BANKRUPTCY

CS 890P-4 Bankruptcy – Chapter 11 Procedures

09/86 Revised 06/18/24 Training Completed 07/01/24 Last Reviewed 11/04/25

11 U.S.C. § 101; 11 U.S.C. § 362; 11 U.S.C. § 501(a); 11 U.S.C. § 502(a), 11 U.S.C. § 507(7)(B); U.C.A. 78B-2-112; Bankruptcy Court Local Rule

 

 

General Information – Small Business Debtor

 

An individual may file a Chapter 11 bankruptcy, but primarily it is used for small business debt (sole-proprietorship not included).  To qualify under this chapter, the debts must exceed the limits of a Chapter 13 bankruptcy (unsecured $250,000.00 and secured $750,000.00) and have an aggregate non-contingent secured and unsecured debt(s) of $2,000,000.00 or less (excluding an individual who owns or operates real estate).

 

A Chapter 11 allows the debtor to be expedited and treated differently than a large corporation.  For example, the debtor (business) may continue normal business activities while reorganizing its finances.  This allows the business to continue to pay its employees, reduce current obligations to creditors, and produce a return for stock holders.  The debtor is allowed to retain possession of any assets and continue operation.  This plan may last up to 6 years.

 

Under a Chapter 11 or Chapter 13 payment plan, all pre-petition child support arrears must be paid in full in order to receive a discharge in bankruptcy. Additionally, the debtor must remain current on all post-petition support obligations, otherwise the Office of Recovery Services (ORS) may seek a conversion or dismissal of the bankruptcy.  A discharge of the bankruptcy will only be granted after the debtor is able to show that all of his/her post-petition child support debts are paid-in-full.

 

A self-employed individual may file for Chapter 11 if s/he meets the debt requirements.  However, because the debt requirement is fairly high, Chapter 11 bankruptcies filed by individuals are rare.

 

 

Chapter 11 Procedures

 

Notification of a Chapter 11 bankruptcy may occur through one of the following ways.

 

·                     Attorney;

·                     Bankruptcy Filed alert;

·                     Custodial Parent (CP);

·                     Noncustodial Parent (NCP);

·                     ORS Administrative Staff (see CS 890P Bankruptcy – Overview, Definitions, Forms and Alerts/Events); or,

·                     Copy of Notice of Bankruptcy.

 

If you are notified of a bankruptcy in any of the above ways or in any other way, it is important to follow-up on the information as the stay on enforcement and/or other restrictions are effective, even if you do not receive a copy of the Notice of Bankruptcy document.

 

NOTE: Chapter 11 and Chapter 13 bankruptcies require that a payment plan must be approved by the trustee and creditors. This plan will provide for the payment of certain debts, including all support arrears that have accrued prior to the filing for bankruptcy. The trustees will receive payments for those pre-petition support arrears, and then disburse the arrears to ORS, as long as a proof of claim has been filed. To avoid collecting more towards the arrears than the plan allows, and to simplify accounting, upon verification of a filing of a Chapter 11 or Chapter 13, ORS should suspend tax intercepts and limit income withholding to ongoing support only. Consult with the Attorney General’s Office (AGO) regarding Chapter 11 and 13 collections when a plan has already been confirmed and appears to restrict ORS collection activities.

 

After you receive notification of a Chapter 11 bankruptcy, take the steps listed below:

 

1.                   Verify that the NCP has filed a Chapter 11 bankruptcy.

 

2.                   Update ORSIS.  Once you confirm the bankruptcy, update the information on ORSIS.

 

ORSIS must be completed even if the case is suspended or pending so that ORSIS is able to send an alert to all workers in ORS who may have a case with the NCP.  Therefore, if the assigned agent receives the bankruptcy notice first, it is his/her responsibility to update ORSIS, even if the case is suspended, pending, or closed.  This allows ORSIS to send an alert to all workers within ORS who may have a case with this particular NCP.

 

In the following situations, workers should consult with the appropriate attorney in the Salt Lake City (SLC), Ogden or St. George office based on where the bankruptcy was filed and the regional Attorney General’s Office (AGO) alpha split to determine if the money may be kept and applied to the arrears:

·                     If a tax refund is intercepted during the pendency of a Chapter 11 or Chapter 13; or,

·                     When a tax intercept is received before a Chapter 11 or Chapter 13 bankruptcy is filed, but has not yet been disbursed when ORS receives notice that a Chapter 11 or Chapter 13 petition has been filed.

 

If the case must be referred to the AGO, refer to CS 890P-7 Bankruptcy – AGO Referrals, Duration of Judgment, and Bankruptcy Completed/Dismissed for information about bankruptcy referrals.

 

3.                   Ensure that the Notice of Bankruptcy has been imaged into Content Manager. 

 

4.                   Complete the Proof of Claim.  CSS must file the Proof of Claim with the Bankruptcy Court in a timely manner.  A Proof of Claim may be amended at a later date, if necessary.

 

5.            Stop enforcement actions if necessary. Pursuant to 11 U.S.C. § 101(14A)(A)(i) and (ii) and 11 U.S.C. § 362 (b), ORS may continue to collect all current support obligations, including monthly medical support premiums for the child(ren).

 

NOTE:  If the NCP is paying through Automatic Payment Withdrawal (APW), terminate the APW and issue an NTW. 

 

If you are collecting current support from more than one source/employer, make sure the total amount collected on all the income withholding orders does not exceed the total monthly amount of current support amount.  This means that you cannot issue separate income withholding orders for the full amount of current support, as this may result in over-collection of the case and cause a violation of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 or the automatic stay.

 

NOTE: If there is a confirmed Chapter 11 plan that limits how much ORS may collect for ongoing support and arrears, consult with the assigned AAG on how to proceed.

 

6.                   Determine if a referral should be made to the AGO.  All AGO referrals for bankruptcy are worked by the appropriate attorney in the SLC, Ogden or St. George office based on where the bankruptcy was filed and the regional AGO alpha split.  Therefore, if it appears that something should be filed with the bankruptcy courts or if there are questions surrounding the bankruptcy, contact the appropriate attorney immediately.

 

NOTE:  Because all AGO referrals are monitored by the assigned AAG for bankruptcies, an email may be sent by the assigned AAG to the agent asking if the agent wants the AGO to take an action on a case if it appears that an AGO action is appropriate, even if an AGO referral has not already been completed by the agent.  Because of the time frames associated with bankruptcy, it is critical that agents respond back to the assigned AAG immediately.

 

7.                   Monitor current support payments.  Monitor the case using the delinquency alerts to determine if/when the NCP misses his/her monthly current support payment.  The NCP/debtor must meet his/her monthly current support obligation or it is cause for the bankruptcy to be converted to a Chapter 7 or dismissed.  If the NCP/debtor fails to meet his/her domestic support obligations (child support obligations), immediately contact the appropriate attorney.

 

NOTE:  Contact the assigned Assistant Attorney General (AAG) and ask the AAG to check with the Bankruptcy Court to see if the NCP has changed employers and reported this information to the Court.  If the NCP has not reported a new employer, refer the case to the AGO to file an objection to the proposed Chapter 11 plan.

 

Agents may be required to attend confirmation hearings with the AGO.

 

8.                   Monitor bankruptcy proceedings.  Update ORSIS as you receive updates from the Bankruptcy Court.

 

NOTE:  It is possible to receive a new bankruptcy case number before you receive notification of the original bankruptcy dismissal.  Sometimes the Notice of Dismissal is sent two or three weeks behind.  Should this happen, contact the appropriate attorney in the SLC, Ogden or St. George office based on where the bankruptcy was filed and the regional AGO alpha split to confirm the dismissal of the original bankruptcy before adding the new case number to ORSIS.  If the NCP re-files for bankruptcy, it will require a new Proof of Claim (see CS 890P-6 Bankruptcy – Proof of Claim Procedures).

 

 

Objections to Chapter 11 Bankruptcy

 

The Bankruptcy Court will only send a Notice of Confirmation if a creditor objects to the plan. If an objection to the bankruptcy plan needs to be filed, refer the case to the AGO. All objections to the bankruptcy plan must be raised by no later than 10 days prior to the confirmation hearing date (i.e., the deadline date established by the court).  That means the case/information must be sent to the appropriate attorney in the SLC, Ogden or St. George office based on where the bankruptcy was filed and the regional AGO alpha split seven to ten days prior to that date (20 days prior to the confirmation hearing) so that the objection may be prepared.  The deadline date can be found on the back of the original bankruptcy notice, toward the bottom; it is the same date as the deadline date for filing a Proof of Claim.  If an objection to the bankruptcy is received, update ORSIS appropriately.

 

If no creditors object to the plan, check with the court after the deadline date to determine when/if the plan has been confirmed.

 

 

Payments on a Chapter 11 Case

 

If money is received from the Bankruptcy Court as a result of CSS filing a Proof of Claim and there is a Notice to Withhold for current support only, either payment (the withholding payment or the bankruptcy payment) may post to the current support debt, whichever one is received and posted first.  The money received in excess of the current support amount, should post to the arrears.  It is important in these situations to make sure that the employer is not sending more than just the current support amount.  If later you need to prove that the employer only sent current support payments, it is easy to track the payments by payment type.

 

If the bankruptcy trustee returns the money to ORS and the NCP’s ongoing child support is paid and there are no arrears debts on the case, send the money to the NCP’s attorney. If the NCP does not have an attorney, send the money back to the NCP. Use the appropriate option on the Bankruptcy Attorney/Trustee Notification letter to inform the attorney or the NCP that the funds are being sent to him/her.

 

 

Chapter 11 Bankruptcy Completed/Dismissed

 

After the trustee has closed the case (e.g., it has been discharged or dismissed), you may proceed with any and all appropriate enforcement actions against the NCP.  For more information on bankruptcy dismissal and/or discharge, refer to CS 890P-7 Bankruptcy – AGO Referrals, Bankruptcy Completed/Dismissed.