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If I File Bankruptcy Will Everyone Find Out?

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If I file bankruptcy will everyone find out?  The quick answer is no, but like all legal matters, bankruptcy is part of the public record.  The catch is for the public at large to view bankruptcy filings they must have a Public Access to Court Electronic Records (PACER) account and pay $0.08 per page to view the records.  I have never heard of a private individual with a PACER account.  For the most part only attorneys or other legal professionals have PACER accounts.

So who does find out?  The most obvious people that find out are the people or companies that you owe money to.  The underlying goal of bankruptcy is to treat the people you owe money the same depending upon the type of debt that is owed.  All creditors must be listed in the bankruptcy petition schedules to be treated properly.  They will all receive notice of your bankruptcy case directly from the Bankruptcy Court via United States mail.

The next obvious people that find out are those who you give permission to run your credit report after the case is filed or you may have previously given them permission to run your credit prior to filing the bankruptcy case.  Anyone you have given permission for them to obtain your credit report could possibly find out if and when they check your credit.  If you try to purchase a vehicle, apply for credit or purchase a home your credit report will be obtained.

So who else could find out?  In a Chapter 13 bankruptcy you can choose to have the monthly Chapter 13 Plan payment deducted directly from your paycheck each month.  This requires a Wage Order from the Bankruptcy Court and then the order is served on your payroll department.  Whoever handles deductions and making changes to your pay in your payroll department will then know you filed bankruptcy.  Them and everyone they tell.  I in a large company this would probably not matter, but in a small company expect loose lips to pass along that you filed for bankruptcy.

Then there is the long answer.  It depends upon how hard someone searches the internet given how good Google is at their job.  I do not think most bankruptcy lawyers are aware of this, but the Bankruptcy for the Northern District of California posts the Section 341 Meeting of the Creditors calendars on their website.  The calendar lists the name of the person filing bankruptcy, the case number and other information about the date and time of the meeting of the creditors.  The Court’s website only posts these calendars for a limited period of time though.  Once the Section 341 Meeting of the Creditors is complete the Court posts new calendars with the recent cases filed.  The fact remains that Google does find the calendar and if someone Googles your name they could find out you filed bankruptcy.  The Google results showing your name would most likely be buried on page 5 or more of the search results though.

The bottom line is that very few people will ever find out that you have filed bankruptcy unless you tell them, owe them money or they have some reason to deeply search Google results for your name.

Gary Busey Completes the Filing of his Chapter 7 Bankruptcy Schedules and Statements

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William Gary Busey filed the rest of his bankruptcy petition, Bankruptcy Case No. 12-11182, on February 15, 2012.  The section 341 meeting of the creditors is scheduled for March 12, 2012.  Mr. Busey’s bankruptcy petition provides information about his assets, income and expenses.

Surprisingly Mr. Busey’s assets are limited to some personal property with an approximate total value of $26,225.  At the time the bankruptcy case was filed Busey alleges a total of $1,200 in funds in deposit account.  Busy owns no property and alleges his largest single assets is his right to residual income from several television shows and movie parts.

The single largest debt and probable reason why Busey filed for bankruptcy protection is his unpaid taxes.  Busey owes the Internal Revenue Service and Franchise Tax Board a total of $451,297.33 from the years beginning in 1998 to 2009.  The good news for Busy is that around $379,389.33 of the taxes owed is not a priority debt and therefore eligible to be discharged in his bankruptcy.  The remaining $71,908 is a priority debt given that the taxes were not paid for the year 2009 and therefore eligible to be discharged.

Busey’s income is primarily derived from his acting ($14,808.08 a month) and pensions from the Screen Actors Guild and the American Federation of Television & Radio Artists ($4,021 a month).  Busey also receives social security income each month totaling $770 and some residual income each month totaling $131.63.  His income seems to have been pretty consistent from 2010 to present.  The problem is due to the amount of taxes he owes his monthly income is not large enough to make a dent in repaying the taxes.

You may wonder how an actor who is making over $18,000 a month can qualify to file Chapter 7 bankruptcy and discharge his unsecured debts nonpriority debts.  It is not about how much Busey makes each month but how much he spends.  Busey’s expenses exceed his income by about $2,939 each month.  One of the largest monthly expenses other than his various business expenses is his rent totaling $3,595 each month.  Busey spends another $1,680 in childcare, $763 life insurance, $4,500 in taxes, $700 storage unit, it appears $1,158 for his seventeen old daughter and $7,574 in business expenses.

It is unfortunate to hear about an individual who has made millions of dollars during a lengthy show business career seek bankruptcy protection.  Hopefully Busey can recover from his financial woes and provide some stability for his 23 month old son.

Underwater Second Mortgages, Third Mortgages or Equity Lines of Credit and Bankruptcy

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Are you struggling with paying your first mortgage, second mortgage or even third mortgage each month?  Is your house worth thousands less than what you owe?  You are not alone.  Millions of Americans have watched the value of their homes decrease month after month the last four or five years.

Many homebuyers purchased their homes with an 80% first mortgage and 20% second mortgage.  This allowed the homebuyer to avoid private mortgage insurance and put 20% down on the home.  To make matters worse either one or both loans could have been interest only loans.  Interest only loans allow the home buyer to only pay the interest for a period of time.

So you have a home that is worth less than what you owe and you are only making the minimum interest only payment each month on the first and second mortgage.  Any little financial problem will send you into a financial tailspin.  The good news is that bankruptcy can help.

In Chapter 13 and Chapter 11 unsecured liens or loans can be stripped off the property in the plan of reorganization.  How can you get rid of a mortgage in bankruptcy?  Well, if the value of your house is less than what is owed on the first mortgage, then the second mortgage is completely unsecured or underwater.  If the house was sold or foreclosed on the second mortgage company would get nothing, and that is how they are treated when reorganizing your debts in a Chapter 13 or Chapter 11 bankruptcy case.

The key is the value of the house.  The first thing that needs to be completed is a valuation of the house by the bankruptcy court.  A motion is filed with the bankruptcy court asking the bankruptcy court to value your home based upon comparable sales in your neighborhood.  If the second mortgage company accepts the value you believe to be true there will be very little more to do.  If the second mortgage company objects to the valuation an evidentiary hearing or mini-trial as to the value of the house will be scheduled.  Of course the second mortgage company is trying to prove that your house is worth more than is owed on the first mortgage.  If they are successful then the second mortgage is not completely underwater and not removable.  If it is held that your house is in fact worth less than the first mortgage you will be able to strip off the underwater second mortgage or equity line of credit.  You will only have to pay the first mortgage and the lien securing the second mortgage will be reconveyed once the Chapter 13 plan or reorganization is completed.

For more information about underwater mortgages from our bankruptcy lawyers or how bankruptcy can help you, please call our experienced bankruptcy attorneys at 1-877-963-9543.

Bankruptcy Can Happen to Anyone, Even William Gary Busey

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On February 7, 2012, Gary Busey, the well-known actor and television personality filed for bankruptcy protection under Chapter 7 of the Bankruptcy Code.  Mr. Busey filed bankruptcy in the Central District of California, Bankruptcy Case No. 12-11182.  A common statement our clients make almost daily is, “I never thought I would be filing for bankruptcy.”  Well, I am here to tell you it can happen to anyone, just ask Gary Busey.

How many high profile celebrities or athletes that have made millions of dollars in earnings and filed for bankruptcy protection?  I have no idea, but every year there are a few of them.  Mr. Busey’s bankruptcy filing is the first of 2012.  Mr. Busey filed what is called a skeleton petition.  A skeleton petition includes the basic forms necessary to initiate the bankruptcy process.  A skeleton petition does not include schedules A – J, which list the bankruptcy filers assets, income, expenses and debts.  Mr. Busey has until February 13, 2012, to complete the bankruptcy petition or the bankruptcy case could be dismissed.  Mr. Busey owes money to the following people or entities: Carla Loffler, Cary W. Goldstein, Franchise Tax Board, Glen Alpert, Internal Revenue Service, Law Offices of Barry Fisher, Los Angeles County, Progressive Management System, Robert E. Young, Santa Monica UCLA Medical, Waste Management, Wells Fargo and Westside Storage.

The voluntary petition lists a range in value of assets from $1 – $50,000 and debts totaling from $500,000 – $1 million.  It appears Mr. Busey has a no asset Chapter 7 Bankruptcy.  A no asset bankruptcy exists when all assets can be protected by California exemptions and therefore there are no assets transferred to the bankruptcy estate for the benefit of those who are owed money.  Exemptions protect assets like vehicles, your stuff and even your home if it has equity.  Most of the exemptions have caps or limits as to how much can be protected.  Most individual Chapter 7 bankruptcy filings are no asset cases.  It is hard to believe that someone like Mr. Busey has less than $50,000 in assets after all the movies and television shows he has appeared in.

Again, bankruptcy can happen to anyone.  It does not matter how much money you make, but how much money you spend.  Many athletes have high monthly expenses.  Having to pay for multiple vehicles and homes throughout the country adds up quick.  Just ask Antoine Walker, formerly a star basketball player for the Boston Celtics.  When the checks stop coming in each month upon retirement or a slow year or two in the movies the bills pile up.  Nobody really understands until it happens to them though.

For more information about how bankruptcy can help you become debt free please contact one of our experienced bankruptcy lawyers or bankruptcy attorneys in Oakland today.

Duties of the Debtor and Federal Rule of Bankruptcy Procedure 4002

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There are a number of duties a debtor must comply with when filing bankruptcy.  Federal Rule of Bankruptcy Procedure (FRBP) 4002 provides in detail some of the duties of a debtor once a bankruptcy petition for relief is filed.

The first thing listed is that the debtor shall attend and submit to an examination at the times ordered by the court.  Examination of the person filing bankruptcy is required by Section 341 of the Bankruptcy Code.  The 341 meeting of the creditors is required in every bankruptcy case.  The meeting of creditors is usually held 30 – 45 days after the date the bankruptcy case was filed.  A debtor may also be examined pursuant to FRBP 2004.  A Rule 2004 examination is somewhat rare in consumer bankruptcy cases, but not unheard of.

At the 341 meeting of the creditors FRBP 4002 requires a debtor to provide a picture identification issued by a governmental unit or other personal identifying information that establishes the debtor’s identity and evidence of social-security number, or a written statement that such documentation does not exist.  A driver’s license and social security card are the common forms of identification used.  A W-2 or social security correspondence listing your social security number could also be used to verify your social security number.  You must provide the trustee assigned to your case proof of income by providing your pay stubs for the prior 60 days.  Some courts will require that your last 60 days of pay stubs be filed with the bankruptcy petition.  Unless the trustee or the United States trustee instructs otherwise, a debtor must provide statements for each of the debtor’s depository and investment accounts, checking, savings, and money accounts, mutual funds and brokerage accounts for the time period that includes the date of the filing of the petition.  Depending upon the jurisdiction, the trustee may require copies of bank account statements or other depository accounts prior to the 341 meeting of the creditors.  You must also provide the trustee a copy of your federal tax return for the most recent tax year ending immediately before the commencement of the case for which a return was filed, including any attachments, or a transcript of the tax return, or provide a written statement that the documentation does not exist.  In most jurisdictions your attorney will make sure the trustee has all of the required documents prior to the 341 meeting of the creditors.

One of the most important duties is the requirement of a debtor to always keep their mailing address with the court current and accurate.  It is very important that all court notices are received timely.

A debtor must provide their tax return to a creditor if a creditor requests at least 14 days prior to the first date set for the 341 meeting of the creditors a copy of the debtor’s tax return that is to be provided to the trustee including any attachments, or a transcript of the tax return, or provide a written statement that the documentation does not exist.  If the debtor does not provide the tax return to the creditor the creditor can request the dismissal of the bankruptcy case.

To discuss your circumstances with one of our experienced bankruptcy attorneys in Oakland or schedule a free consultation with our bankruptcy attorney to find out how bankruptcy can help you get rid of your debts, call us toll free at 1-877-963-9543.

What are the Different Chapters of the Bankruptcy Code?

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The Bankruptcy Code is found in Title 11 of the United States Code.  There are nine chapters of the Bankruptcy Code (Chapter 1 General Provisions; Chapter 3 Case Administration; Chapter 5 Creditors, the Debtor, and the Estate; Chapter 7 Liquidation; Chapter 9 Adjustment of Debts of a Municipality; Chapter 11 Reorganization; Chapter 12 Adjustment of Debts of a Family Farmer or Fisherman with Regular Annual Income; Chapter 13 Adjustment of Debts of Individual with Regular Income and Chapter 15 Ancillary and Other Cross-Border Cases.

The first Chapter, General Provisions, consists of twelve sections.  Chapter 1 provides for definitions of the key terms used in the Bankruptcy Code, rules of construction, who may be a debtor and other general guidelines for the administration of bankruptcy cases.  Two of the more important sections are Section 105, Power of Court and Section 109, Who May Be a Debtor.  Section 105 says the court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title   . . . . . .  no provision of this  title . . . preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.  Section 105 can be used as a powerful tool to obtain relief from the Bankruptcy Court.  Some have argued that Section 105 has been used to expand the Bankruptcy Court’s power.

The next chapter, Chapter 3 Case Administration, includes sections governing types of bankruptcy cases such as voluntary, joint or involuntary bankruptcy cases.  One of the most important sections is Section 362.  Section 362 provides for the automatic stay.  The automatic stay takes effect as soon as a bankruptcy case is filed.  The automatic stay stops any and all collection actions like repossession, foreclosure and lawsuits.  Section 362 defines the effect of the stay and how it applies to different property and creditors.

Chapter 5, Creditors, the Debtor and the Estate, defines creditor rights, the debtor’s duties and what is the bankruptcy estate and property of the estate.  One of the most important sections in this chapter is Section 523, Exceptions to Discharge.  Section 523 lists the types of debts that are not discharged.  There are a number of debts that have been deemed not dischargeable for public policy reasons or because of how the debt was incurred.  The best example of a debt that is not dischargeable pursuant to Section 523 is debt incurred for willful and malicious injury by the debtor to another entity or to the property of another entity.

Chapter 7, Liquidation, provides for the appointment of a trustee, collection, liquidation and distribution of assets to creditors.  The most common bankruptcy case filed is a no asset Chapter 7 bankruptcy case.  In these cases available exemptions protect all of the bankruptcy filer’s property so there are no assets to be administered in the bankruptcy case.  The trustee assigned to the case still administers the bankruptcy estate; there are just no assets to distribute to creditors.

Chapter 9 of the Bankruptcy Code provides for the Adjustment of Debts of a Municipality.  In the last few years a number of municipalities have made headlines by filing for bankruptcy protection under Chapter 9.  Orange County California, Vallejo California, Harrisburg Pennsylvania and Jefferson County are the most recent and high profile municipalities to file bankruptcy.  States are not allowed to file bankruptcy, but municipalities within a state can be a debtor and seek the reorganization of their debts.

Chapter 11 of the Bankruptcy Code provides for the reorganization of debts for individuals and businesses that have over $360,475 in unsecured debts or $1,081,400 in secured debts.  A Chapter 11 plan of reorganization is proposed and voted on by creditors.

Chapter 12 of the Bankruptcy Code provides for the Adjustment of Debts of a Family Farmer or Fisherman with Regular Income.  Yes, farmers and fisherman have their own section of the Bankruptcy Code.

Chapter 13 provides for the Adjustment of Debts of an Individual with Regular Income.  Chapter 13 allows an individual or small business to reorganize their debts if their unsecured debts are less than $360,475 and less than $1,081,400 in secured debts.  In California these debt limitations are especially harsh.  If you own two or more homes in the Bay Area you can easily have more than $1,081,400 in secured debt.  In Texas you could own 10 houses and still be eligible to be a debtor under Chapter 13 given that home values there are so much less.  One of the main distinctions between reorganizing under Chapter 11 versus Chapter 13 is that the Chapter 13 Plan of reorganization is confirmed or approved by the Bankruptcy Court and not voted on by creditors.

Chapter 15 of the Bankruptcy Code is a little known chapter.  This chapter was created in 2005 by the Bankruptcy Abuse Prevention and Consumer Protection Act to address the need for more rules regarding the filing of bankruptcy for international companies and foreign courts.  Chapter 15 repeals or replaces Section 304 of the Bankruptcy Code.

For more information about your particular circumstances please contact our experienced bankruptcy attorneys in San Jose or bankruptcy lawyers to find out if bankruptcy is right for you.

What is a Bankruptcy Preference and How Can I Defend Against a Preference Claim?

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A preference is basically a payment made by a debtor to a creditor prior to the debtor filing for bankruptcy protection.  Yes, even though you are owed the money the debtor or trustee in the bankruptcy case can request and sue you for the return of the payment you received from the debtor during the 90 days prior to the case being filed.  The theory is that you were preferred over another creditor given that you were paid and they were not.  To make things fair you should have to return the payment and all creditors then share the money instead of you receiving it entirely.

A preference is defined by Section 547 of the Bankruptcy Code.  Any transfer by the debtor to or for the benefit of a creditor, for or on account of an antecedent debt owed by the debtor before such transfer was made, transfer was made while the debtor was insolvent, on or within 90 days before the date of the filing of the bankruptcy petition or between 90 days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider, that enables the creditor to receive more than the creditor would receive if the case were a case under Chapter 7, the transfer had not been made, and the creditor receiving the payment of such debt to the extent provided by the provisions of this title.

Ordinary Course of Business Defense

The ordinary course of business defense, pursuant to Section 547(c)(2) of the Bankruptcy Code, is the most common defense.  If the payment was made under terms that were ordinary between the debtor and creditor prior to the bankruptcy case being filed you may have a defense.  This defense can be complicated depending upon how long the relationship was prior to bankruptcy and the payment history of the parties.  How payment is made in the industry is also a factor to be looked at by the Court.  The creditor as the defendant has the burden of proving the payment was made in the ordinary course of business.

Contemporaneous Exchange For New Value

This defense, pursuant to Section 547(c)(1), provides if the payment was intended by both the creditor and the debtor to be a contemporaneous exchange for new value the payment is not a preference.  Basically you provided a good or service to the debtor on a cash on delivery basis.  Given that, the payment made cannot be on a antecedent debt, it was a payment for the exchange of a good or service for immediate payment.

Subsequent New Value Defense

Section 547(c)(4) of the Bankruptcy Code provides a defense to a preference claim if you continued to provide a good or service to the debtor after the date of the payments in question.  If you were paid $20,000 on December 10, 2011, and then provided the debtor $20,000 in new goods or services, the $20,000 payment you previously received would be protected to the extent of the new value you gave the debtor since the payment.  In this example you gave the debtor an additional $20,000 in new value.  You should be able to use the subsequent new value defense to keep the $20,000 payment.

For more information from one of our experienced bankruptcy lawyers or from our bankruptcy lawyers in San Jose, please call us toll free at 1-877-963-9543 today.

What Debts Cannot Be Discharged In Bankruptcy?

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The good news is that most debts are usually dischargeable.  A discharge eliminates the legal obligation to pay the debt that was discharged and prohibits any and all collection actions to attempt to collect the discharged debt.  The following is a partial list of the common types of debts that are not dischargeable.  This article does not provide information about the differences between a Chapter 7 discharge or Chapter 13 discharge.  Determining which debts cannot be discharged can be complicated.  Please seek counsel regarding your specific circumstances.

Income Taxes

Taxes owed to the Internal Revenue Service and in California, the Franchise Tax Board, are generally not discharged in bankruptcy unless the taxes meet the following requirements.  The income taxes could be discharged if they are three years old, filed on time, accessed 240 days prior to the case being filed , no fraud or willful evasion and returns were filed at least two years prior to the case being filed.

Student Loans

The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act eliminated the discharge of all private and government backed student loans.  Any debt incurred for an educational benefit overpayment, obligation to repay funds received as an educational benefit and debts for any other education loan that is a qualified education loan under the U.S. Bankruptcy Code.  Under certain circumstances student loans could be discharged by filing an adversary proceeding.

Domestic Support Obligations

If you are behind on your child support or spousal support payments as ordered by the state court the missed payments are not dischargeable.

Debts Incurred to Pay Nondischargeable Taxes

As part of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act any debt incurred to pay a nondischargeable tax debt is not discharged.

Damages Caused While Intoxicated

If you caused a car accident and you were intoxicated at the time, any damages or claims resulting from bodily injury of the victims are not dischargeable.  Debts resulting from damage to property caused while you are intoxicated could be discharged.  Any debt for death or personal injury that you caused while intoxicated while operating a motor vehicle, vessel or aircraft are not dischargeable.

Any Money, Property, Services, Credit or Renewal of Credit Obtained by Fraud

If you received money, property, services, credit, renewal of credit or refinancing of credit because you made a false pretense, false representation or actual fraud, the resulting debt of the fraud is not dischargeable.

Purchase of Luxury Items Within 90 Days of Filing Bankruptcy

If you owe $500 or more to a single creditor for the purchase of $500 or more of what is considered luxury goods or services within 90 days before the bankruptcy case was filed the debt is not dischargeable.

Certain Cash Advances

Cash advances that total more than $750 obtained within 70 days before the bankruptcy case was filed are not dischargeable.

Post-Petition HOA Dues

If you own a home in an association and are behind on the monthly dues prior to the bankruptcy case being filed, all of the missed payments before the case is filed are dischargeable.  Once the case is filed the dues that come due each month are not dischargeable.  If you plan on surrendering your home and are not making the normal mortgage payment you will still be responsible for the post-petition HOA dues as long as the house is still in your name.

For more information about which debts are dischargeable, contact our bankruptcy lawyers in the Bay Area or our bankruptcy lawyers in San Francisco.

What If I live Outside the United States – Can I File Bankruptcy?

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Unfortunate circumstances can happen at anytime and anywhere, even when you are working and living outside of the United States.  In today’s economy more and more United States citizens are working in other countries.  So if you have moved and are working in a foreign country can you file for bankruptcy?  If so, where can the bankruptcy case be filed?

Bankruptcy Code 11 U.S.C. Section 109, Venue, provides:

(a) Notwithstanding any other provision of this section, only a person that resides or has a domicile, a place of business, or property in the United States, or a municipality, may be a debtor under this title.

The most common way to determine what the proper venue to file bankruptcy in is look at where you reside, live or have a domicile in that jurisdiction.  Typically venue is determined by where you have lived the most during the 180 days prior to the filing of the case.

Keep in mind that while you may be able to file bankruptcy in a state you moved to recently, over 90 days ago at least, you most likely will not be able to use that state’s exemptions.  If you have recently moved make sure you communicate this to your attorney so they can evaluate which state’s exemptions you can use to protect your assets.  If you have lived outside of the United States for more than two years, determining which exemptions can be used will be extremely complicated.

If you have not lived in the area for the greater of the 180 days prior to the case being filed, then next possible way to determine which venue you may file bankruptcy in is where your principal assets are located or where your place of business it located.  Your business could be in San Jose, California and you live in Modesto, California.  Do you file in the Eastern District of California because that is where you live, or file in the Northern District of California because that is where your business is located?  In theory you could file in both districts.

The last possible way to determine proper venue is if you own or have property in that jurisdiction.  Some courts have ruled that property can even be money on deposit with a bank in that jurisdiction.  What is considered property that rises to the level of permitting you to file bankruptcy in that venue is determined differently by different courts.

If you are in need of a bankruptcy lawyer or bay area wage garnishment lawyer you may contact us toll free at 1-877-963-9543.

City Council Files Untimely Notice of Appeal to City of Harrisburg Bankruptcy Dismissal

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As anticipated, the Chapter 9 bankruptcy filing of the City of Harrisburg came to a crashing end under the pile of motions to dismiss and Pennsylvania state law that still arguably prohibited the bankruptcy filing.  The bankruptcy court entered the order of dismissal on November 23, 2011.  The deadline to appeal the order of dismissal without an extension of time was December 7, 2011.  The council members that originally filed bankruptcy on behalf of the City of Harrisburg filed their notice of appeal on December 10, 2011, three days late.  Then on December 11, 2011, a day later, the council members filed a motion seeking an order to extend the time they had to appeal the order of dismissal given that they filed their notice of appeal three days late.  On December 13, 2011, the bankruptcy court denied the city councils request to extend the time to appeal and struck the notice of appeal from the record.  The bankruptcy court provided that counsel for the City Council of Harrisburg new the basis of the bankruptcy court’s decision to dismiss the bankruptcy case and received the written opinion two days prior to the deadline to appeal.  The failure to timely file the notice of appeal was not excusable neglect, but inexplicable and unjustifiable.

If the appeal is still allowed to move forward, which is still possible, it will challenge the bankruptcy court’s ruling in support of upholding a state’s right to legislate and control cities within its jurisdiction.  Prior to when the City of Harrisburg filed for bankruptcy the State of Pennsylvania had passed a state law forbidding a city classified like Harrisburg from being able to file bankruptcy under Chapter 9 of the bankruptcy code.

There still could be a titanic clash of state law versus federal law if there is still a successful appeal and the appellate court choses to take a different position then the bankruptcy court.  The bankruptcy court rejected arguments that the Pennsylvania state law prohibiting Harrisburg from filing bankruptcy violated the Supremacy Clause or 14th Amendment of the United States Constitution.  The bankruptcy court also rejected the arguments that Pennsylvania state law prohibiting the filing of the bankruptcy petition violated the Pennsylvania Constitution.

Issues of federalism have come up time and time again regarding the federal government’s ability to govern and make individual states follow federal law.  The Tenths Amended provides that powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively.  Under the federal bankruptcy code municipalities can file for bankruptcy protection, but only with state authorization.

Ultimately the bankruptcy court held that the city council members of Harrisburg did not have the authority under Pennsylvania state law to commence the bankruptcy case on behalf of Harrisburg and Harrisburg is not authorized to under Pennsylvania state law to be a debtor under Chapter 9 of the bankruptcy code.

For more information about bankruptcy contact our bankruptcy lawyer or you may contact our bankruptcy lawyers .