Tag Archives: Service

What If A Creditor In A Bankruptcy Case Is An Infant or Incompetent Person?

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I really do not know the utility of this article given I know this set of circumstances rarely will ever come up. I have literally had a hand in four or five thousands cases over the years and this issue has not come up so far. I also administered countless Chapter 13 cases as the staff attorney for David Burchard, the Chapter 13 Trustee for the San Francisco and Santa Rosa Divisions of the United States Bankruptcy Court for the Northern District of California. The set of circumstances that this could be an issue are very narrow. The bankruptcy filer would at some point injured or damaged a minor somehow or the person with a claim against the bankruptcy filer became incompetent over time. Also, if the person with a claim is an adult, how would the bankruptcy filer or their Bankruptcy Attorney ever know the person is incompetent? They probably would not.

Nonetheless if this issue does come here you go. It is rare for an adult, someone over the age of 18, to be indebted to or someone under the age of 18 has a “claim” against an adult. It is also rare for someone to owe an incompetent person money. If someone is incompetent they cannot enter into a contract legally. It is possible that the debt or claim arose prior to the person becoming incompetent. So there are a some reasonable hypothetical facts to help discuss this issue. In the real world you will probably look long and hard to find this was every an issue in a bankruptcy case.

The issue is how can you provide notice of a bankruptcy filing to an infant or someone who is incompetent? An infant is defined as a person who has not attained legal majority; or under-age or under 18 or 21 years of age depending upon state law. A person that is under the age of minority cannot be served legally even if they are a creditor of the person who is filing for bankruptcy protection. Also, a person that is incompetent cannot be or accept service given they are incompetent. Incompetency is generally defined as an adult who can no longer take care of their own financial and personal affairs because of mental problems or potentially a physical problem too.

The most important parts of filing for bankruptcy protection is giving all creditors notice of the bankruptcy case. Once the bankruptcy attorney files the bankruptcy petition any and all collection activity must stop and the Bankruptcy Court is the sole place to seek remedy. So if all creditors do not receive notice or do not understand the notice that is a problem. Every bankruptcy filer wants their creditors to receive notice and stop the phone calls or harassing letters. You will also want the creditor to get the order of discharge in the mail so that they know once and for all the debt is no longer legally enforceable by federal court order.

How Do You Serve An Infant Or Incompetent Person?

First look to Federal Rule of Bankruptcy Procedure 1007(m). In 2001 FRBP was amended to add section “m.” FRBP 1007(m) provides: If the bankruptcy filer knows that a person on the list of creditors or schedules is an infant or incompetent person, the bankruptcy filer also shall include the name, address, and legal relationship of any person upon whom process would be served in an adversary proceeding against the infant or incompetent person in accordance with Rule 7004(b)(2). The point is to serve someone that knows the infant or incompetent person that can accept service on their behalf. Federal Rule of Bankruptcy Procedure 7004(b)(2) provides: (b) Service by First Class Mail. Except as provided in subdivision (h), in addition to the methods of service authorized by Rule 4(e)–(j) F.R.Civ.P., service may be made within the United States by first class mail postage prepaid as follows: (2) Upon an infant or an incompetent person, by mailing a copy of the summons and complaint to the person upon whom process is prescribed to be served by the law of the state in which service is made when an action is brought against such a defendant in the courts of general jurisdiction of that state. The summons and complaint in that case shall be addressed to the person required to be served at that person’s dwelling house or usual place of abode or at the place where the person regularly conducts a business or profession.

Basically for an infant you need to also include the name and address of the infant’s parents or legal guardian. The same is true for an incompetent person. Someone has to be taking care of or appointed as a conservator or guardian of the incompetent person. Whoever is taking care of them is the person upon whom process is prescribed to be served by the law of the state in which service is made when an action is brought against a defendant in the courts of general jurisdiction of that state.

Bankruptcy and Service of Motion To Avoid Judicial Lien

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The issue here is who must be served when filing a motion to avoid a judicial lien under Section 522 or 506 of the Bankruptcy Code. There could be a number of parties involved or a number of attorneys involved in obtaining and enforcing the judicial lien before a bankruptcy case is filed. So who has to be served with the motion to value or avoid the lien? Is service required on the state court attorney that obtained the judgment, the original creditor or the potential attorney now representing the creditor in the bankruptcy case?

FRBP 9014 and 7004

Once the bankruptcy case is filed the Federal Rules of Bankruptcy Procedure, Federal Rules of Procedure and local bankruptcy rules take over. All states have laws governing the enforcement and collection of lien rights and judicial lien rights. Procedures for contested matters in bankruptcy cases are governed by Federal Rule of Bankruptcy Procedure 9014, which requires service of a motion “in the manner provided for service of a summons and complaint by Rule 7004 . . . .” Rule 9014(a). So we have to look to FRBP 7004. Service of a summons and complaint varies depending upon the type of entity the creditor is. Whether the creditor is a sole proprietorship, limited liability company, corporation or is insured depository institution. If FDIC insured service shall be made by certified mail addressed to an officer of the institution unless— (1) the institution has appeared by its attorney, in which case the attorney shall be served by first-class mail; (2) the court orders otherwise after service upon the institution of notice of an application to permit service on the institution by first-class mail sent to an officer of the institution designated by the institution; or (3) the institution has waived in writing its entitlement to service by certified mail by designating an officer to receive service.

Ninth Circuit Bankruptcy Appellate Panel Case

In a recent 9th Cir. BAP case; Teresa Bryant, Appellant, vs. The Bank of New York Mellon; Select Portfolio Servicing, BAP No. CC-16-1009-DKuF, discussed the proper service of a motion to avoid a judicial lien. In this case Ms. Bryant’s bankruptcy attorney served the motion by certified mail on a bank officer of Mellon pursuant to FRBP 7004 and served each attorney that appeared on behalf of Mellon in the bankruptcy case. In the Northern District of California we have a local rule that says if a claim was filed for the lien, then the address provided on the claim has to be served in addition to the requirements of FRBP 7004 be met. Mellon tried to argue that since their state court attorney was not served the motion to value service was defective. This issue was addressed in Frates v. Wells Fargo Bank, N.A. (In re Frates), 507 B.R. 298, 301 (9th Cir. BAP 2014). The appellee bank in Frates argued their state court attorney should have been served with the motion to value or avoid. The Ninth Circuit BAP said no.

The Ninth Circuit Bankruptcy Appellate Panel previously concluded that compliance with Rule 7004(h) was all that was required. The court recognized that California law would have required service of post-judgment motions on the state court attorney, but the court did not “perceive any reason why compliance with California law should be compelled in light of the procedural due process safeguards provided by the rules themselves. This means that when enforcing the judicial lien under California law post-judgment motions must be served on the state court attorney for the judgment creditor. That is not the case after a bankruptcy case is filed.

You Do Not Have To Serve The State Court Attorney

Bankruptcy case rules make no mention of serving a motion to avoid a judicial lien on any state court attorney involved in the matter previously. In the Bryant appeal the debtor’s bankruptcy attorney served the attorney that made an appearance for Mellon and filed a motion for relief from stay filed in the bankruptcy case and still served an officer of Mellon by certified mail. The Ninth Circuit Bankruptcy Appellate Panel held nothing more was required. The lower bankruptcy court unfortunately evaluated the circumstances of not serving the state court attorney as a possible fraud on the bankruptcy court for not serving Mellon’s state court attorney with the motion to value. The 9th Circuit Bankruptcy Appellate Panel decidedly said no. There was no fraud on the bankruptcy court.

What Creditors Attorneys Should Do

If a state court attorney wants to be noticed or a creditor wants their state court attorney that obtained the judgment to be served then the state court attorney should file a request for special notice in the bankruptcy case. Then they have to be provided notice. In Chapter 7 bankruptcy cases judicial liens can be avoided in no assets cases. In a no asset case there is no call for creditors to file claims or even make an appearance in the case at all. Under these circumstances no attorney will make an appearance for a creditor in the Chapter 7 no asset bankruptcy case. The only viable service is pursuant to FRBP 9014 and 7004. In Chapter 13 bankruptcy cases claims are called to be filed on behalf of creditors. So in theory in a Chapter 13 case there could be an attorney or other party to provide notice to and meet the requirements of FRBP 7004.