The Good and Bad of a Bankruptcy Filing

As a creditor’s lawyer, I know how common it is for borrowers to quickly file bankruptcy in response to collections, but I am well aware that there remains a strong stigma attached to filing bankruptcy. This Inside Tuscon Business article discusses some of the most common “myths” about the impact of a bankruptcy filing.

Again, from a creditor’s perspective, a bankruptcy filing isn’t always the worst development. On one hand, a creditor is limited from collection on the few remaining assets, but, on the other, so are all the other creditors–a Trustee is appointed and the assets are administered by the Trustee, equally. Further, if the claim is secured by collateral, then a creditor has a variety of protections that can prompt surrender or payment.

Again, it’s preferred to be paid in full outside of bankruptcy, but, when dealing with some borrowers, the bright light of full disclosure that comes with a bankruptcy filing is a good thing.

Judge David Kennedy’s 30 Years on the Bench, and My First Day in Bankruptcy Court

The Commercial Appeal in Memphis has a story about David Kennedy, the Chief Judge of the Bankruptcy Court in the Western District of Tennessee (Memphis), who recently celebrated his 30th year on the bench.

Judge Kennedy’s court was the first Bankruptcy courtroom I ever walked into.  It wasn’t as a debtor or as a lawyer; my sister worked in the Court’s IT department, and the Judge, hearing I was a first year law student, invited me to observe during my spring break.

Having never been to court, having never talked to a Judge, and not really knowing what “bankruptcy” was, I was in way over my head. 

But, between each of the docket calls, the bailiff came and took me back to the Judge’s chambers, where the Judge would review the issues raised in each matter with me and talk about the practice of bankruptcy law in general.

I listened intently, but–as you’d expect from a first year dreaming of a career as a prosecutor–I was drowning in deep waters. Even though none of it made any sense to me, I remember Judge Kennedy getting really fired up explaining one issue to me, and he pulled the Bankruptcy Code out to specifically read me 11 U.S.C. Sec. 1334, which states the jurisdiction of the Bankruptcy Courts.

Now, 13 years later (with eleven years of unexpected bankruptcy practice behind me), I never come across 11 U.S.C. Sec. 1334 without thinking about Judge Kennedy and the time he took to show me around and share his passion for Bankruptcy Law with me.  He was so generous with his time with me and, who knows, maybe that day in Bankruptcy Court set my path a little bit for the career I ultimately have found.

In the years since, I’ve run into the Judge in a lot of different places–Memphis basketball games, the Midsouth Commercial Law Institute Seminars–but rarely in his courtroom. Here’s hoping I make it back soon.  

Dept. of Labor Sues Bankrupt Builder to Recover 401(k) Amounts

The Nashville Post reports today that the U.S. Department of Labor filed a lawsuit against Corinthian Custom Homes, Inc. for failing to pay withheld employee funds into the employees’ 401(k) accounts. More details are available here.

This is a great sign that the government is watching employers’ bankruptcy filings for this very common issue and taking action when those employers dip into funds it had a fiduciary duty to protect. Corinthian Custom Homes left a lot of people unpaid, and it’s good to see that the Dept. of Labor is protecting the former employees from this type of theft.

Consumer Bankruptcies Still Rising as Business Filings Fall Off

The American Bankruptcy Institute released new data this week about business and consumer bankruptcies. The good news? (Well, it’s good, unless you ask a bankruptcy attorney.) Business filings were down nearly 6% from the beginning of 2010 through the third quarter, compared to the same 9-month period in 2009.

But consumers are still filing bankruptcy at increasing rates: “Nearly 1.18 million U.S. consumers sought protection from their creditors in court, a 12% increase over the same period in 2009,” explains Eric Morath of the Wall Street Journal’s Bankruptcy Beat blog.

Morath talked to ABI Executive Director Samuel J. Gerdano, who offered this insight: “Consumers and businesses moving in different directions reflects that individuals are still suffering under the effects of high unemployment and large debt burdens but businesses are often getting a reprieve from their lenders, allowing them to put off a bankruptcy filing.”

Here’s the release from the American Bankruptcy Institute.