on to note that “[i]t may be close to impossible to produce Schedules and SOF As that contain no mistaken information.” Opinion, p. 16.The creditor alleged ten supposedly false statements.   1.    Failure to list a non-profit corporation that was formed post-petition. The Court found that the omission was not intentionally false. Indeed, since the Schedules and SOFA are a snapshot as of the petition date, the entity need not have been listed at all. 2.    Failure to list a dba of his insurance agency. The Court found that this statement was not false because the Debtor had listed the actual insurance agency.3.    Undervaluing his homestead. Mr. McGhee testified that consumer lawyers often use the appraisal district valuation for valuing property. However, when the valuation was challenged, the Debtor obtained an appraisal and amended. Based on the amendment, the Debtor switched from federal to state exemptions, which the court described as  "good lawyering to protect assets from liquidation in a chapter 7 case." Neither relying on the appraisal district value initially, amending to disclose the value stated in an appraisal or switching from federal to state exemptions was a false oath. 4.    The Debtor initially valued his electronics at $0. Mr. McGhee testified that this was his error. He later amended the schedules to value the electronics at $2,000. The court found that the misstatement was not material since the trustee did not seek turnover of the electronics (presumably because they were exempt). 5.    Undervaluing his Allstate franchise agreement. Although the court did not say so, questions are valuation are difficult to use for a false oath. Valuation is a matter of opinion and while a debtor may have an opinion as to value, that opinion would only be false if the debtor had actual knowledge of a higher value from a source that could not be disputed. In this case, the Debtor initially gave his estimate of the going concern value of the franchise and then amended when he was able to obtain a definitive valuation from Allstate. Amending to provide a better value is not the type of amendment that could constitute a false oath in most cases. 6.    Claiming federal exemptions in Silva's cash and investment accounts. "The Court fails to understand how asserting federal exemptions somehow qualifies as an omission or false statement under § 727(a)(4)(A)." 7.     “Amending Silva’s Schedule C to claim both the monetary value of the majority of his exempt assets as well as claiming 100% of fair market value”  "(T)he Court is perplexed by this assertion. Maximizing exemptions is precisely what a debtor’s counsel should do to achieve the broadest discharge possible for a debtor. The Supreme Court’s holding in Schwab v. Reilly permits using 100% of the fair market value to exempt assets. 560 U.S. 770 (2010)." Opinion, p. 18.8.     Increasing the amount of the IRS's secured claim on the Debtor's homestead.  Mr. McGhee testified as to the reason for this amendment which the Court found was neither false nor material due to the unlimited Texas homestead exemption.9.    Decreasing the value of the secured claim on the Debtor's insurance agency. The secured value was dependent on the value of the asset. As explained above, when the Debtor obtained a better valuation, it necessarily affected the value. The Court found that this was "not attributable to any manipulation by Silva, but an independent valuation."   10.    Failure to list certain unsecured creditors who later filed claims. Mr. McGhee testified that sometimes debts are sold or transferred so that the original creditor listed on a credit report was not the creditor at the time for claims to be filed. The Court noted that there was no benefit to the debtor in omitting unsecured creditors since these claims might be excluded from discharge under 11 U.S.C. Sec. 523(a)(3). The Court found that the creditor did not establish that the statements were made with fraudulent intent. As to the fourth element—whether the debtor made the statement with fraudulent intent—Silva did not make any statements suggesting the omissions or false statements were made with fraudulent intent. The Court finds Silva’s explanations credible as to why he originally listed his liabilities the way he did. Further, the Court cannot discern any attempt to prevent any creditor from learning about Silva’s assets and liabilities. Silva repeatedly testified he disclosed his assets and liabilities to McGhee to the best of his knowledge and relied on McGhee’s expertise to list the liabilities and assets appropriately. The Court also finds credible McGhee’s explanations and rationale for the how the schedules were originally prepared and subsequently amended. The Court cannot find any basis to conclude that Silva purposely omitted any of his assets or liabilities. Opinion, p. 19.  The Court also found that none of the statements were material.What this section shows is that Mr. McGhee helped his client by getting him to waive attorney-client privilege and by allowing Mr. McGhee to testify as to rationale for the changes. While many of the objections were spurious (or at a minimum not very well thought out), the expert testimony of an experienced consumer bankruptcy lawyer provided valuable context to the court. Amendments that the creditor perceived to be fraudulent were, in fact, just good lawyering. The fact that Mr. McGhee was willing to testify, and in one instance, admit to his error, showed that he was willing to place his client's interest ahead of his own (since after all, no lawyer wants to be cross-examined by his adversary. This opinion provides a wealth of good case law and good observations that will be useful in defending an objection to discharge. The opinion should also be required reading for a creditor wanting to pursue a false oath case. While the various amendments and omissions may have looked shady, someone should have asked whether they made a difference before filing the complaint.  It also shows the wisdom in consulting with an experienced bankruptcy lawyer before filing an adversary proceeding. 

Sylvia Mayer of https://smayerlaw.com/ joins Mac Pierre-Louis and Natalia Olowska-Czajka of https://olowskapierre.com/ to explore the differences and similarities between mediating family divorces (when a couple separate and need to divide up their property and, if children are involved, set a custody schedule) and business divorces (when owners of a small or privately held business part ways and need to divide up the assets and liabilities of the business or resolve disputes related to the management of the business). Are emotions high? Are children (literal children or figurative children in the form of a business grown from the ground up) involved? Is there property to divide up? Or liabilities? Do one or both parties feel betrayed or deceived? With all of this, how do mediators help the parties find a path to resolution? #mediation #adr #businessdivorce #divorce #smallbusinessmediation https://www.youtube.com/watch?v=UKZB0bW BvFQ&list=PLVLC1NzkmY2f1P WvrcC Ou1DeV Gz94_8aL&index=8 The post Can You Spot the Differences? And Similarities? Comparing Family Divorces with Business Divorces in Mediation appeared first on Sylvia Mayer Law.

Sylvia Mayer of https://smayerlaw.com/ joins Mac Pierre-Louis and Natalia Olowska-Czajka of https://olowskapierre.com/ to discuss Robert Cialdini’s Pre-Suasion: A Revolutionary Way to Influence and Persuade. Sylvia is an avid reader and shares her takeaways from reading Pre-Suasion and how they apply to mediation and conflict resolution.   At its core, relying on real-life situations and scientific studies, Pre-Suasion explores a myriad of ways to enhance receptivity before making any meaningful “asks.”  Receptivity refers to being open to accepting new information, ideas, and suggestions.  In mediation, parties typically reach an agreement only after each has become receptive.  Focus, timing, word choice, reciprocity, framing, and connection are among the tools available to build receptivity. #conflict resolution #mediation #adr #bookreview #influence #receptivity https://www.youtube.com/watch?v=XkqBs5HpL Sc&list=PLVLC1NzkmY2f1P WvrcC Ou1DeV Gz94_8aL&index=9 The post Book Review: Robert Cialdini’s Pre-Suasion: A Revolutionary Way to Influence and Persuade (Part 1) appeared first on Sylvia Mayer Law.

While we may think we are objective and open-minded, we all have internal cognitive biases that affect our understanding and decision-making.  One common bias is anchor bias, which occurs when we rely heavily on one piece of data to the exclusion of all other information. In Robert Cialdini’s Pre-Suasion: A Revolutionary Way to Influence and Persuade, he asserts that “what is focal is presumed causal,” meaning that what we focus on (focal) shapes (causal) our views on the subject matter.  The book explores several studies and examples confirming the connection between focal and causal. One such example is the 1982 Tylenol tampering incident.  In 1982, someone injected cyanide into Tylenol capsules and put the bottles of pills back on the store shelves to be sold.  People bought the poisoned Tylenol.  At least seven people died from it. Tylenol recalled over 31 million capsules, created a list of the lot numbers impacted, and published the list to raise public awareness and facilitate the recall.  The first two lot numbers identified received the most publicity. How does this demonstrate the connection between focal and causal?  Immediately, lottery ticket purchases using those two lot numbers skyrocketed all around the country.  The lottery purchases were so high using those two lot numbers that they stopped allowing those two numbers to be used at all in three states. While it sounds irrational, it was human nature at work.  Because of the publicity around these numbers, they had become a focal point.  Because they had become focal, they had become causal – meaning subconsciously people believed these numbers could cause events to occur – like winning the lottery.  But they were wrong.  Neither of the numbers proved to be winning numbers. How does this play out in mediation and negotiation?  Anchor bias is a common barrier to resolution.  It occurs when one party fixates on a particular piece of information (a fact, an event, a case, a statement made, a conclusion, a specific dollar amount, an act, or an omission) to the exclusion of all other information.  Anchor bias clouds our judgment by making us unable to process or accept new or conflicting information.  Until we drop our singular focus on the anchor, there is no available path to resolution. By way of example, I mediated a case in which the sole issue was to determine the amount of attorneys’ fees.  Liability for the fees had already been determined by final order, but the party found liable for the fees was fixated on the issue of liability.  It was all they wanted to talk about in a continuous loop.  We could not move forward on a path to a resolution until they dropped their anchor and became receptive to new information. What’s the lesson to be learned?  We need to keep our eyes, ears, and minds open to finding a path to resolution.  If you find yourself focusing on one thing to the exclusion of all else, then recognize it as anchor bias and drop the anchor.  Set aside that one thing and look openly at the other information before you.  It may open up unexplored possibilities and lead you to a resolution. Author’s Note: As a mediator, I am a “forever student” always seeking new ways to help people find a path to resolution in mediation.  Robert Cialdini’s “Pre-Suasion: A Revolutionary Way to Influence and Persuade” inspired this post.  In reading his book, I was struck by the relevance to my mediation work.  In the book, he explores a myriad of ways to enhance receptivity and focuses on laying the groundwork for receptivity before making any meaningful “asks.”  If you aren’t a reader, but still interested in what he has to say, then you may enjoy this podcast in which he was interviewed about his book:  Barry Ritholtz, Masters in Business (June 18, 2021), https://podcasts.apple.com/us/podcast/robert-cialdini-on-the-psychology-of-persuasion-podcast/id730188152?i=1000423074089. Dropping Anchor Bias The post Mediator Insights: Dropping Anchor Bias in Mediation and Negotiation appeared first on Sylvia Mayer Law.

In simple terms, litigation is a conflict arising from competing interests.  Party A sues Party B.  Party A wants money.  Party B does not want to pay.  Party A wants a contract modified or terminated.  Party B does not.  There are a myriad of dynamics in litigation that boil down to competing interests.  Through mediation, we seek to balance those competing interests to find a path to resolution. To illustrate the balancing of competing interests, consider Doreen Cronin’s Click Clack Moo: Cows That Type.  In this story, Farmer Brown has a farm with dairy cows, chickens, pigs, and ducks.  One day, he hears mooing and the sound of typing (the click, clack, moo) coming from the barn.  The cows had found his old typewriter and typed him a note. The note says:  “The barn is very cold at night.  We’d like some electric blankets.  Sincerely, The Cows.” Farmer Brown is upset.  He responds “No way.  No electric blankets.” More click, clack, moo is heard from the barn, then a second note appears: “Sorry. We’re closed.  No milk today.”  The cows are on strike. Farmer Brown is even more upset.  Then a third note appears: “The hens are cold too.  They’d like electric blankets.” Farmer Brown is apoplectic.  He writes back:  “There will be no electric blankets.  You are cows and hens.  I demand milk and eggs.” In mediator speak, the parties have reached an impasse. Duck steps in to act as a neutral.  With Duck’s assistance, an agreement is reached.  The cows and hens will exchange the typewriter for electric blankets and resume providing milk and eggs. How did Duck break the impasse?  Let’s examine what happened. Three things happened: Each had a need or interest. The cows and hens were cold.  Their interest was in being warm.  Farmer Brown needed milk and eggs.  His interest was running his farming business. Each side was upset and unable to understand the other’s views. Each side had leverage. The cows and hens needed a comfortable place to live, which only Farmer Brown could provide.  Farmer Brown needed the milk and eggs, which only the cows and hens could provide. Duck helped them find a compromise that balanced their competing interests and allowed them to move forward.  (Note:  There is a plot twist at the end, but that is for another day.) Particularly in situations where parties have an ongoing relationship, really listening and hearing the other side’s needs or interests may open the door to creative solutions that pave the path to resolution. Author’s Note: As a mediator, I am a “forever student” always seeking new ways to help people find a path to resolution in mediation.  As a parent, I have spent a gajillion hours reading books to my children.  Oftentimes, these books teach me new ways to approach conflict resolution.  In this case, Doreen Cronin’s “Click Clack Moo: Cows That Type” inspired this post. Click Clack Moo - Balancing Competing Interests The post Mediator Insights: Click Clack Moo: Balancing Competing Interests in Mediation appeared first on Sylvia Mayer Law.

 A very information article about Subchapter V Bankruptcy for small businesses can be found at https://blogs.lawyers.com/attorney/bankruptcy/can-you-benefit-from-small-business-bankruptcy-under-subchapter-v-76446/The article is titled Can You Benefit From Small Business Bankruptcy Under Subchapter V? by Adrienne WoodsAny attorneys or clients that have questions about Subchapter V can contact Jim Shenwick, Esq at 212 541 6224 jshenwick@gmail.com