In the United States Bankruptcy Court, Northern District of Indiana, which is composed of thirty-two counties in northern Indiana, there were 18,700 new bankruptcy case filings in 2009. This is an increase of more than 31 percent—there were 14,256 new case filings in 2008. With this many new filings in 2009, it is likely that your business received at least one bankruptcy notice.

What should a creditor do when it receives notice that a customer filed a petition for bankruptcy? Generally, it is important to take the following steps:

1. Verify the filing of a bankruptcy petition.
2. Verify the type of bankruptcy.
3. Determine whether it is an “Asset” bankruptcy.
4. Determine the type and calculate the amount of the claim.
5. Decide whether to file a proof of claim.

1. Verify the filing of a bankruptcy petition.
When a customer informs a business that he or she has filed a petition for bankruptcy, it should ask for the cause number and the name of his or her attorney. This information will allow the business to verify that the individual did, in fact, file a petition for bankruptcy. With the case number, a creditor can contact the clerk’s office or use the Voice Case Information System (“VCIS”) to verify the petition. To use the VCIS and obtain information about a specific bankruptcy, businesses can call (574) 968-2275 or 1-800-755-8393. Even when a customer does not inform a creditor that he or she filed a petition for bankruptcy, as long as the creditor is listed in the bankruptcy, it will receive notice of the filing from the bankruptcy court.

The filing of a bankruptcy case under any chapter of the Bankruptcy Code triggers a statutory injunction referred to as the automatic stay. The automatic stay prohibits creditors from taking collection actions (including collection letters, phone calls, lawsuits, etc.) against a debtor for debts that were incurred prior to the filing of the bankruptcy petition. It provides the debtor with a breathing spell to get his or her financial situation in order and make a fresh start. So, after verifying that the petition for bankruptcy has, in fact, been filed, creditors should stop all collection activities.

2. Verify the type of bankruptcy.
Chapter 7 is the most common type of bankruptcy. In a Chapter 7 bankruptcy, the debtor surrenders all

non-exempt assets to the trustee in the bankruptcy. The trustee is appointed by the Bankruptcy Court to liquidate the debtor’s non-exempt assets. The trustee in bankruptcy is responsible for administering the debtor’s estate, which mainly involves collecting, liquidating, and distributing the property of the estate. The trustee is also entrusted to bring any legal actions required to collect amounts payable to the debtor or to the bankruptcy estate. These legal actions can include “avoidance actions.” These are special causes of action that permit the estate to recover monies paid or property transferred by the debtor before the petition was filed in a way that treated the transferee more favorably than other creditors. In a Chapter 7, the trustee in bankruptcy stands in the shoes of the debtor for purposes of prosecuting these causes of action. Any money collected by the trustee is distributed among the debtor’s creditors and, to the extent there is a surplus, to the debtor. Once all the debtor’s assets have been fully administered, the debtor can be discharged, and the debtor has the opportunity for a fresh start. The entire Chapter 7 process usually takes about four to six months, but this time period may vary depending on the size and complexity of the case.

Every chapter, except for Chapter 7, contemplates that the debtor will file a plan to pay creditors. Chapter 11 can also be used to liquidate the debtor’s assets, but the liquidation must be done under a plan that is approved by creditors. Other Chapter 11 plans, as well as plans in Chapter 12 and 13, provide for the payment of creditors from future income. The failure to perform a plan may result in the dismissal of the bankruptcy case or the conversion of the bankruptcy case to another chapter under which the debtor can still qualify. Usually, these cases are converted to Chapter 7, and the debtor’s non-exempt assets are liquidated to pay creditors.

Creditors should carefully review the notice from the United States Bankruptcy Court. The notice will state what type of bankruptcy the debtor filed.

3. Determine whether it is an
“Asset” bankruptcy.
In a Chapter 11, 12, or 13, creditors should usually file a proof of claim and will receive money from the bankruptcy. In a Chapter 7 bankruptcy, however, creditors need to determine whether it is an “Asset” or “No-Asset” bankruptcy. The notice from the
bankruptcy court will state whether it is an “Asset”

bankruptcy or a “No-Asset” bankruptcy. In an Asset bankruptcy, it is anticipated that there are assets that will be used to pay creditors. In a No-Asset bankruptcy, it is anticipated that there will not be any assets or money distributed to the creditors. In a No-Asset bankruptcy, creditors are not permitted to file a proof of claim. A significant majority of the Chapter 7 cases are filed as No-Asset bankruptcies. There are situations, however, where the trustee will find or recover assets, such as a tax refund, that can be used to pay creditors. In these cases, creditors will receive a notice of the recovery of assets and the need to file a proof of claim.

4. Determine the type and calculate the amount of the claim.
After verifying that the case has been filed and determining whether a proof of claim can be filed, creditors should determine the amount of the claim—i.e. how much is owed to the business. The amount of the claim is determined as of the date the bankruptcy petition was filed. This amount should include all funds owed to the business regardless of whether they are liquidated or contingent. Each creditor should also review the related invoices, agreements or other records supporting the claim.

Creditors should also consider the type of claim. Under the Bankruptcy Code there are generally three types of claims: (1) secured claims, (2) priority claims, and (3) unsecured non-priority claims.

Unless the debtor continues making the payments or reaffirms the debt, a creditor with a secured claim generally seeks to obtain the collateral securing the debt. A priority claim is a special type of claim listed in the Bankruptcy Code. Priority claims are paid before non-priority claims. Unsecured non-priority claims are paid after the priority claims.

5. Decide whether to file a proof of claim.
After considering the factors listed above, a creditor should decide whether to file to take any action. If the creditor is a secured or priority creditor, it should generally take some action and monitor the case to protect its claim(s). For an unsecured non-priority claim, a creditor should consider the issues more carefully. In a Chapter 11, 12, or 13 bankruptcy, a unsecured creditor should receive some money from the bankruptcy. So, a creditor generally should file a proof of claim. But, some of these bankruptcies can take years to resolve, so creditors should be careful not to spend more in legal fees than it is likely to recover. So, creditors should think about whether to pursue a small claim—particularly claims less than $3,000.00. (Only a small percentage of each claim will be paid.) In a Chapter 7 bankruptcy, if it is an Asset bankruptcy, creditors should generally file a proof of claim. In a No-Asset Chapter 7 bankruptcy, there is no need to monitor the case or prepare a proof of claim, unless assets are recovered.

The last couple of years have been fast-paced in the employment law area. The ADA Amendments Act was passed in September, 2008 and became effective January 1, 2009 and new FMLA regulations also became effective in January, 2009. Since then, even more new laws have been passed and many more employment laws may be in the works if the current administration in Washington D.C. has its way.

Here’s a brief look at several of the new and anticipated employment laws:

• ADA Amendments Act (“ADAAA”). The purpose of this Act, which became effective January 1, 2009, was to broaden the scope of individuals granted coverage as being “disabled.” As a result of the ADAAA, employers should focus more on whether there exists a reasonable accommodation that might allow an individual to perform the essential functions of their job and on whether the individual can perform the essential functions of the job with or without reasonable accommodation(s), and focus less on disputing that an individual meets the definition of “disabled.”

• Genetic Information Nondiscrimination Act (“GINA”). This Act became effective November 21, 2009. Title II of the Act regulates such things as how an employer may legally acquire genetic information about employees; how an employer may legally treat such information once it becomes known; and the manner in which an employer may disclose genetic information. The Act also makes it illegal to discriminate against an individual based on genetic information or factors. GINA is similar in theory to the ADA, but GINA would protect individuals even before a condition manifests itself with symptoms.

Under GINA, genetic information includes information about the results of actual genetic testing, but also includes information about whether an individual or an individual’s family member has manifested a disease or disorder. GINA prohibits the collection by an employer of genetic information, but spells out some exceptions, including 1) an employer inadvertently receiving genetic information during a casual conversation, by overhearing co-workers’ conversations, or by receiving an unsolicited e-mail containing genetic information;

2) an employer receiving genetic information during an ADA interactive process after an accommodation has been requested or in connection with a request for FMLA or similar leave; or 3) an employer acquiring genetic information from newspaper articles or other media or obtaining it from commercially available or publicly available sources. GINA does allow employers to offer health and genetic services, if they are offered as part of a voluntary wellness program.

Once an employer has acquired genetic information from any source, the employer must keep the information in a properly secured, confidential medical file, separate from the main personnel file.

Your business should take the following steps to comply with GINA, if you have not done so: Post the new “Equal Employment is the Law” poster referencing GINA’s protections, update your anti-discrimination policies to reflect GINA; remove genetic information from personnel files; ensure that any post-offer, pre-employment medical testing does not include genetic information and that forms do not seek genetic information, including family history.

• Employment Non-Discrimination Act (“ENDA”). ENDA, if passed, will prohibit discrimination on the basis of sexual orientation or gender identity for employers (non-religious) with more than 15 employees.

• Healthy Families Act (“HFA”). This Act would require employers with more than 15 employees to provide employees with up to seven paid sick leave days per year. Under current drafts of the Act, an employee would earn his/her initial sick leave bank at a rate of 1 hour of paid sick leave for every 30 hours worked.

• Employee Free Choice Act (“EFCA”). It’s unclear whether Congress will take action to pass this legislation this year, or whether it will be left to the National Labor Relations Board to attempt to address the labor issues in EFCA through rule-making, but EFCA, in its most recent versions, would permit the use of union cards as substitute for secret ballot elections currently handled by the NLRB, thus likely resulting in more and quicker unionization in businesses of all sizes.

Please feel free to contact us with questions or for updates on these important employment law developments.

Every law firm needs litigators – those lawyers who go to court to deal with adversarial matters, whether they are of a personal, business or municipal nature. They know how to resolve disputes, and in most cases do. But, when negotiations fail, they know how to take the fight to the courtroom.

We business lawyers need litigators – you need them. We have them – very good ones. Ones we want you to get to know.

This month we would like to feature Joshua A. Burkhardt. After Joshua graduated from Ohio Northern University, Claude W. Pettit College of Law, he began a unique experience as a federal law clerk (2001-2002). He clerked in the United States District Court, Southern District of Indiana, Indianapolis Division, with the Honorable John D. Tinder and Honorable David F. Hamilton, both of whom were subsequently

elevated to the United States Court of Appeals for the Seventh Circuit. Joshua has been practicing law for 8 years. He practices in the areas of appellate law, bankruptcy law, and commercial litigation. In his appellate practice, he represents clients challenging an unfavorable decision and clients seeking to defend a favorable one. He has represented clients before the Indiana Supreme Court, Supreme Court of New Jersey, and Indiana Court of Appeals.

Joshua stands ready to assist you with your litigation needs as part of Beers Mallers Backs & Salin’s strong litigation team. We encourage you to call us if you are facing mediation, arbitration or State or Federal Court litigation; commercial disputes or family law related issues. We are confident we can handle all of your personal and business litigation needs.