Contested motions are more routine motions within a bankruptcy case that are disputed resulting in motion practice; the initial motion, opposition to the motion, and in appropriate situations a cross-motion.
Contested bankruptcy motions are regular motions made within a bankruptcy case that are inherently part of the case and help move the case forward. Bankruptcy motions do not need to be contested, they can be unopposed, but usually there is the potential and often the expectation that they may be contested. Where a matter is agreeable to all parties in a case it is usually presented to the Bankruptcy Court by stipulation rather than by motion. Examples of contested bankruptcy motions are: a) Motions for Relief from the Automatic Stay; b) Motions to Dismiss; c) Motions to Convert a Case (from one chapter of the Bankruptcy Code to another chapter of the bankruptcy code; d) Motions Objecting to a Proof of Claim; e) Motions to Retain a Professional; f) Motions to Sell Property of the Debtor; g) Motions to Amend a Confirmed Plan; h) Motions to Reopen a Bankruptcy Case to Add a Creditor; and i) Motions to Avoid a Judicial Lien Based on its Interfering with the Homestead Exemption.
Contested bankruptcy motions like bankruptcy adversary proceeding are methods of resolving disputes in the Bankruptcy Court that are part of a bankruptcy case. However, contested motions and adversary proceedings are generally very different in their level of complexity, methodology and effort/time. Contested motions do not need a separate case number like an adversary proceeding. Contested motions are more routine and limited than an adversary proceed and are generally decided faster and with less documents filed by each of the parties. The sequence is usually as follows: the movant makes the initial motion, the respondent files opposition to the motion (and potentially a cross-motion), and the movant usually has the last turn with a reply to the opposition to the motion. After this kind of limited and regular exchange of contested documents between the parties the Bankruptcy Court usually renders a decision. In most contested motions an evidentiary hearing is not required, but if it is required, it would be a limited evidentiary hearing about one topic (i.e., the valuation of real property for a motion for relief from stay if such issue is contested and relevant for the court’s decision), as opposed to a trial in an adversary proceeding which is usually much broader with the issues contested and the evidence presented. the court usually renders a decision.
Motions made by creditors most often are to seek relief from the automatic stay in a bankruptcy case. This is often when a secured creditor like a mortgage holder or a car loan lender have ongoing arrears on payments and seek relief from the stay to pursue their rights in Court or against their collateral. To do so the creditors would need to show that there is no equity in the property and/or that it is not necessary for an effective reorganization. Therefore, motions for relief from the stay are more easily granted in a Chapter 7 case where there is generally no reorganization effort and where the debtor is usually in a worse place economically. On the other hand where the debtor is paying post-petition obligations timely in a Chapter 11 or 13 case, it is much harder for the creditor to prevail on a motion for relief from the stay. To get around the stay, in cases where the debtor is trying to reorganize, the the movant needs to show that the effort by the debtor is futile and not feasible and/or there is a greater societal benefit in giving relief from the stay.
Other types of motions are made by a trustee to dismiss a case where the debtor is not cooperating with the trustee’s administering of the case or where the case otherwise appears not viable in terms of proceeding. Motions to dismiss are usually made by the trustee assigned to the case, but also may be made by a creditor or by the debtor itself, where it seems like the bankruptcy is either inappropriate or no longer can serve a constructive and/or legitimate purpose. Motions to dismiss are made where the trustee or creditor argue that that the case is abusive and filed merely for delay or that the debtor does not qualify for the chapter of the bankruptcy code they filed based on their income. A debtor may make a motion to dismiss when it realizes that a case may not be able to achieve its originally intended goals or when those goals have been achieved and the case is no longer necessary.
A bankruptcy filing offers two main sources of protection: first, the bankruptcy case begins by immediately (but temporarily) protecting the debtor through the automatic stay, and second, the bankruptcy case can potentially end with the debtor being permanently protected with a discharge order in a Chapter 7 case or with a confirmed plan in a Chapter 11 or 13 case. Many cases are filed on an emergency basis, such as to stop a foreclosure sale, eviction, bank restraint, wage garnishment and/or vehicle/equipment repossession. Under those circumstances, the Debtors are in need of the immediate protection of the automatic stay. Such cases do not always find that the second source for the reason for the bankruptcy case, which seeks the more permanent resolution of the debt, works well under these circumstances. Under these scenarios, there is pressure to dismiss the case, notwithstanding that the case only provided temporary protection to the debtor and was not completed in terms of ending the case with a discharge or reorganization of the debt.
Often the debtor struggles to sustain a case and to extend the temporary protection that the case provides and tries to convince the trustee and the Court that they, the debtor, can potentially obtain a more constructive resolution by being provided with more time in the case.
There may be circumstances where the goal under original Chapter that the Debtor filed cannot be successfully accomplished. The case may be at risk of dismissal or have other problems, so conversion to another Chapter of the Bankruptcy Code may be a viable strategy for the Debtor. At other times, conversion to Chapter 7 is a threat by the Trustee or a by a creditor to a Debtor seeking to reorganize in Chapter 11 or Chapter 13 and wanting to avoid Chapter 7. Therefore, depending on the fact pattern, conversion to another Chapter of the Bankruptcy Code, may or may not be opposed and/or desired and depending on the case it may be opposed and/or desired by different parties. If no dispute is expected, conversion to another chapter is often obtained with an application, rather than by a motion. But where there is possible opposition to the conversion coming from the Trustee, a creditor or from the Debtor, itself, then conversion needs to be by motion and on notice to parties in interest.
The patterns of possible conversions include the following:
a) Conversion from a Chapter 13 to a Chapter 7 Case – Suppose the Debtor originally filed a Chapter 13 to pay back some or all of his debts which include both mortgage arrears and credit card debt. During the course of the Chapter 13, the Debtor loses his job and is unable to fund the payments under the Chapter 13 plan. The Debtor could have his case simply dismissed. However, the Debtor could still attempt to obtain some of the benefits of his Bankruptcy filing by converting his original Chapter 13 case to a case under another Chapter of the Bankruptcy Code, such as Chapter 7. If the Debtor is able to successfully convert his Chapter 13 case to Chapter 7, he may be able to at least wipe out his personal liability for his credit cards debts, without having to make any payments to a trustee. As such, a successful motion to convert may enable the Debtor to salvage some of the benefits of a Bankruptcy filing. Even though the Debtor, cannot resolve the mortgage arrears in Chapter 7, he can at least in part improve his debt situation. Usually, conversion from Chapter 13 to 7 is usually unopposed. The other benefit that may occur in this scenario is that once having obtained a Chapter 7 discharge, the Debtor will no longer have any liability for his unsecured debts. Should his financial condition later improve, he could then file a new Chapter 13 Plan solely devoted to satisfying the mortgage arrears without having to pay anything to unsecured creditors (provided that he has not incurred any new debt since the completion of the converted Chapter 7 Proceeding).
b) Conversion from a Chapter 11 to a Chapter 7 Case – Usually, conversion from a Chapter 11 to Chapter to 7 indicates that the Debtor is unable to propose a successful Chapter 11 Plan of Reorganization. The Office of the United States Trustee (who monitors Chapter 11 cases) may determine after reviewing the monthly operating reports and complaints from creditors that the Debtor should no longer be in Chapter 11. In that case, the United States Trustee will usually file a Motion to Dismiss and/or Convert the Chapter 11 case to Chapter 7. If the Chapter 11 Debtor is still operating, even if it is at a deficit, it will mostly like just have the Chapter 11 dismissed. Even if its Chapter 11 is dismissed, the Debtor can still continue to operate its business and possibly negotiate with creditors rather than simply shuttering its business and terminating its employees. However, if the Debtor has assets to pay creditors, the U.S. Trustee may lean more in favor of converting the Debtor’s case to Chapter 7. Should that occur, the Debtor will now be in liquidation and will no longer be able to operate its business. Any employees of the Debtor will no longer be able to work. Additionally, a Chapter 7 Trustee will be appointed to administer the Debtor’s bankruptcy estate. The Chapter 7 Trustee will sell the Debtor’s assets of value in order to pay the claims of creditors according to the priority scheme of the Bankruptcy Code. Moreover, the Chapter 7 Trustee will review the Debtor’s financial records in order to ascertain if he has the ability to recover transfers of property that the principals of the Debtor or creditors received prior to the Debtor’s original Chapter 11 filing. Motions to convert or dismiss a Chapter 11 to a Chapter 7 can be very complicated. Moreover, while such a motion is usually evidence that the Chapter 11 is unsuccessful, most Debtor’s would like to just get out of the Bankruptcy Case, rather than have same converted to Chapter 7. However, if the United States Trustee and the Court feel that conversion of the case to Chapter 7 is in the best interests of Creditors, it is highly probable that the case will be converted and continue on as a Chapter 7 liquidation proceeding.
c) Conversion from a Chapter 7 to a Chapter 13 or 11 Case – Suppose a Debtor originally filed a Chapter 7 case to discharge credit card and other unsecured debt, but it is discovered that the Debtor has issues with continuing in Chapter 7 because of any one of the following alternative problems: (i) Income above the median level in NYS based on the income for the number of individuals Debtor’s household; (ii) Equity in assets that exceeds the level that is protected by state or federal exemptions or liens and/or (iii) An avoidable transfer that if discovered by the Chapter 7 Trustee would be problematic for the Debtor and to the transferee, who is usually friendly with the Debtor. In such a case where Chapter 7 is initially filed and continuing the case in Chapter 7 is either not viable (where income is above the median income for the Debtor’s household size in NYS) or is detrimental to continue (where the equity in a Debtor’s asset is exposed and/or an avoidable transfer could be discovered and pursued), conversion of the case is an option. Therefore despite the “problem fit” in Chapter 7, Chapter 13 or 11 may be viable and may save the Debtor from pursuit by the Chapter 7 Trustee. Here, conversion from Chapter 7 to Chapter 13 or 11 is sought by the Debtor to allow the bankruptcy to continue to give potential relief to the Debtor despite the problem fit in Chapter 7 where the income, equity and exposure are too high for the Chapter 7. However, here the Chapter 7 Trustee may oppose the conversion motion, realizing that it is being done to deny the Chapter 7 Trustee an asset with excess equity and/or an avoidable transfer action, which may realize a monetary advantage to the Trustee and creditors. Moreover, in order to successfully convert out of a Chapter 7 to either Chapter 11 or Chapter 13, Chapter 7 requires that the Debtor be eligible to be a Debtor in the new Chapter that he/she wishes to convert to. Therefore, if the Debtor does not have the income or resources to be eligible to be a Debtor, or exceeds the applicable debt limitations for a Chapter 13 which presently is unsecured debts less than $419,275.00 and secured debts of $1,257,850.00 (for non-contingent, liquidated debts as of April 2019)), the Debtor will be unable to convert out of Chapter 7.
d) Conversion from a Chapter 13 to a Chapter 11 Case – Suppose the Debtor originally filed a Chapter 13 case to reorganize mortgage and personal debt, but it is later discovered that the debt exceeds the present debt limitations for Chapter 13 (as discussed in Paragraph “C”). Unless the Debtor can find some mechanism (such as an Objection to Claim Motion) to maneuver himself within the acceptable range of the Chapter 13 debt limitations, he will be unable to remain in Chapter 13 and same will be dismissed. However, Conversion from Chapter 13 to Chapter 11 may allow the reorganization effort to continue and to potentially, if the Chapter 11 plan is confirmed, to make reduced payments to creditors over time.
e) Strategizing Between a Conversion to Another Chapter and a Dismissal and Refiling Under the Other Chapter – Sometimes, rather than convert a case from one chapter to another, the debtor may decide to allow dismissal of the present case and then the debtor would refile under the desired chapter. Essentially the debtor would accomplish its goals in two separate bankruptcy cases, under different chapters, than in one case that was converted from one chapter to another. The calculations as to when to convert and when to dismiss and then refile a bankruptcy case are fact specific for each bankruptcy case. In some cases the debtor would rather keep elements of the original case, such as stipulations, claims and/or orders/decisions filed in the case. By not filing a new case the debtor only has to amend its schedules for the new chapter and does not have to file completely new schedules. The debtor also gets credit for the original filing fee for the filing and only needs to pay the differential if the new chapter has a higher filing fee. However in other cases the debtor may want a completely new start and may want a new automatic stay in the new case (especially if the stay in the original case was vacated) and may want a new clear docket, especially if was under pressure from the trustee or creditors in the original case. The strategy of deciding how and when to convert a case and/or refile a case may be complex and if our office represents the debtor, our office would deliberate over the subtleties of the strategy with our client.
In cases where there are assets or income in a case that can pay creditors, creditors can and should file proofs of claim to support the amount, treatment (secured, unsecured or priority debt) and the documentation for their claim. Where the debtor or trustee disputes any element of the asserted claim, they can object to the claim in an attempt to disallow the claim in its entirety, reduce the amount of its claim, or change the classification of the creditor’s claim (such as changing same from secured to unsecured). Claims also need to give evidentiary evidence for the claim, such as the signed note for the debt, and a detailed computation, showing a breakdown of the debt and how the amount of the claim was calculated. Where these are not present or can be disputed, the debtor or trustee can potentially dispute the claim or the claim amount. An objection to proof of claim can be a important for the debtor in a Chapter 13 case where there is a creditor with a large potential claim that may cause the debtor to exceed the debt limitations in Chapter 13, which presently are that unsecured debts need to be less than $419,275.00 and secured debts need to be less than $1,257,850.00 (for non-contingent, liquidated debts as of April 2019). If the claims are too high in a Chapter 13 or Chapter 11 case they may be difficult to pay, and expunging or reducing the claims or having the claims get different treatment (for example, recasting a secured claim as an unsecured claim), may help the debtor successfully reorganize its debts under a more manageable Chapter 13 or Chapter 11 plan.
In a case, usually in Chapter 11, but potentially in another chapter, where the debtor needs the services of professionals, accountants, real estate brokers, auctioneers, and/or consultants it needs to obtain bankruptcy approval for their services. Where the retention is more routine, it is done by application where there is not the expectation of opposition. However where the retention is less routine and may elicit questions and/or objections, it is often done by motion.
Where the debtor can sell real estate or other property it is usually a larger transaction within the case outside of the ordinary course of the debtor’s activities and requires court approval. Motions to sell property can be made where the debtor seeks to sell and/or short sell real property to support its reorganization effort. Prior to making such motion the debtor would enter into a contract with the buyer that is conditioned on a motion to the Bankruptcy Court and on Court approval. Only after Court approval of the contract can the parties finalize the sale with the closing. If the Bankruptcy Court denies approval, the contract may need to be either amended to try to win Court approval, or it may need to be cancelled.
Often in a Chapter 13 or Chapter 11 case, the debtor’s economic circumstances change and a plan that was once viable, confirmed and seemingly within the debtor’s ability to pay, all of a sudden due to the debtor’s changed income or budget, is temporarily no longer sustainable under the same terms. Chapter 13 and Chapter 11 plans require several years to implement and if the debtor’s finances and/or circumstances change during that time, the debtor may seek, post-confirmation, to adjust the terms of the already confirmed plan to prevent the case from being dismissed or from the plan not being finalized based on what might have been a temporary income problem. Under an amended plan, missed plan payments can be made up later or by other means and missed post-petition secured creditor payments, normally paid post-petition outside of the plan, can be absorbed into the plan. A motion to amend a confirmed plan is essential to make sure the debtor’s efforts to reorganize their debt have the necessary opportunity to succeed despite temporary economic challenges, that the debtor with some plan adjustments can overcome.
Sometimes a debtor discovers that did not list a creditor in a bankruptcy case and needs to do so after the case is over and closed in order to obtain a discharge of the discovered debt. Where the debt existed at the time of the bankruptcy filing and where there was no bad faith in not listing the debt, the debtor may make a motion to reopen a closed bankruptcy case to add the creditor. Most of the time there is no objection to such motion to reopen and the debtor is able to add the creditor in the following order below: 1) The debtor makes the motion and obtains the order to reopen the bankruptcy case; 2) The debtor adds the creditor by application and gives notice to the added creditor of any rights to object to the dischargeability of their debt and/or to the addition of their debt to the case; and 3) The debtor moves after a period of time designated by the court, to close the case.
Many times, by the time that a Debtor has filed a Bankruptcy Petition, he or she has been the subject to one or more lawsuits which may have gone to judgment. Should the Debtor own real property, and the creditor has obtained a judgment against the Debtor, if the creditor files its judgment in the county where the Debtor owns the real property, the judgment will become a secured lien against the premises. Filing a Bankruptcy petition will enable to free the Debtor from any personal liability for the judgment. However, if nothing further is done, the judgment will remain as a lien against the premises and will continue to accrue interest at the rate of 9% per annum. When the Debtor later goes to sell the premises, the judgment lien of that creditor will still remain as a lien against the real property. Unless this lien is somehow eradicated, or the Debtor negotiates a deal to pay the creditor its lien from the proceeds of sale, this judgment lien will have to be satisfied at closing in order to transfer title to the new purchaser.
The homestead exemption allows a motion to avoid a judicial lien where the debtor owns and lives at the residence, subject to the lien, and the equity in their home is less than the homestead exemption of $179,975.00 per debtor. When the property in question subject to the judgment lien is the Debtor’s principal residence, the Bankruptcy Code provides the Debtor with an opportunity to avoid all or some of this judgment lien as impairing the Debtor’s homestead exemption. If the Debtor is successful in avoiding a judgment lien under these circumstances, not only will the debt to this creditor be discharged, but its judgment lien will no longer resister as a lien of record against the Debtor’s residence.
When motions need to be be filed, served and heard there is often opportunity to discuss them first and reach a compromise resolution. However when matters become contested it is good to be familiar with the arguments that may work best before a particular judge, whether they be legal arguments that would require a memorandum of law, or whether the dispute is totally factual which would necessitate affidavits and documentary proof to prevail on their arguments; sometimes an evidentiary hearing is necessitated if the matter could not otherwise be resolved. Our office is familiar with the Bankruptcy Courts, judges, law and procedure. We can maximize your chances of success in a contested motion situation.
Our consultations are free, but our legal advice may be invaluable.
Please call us at (631) 271-3737, or e-mail us at firstname.lastname@example.org for a free consultation at our Melville, Long Island law office to discuss legal options as to how to deal with debt – including Bankruptcy Solutions and potentially contested bankruptcy motions – in greater detail.