WARNING for use by only licensed attorneys and they do so as their own risk.  You are on notice that there is no right to rely on this information and user beware and do your own homework.

◙  Chapter 13 - vesting property in the Debtor (Note from Dianne Kerns): Pursuant to 11 U.S.C. 1327(b), all property of the estate vests in the debtor upon confirmation "[e]xcept as otherwise provided in the plan or the order confirming the plan...."  Most orders confirming in Arizona specifically provide that the property of the estate vests in the debtor.

Most of us reflexively assume vesting property in the debtor is beneficial to the debtor.  But, are you sure?

If you carefully review Section 362, you will note that the automatic stay does NOT apply to efforts to enforce a post-petition debt against property of the debtor, i.e. property that vested in the debtor upon confirmation.  A debtor in Chicago learned this the hard way when the city impounded and crushed her car due to her failure to pay post-petition parking tickets. Because the car vested in the debtor upon confirmation, the District Court found that the automatic stay did not bar the action and she was out of luck.  See In re Fisher, 203 B.R. 958 (N.Dist.Ill 1997).  How many debtors do you know that have incurred debt post-petition? Something to think about

◙  PERSONAL INJURY – Title 28 U.S.C. Section 157(b)(5) probably does not apply to PI claims held by DR against others.  Such claims are usually considered non-core proceedings, therefore the state law is usually followed.  11 U.S.C. Section 522(d)(11) property exempted by BK estate – (FEDERAL EXEMPTIONS) the DR’s right to receive, or property that is traceable to - includes a payment, not to exceed $16,150, for personal injury, not including pain and suffering or compensation for actual pecuniary loss, of the DR or an individual of whom the DR is a dependent, or (E) payment in compensation of loss of future earning of the DR or an individual of who the DR is or was a dependent, to the extent reasonably necessary for the support of the DR and any dependant of the DR;   However, pain and suffering and actual damages are specifically not included in calculating the exemption amount. STATE EXEMPTIONS: NO PROTECTION, OTHER THAN WAGES/COMPENSATION: Kahn – portion that is wages is 75 percent exempt; legitimate business purposes, if income going to be SSI (and exempt), only protection is that portion that is determined to be future income (but still issue that the “income” is not actually “wages”);  If use the money to pay on house, then must have good business purpose in order for courts not to set aside (1 year look back in BK Court, 4 years in State Court);

◙  Personal injury – chapter 7  The debtor may, as a practical matter, have more control over the situation than the trustee thinks.  The debtor can effectively end the litigation by refusing to cooperate.  This may not be in the debtor's best interest if either (a) the debtor can exempt a portion of the proceeds, or (b) the potential recovery is considerably greater than the claims against the estate (thus leaving the excess to the debtor).  The trustee can solve the problem of an uncooperative plaintiff by guaranteeing a portion of the proceeds to the debtor. 

As a practical matter the trustee may have made a mistake by not working things out with the debtor's existing counsel (who probably has a lien for his or her fees, as well).  In my opinion, it is best for the trustee to retain the counsel who 'has' the case, and to agree to split the recovery so that the debtor has incentive to continue with the case.

A further problem may be state law prohibitions on the assignability of personal injury causes of action.  While it is generally held that such prohibitions do not prevent the cause of action from becoming part of the BK estate, a defendant could argue in state court that the trustee, as an assignee, does not have standing to bring suit.  If a lawsuit has not been filed, can a trustee file the injury claim lawsuit in his/her representative capacity, without the debtor being a named plaintiff?  Or, in other words, can the trustee "force" the debtor to file a lawsuit?  Does the duty to cooperate under sec. 521 extend to filing a personal injury action?

Other issues: If the trustee employs the debtor's PI counsel as "special counsel" to represent the estate in pursing the injury claim, can that attorney also continue to represent the debtor?  Does the trustee really have a legal interest in the claim itself, giving him/her the right to control prosecution of the claim, or does the trustee only have an equitable interest in the proceeds of the lawsuit? 

◙  Another thought: the Trustee can file the action in their representative capacity without the debtor's permission.  The assignability issue has been resolved in most circuits including the Ninth.  See, Sierra Switchboard.  Unless there is some dispute o "settle," the Trustee can't "give" anything to the debtor to elicit their cooperation.  It would violate absolute priority and no court would approve the compromise.  But, in California (and I'm sure other states), there are exemptions that are dependent upon the debtor's "needs."  In such a situation, it is very common for the parties to resolve the split under the guise of a compromise of the disputed exemption claim.  At that point, the debtor has the continuing financial interest to fully cooperate and both sides receive what they are entitled to.

◙  Equitable Mortgage; lender taking title, then allowing old owner to reside in property under premise of a lease to purchase; Arizona Question regarding Equitable Mortgages  This may be OBE by now, but there is a good discussion of "disguised real estate security transactions" in Nelson and Whitman's hornbook on Real Estate Financing, Chapter 3, and an old law review article by Cunningham and Tischler in 26 Rutgers Law Review 1 (1972). Good luck in getting the bankruptcy judge to reopen this issue.

◙   Fair Debt Collection Issues: WOLPOFF & ABRAMSON, L.L.P., UPTON, COHEN & SLAMOWITZ, and NATIONAL ATTORNEY NETWORK, INC., successor to Wallace & de Mayo, a partnership and wholly-owned subsidiary of TSYS Total Debt Management, Inc., individually and as joint venturers and co-conspirators with each other.