1. Bankruptcy: Effects on Medically Indigent Applicants
Ammon Taylor
2019 IACC/Social Services Conference
June 12, 2019

2. Where Are We Headed? Bankruptcy Basics
Idaho Medically Indigent Statutes
Nuts & Bolts
Questions

3. Bankruptcy Basics
Debtor/Applicant files a petition requesting relief under the U.S. Bankruptcy Code – 11 U.S.C. §§ 101 et seq.
Can file under one of a number of chapters: 7, 11, 12, and 13
Chapters 7 and 13 applicable for our purposes

4. Bankruptcy Basics Bankruptcy Filing-
Immediately triggers “automatic stay” (11 U.S.C. § 362)
Creates a “bankruptcy estate” comprised of Debtor’s property
Debtor files schedules disclosing assets and debts (liabilities)
Lists property (both real and personal)
List of debts should include any reimbursement obligation to County
Debtor files a statement of financial affairs
Notice of Bankruptcy sent to creditors listed in schedules

5. Automatic Stay 11 U.S.C. § 362 Bankruptcy Basics Stays:
Commencement or continuation of judicial or administrative proceeding
Any act to create, prefect or enforce lien against estate property
Any act to collect or recover a claim against the Debtor or estate property

6. Automatic Stay … Cont’d. Bankruptcy Basics
Must request permission from Bankruptcy Judge to take action (relief from stay – 11 U.S.C. § 362(d))
Requires filing a motion and a hearing
Stay continues as to Debtor until the earliest of:
Case is closed
Case is dismissed or
Discharge is granted or denied
Stay continues as to estate property until such property is no longer part of the bankruptcy estate
Property vests in Debtor (Ch. 13)
Case is dismissed
Action taken in violation of the automatic stay is VOID
Actions taken in violation of automatic stay may also result in damages awarded against the violator

7. Bankruptcy Basics Chapter 7 Cases (Liquidation Cases)
Chapter 7 trustee oversees case
No Asset Cases – nothing for creditors; no Proofs of Claim
Asset Cases – chapter 7 trustee liquidates/sells property and distributes proceeds to creditors; Proofs of Claim filed
Distribution based on priority – secured, priority unsecured, non-priority unsecured
Pro rata distribution within in each class
Discharge entered for Debtor (11 U.S.C. § 524) – typically within 4 months (unless discharge denied or revoked)
Final Report (Asset) or Report of No Distribution (No Asset)
Bankruptcy Judge Closes Case

8. Bankruptcy Basics Chapter 13 Cases (Repayment Plan)
Chapter 13 trustee oversees case
Usually involve real property (Debtor retains property)
Debtor proposes plan to pay debts; Court confirms plan
3-5 years depending on circumstances
Creditors file Proofs of Claim
Plan payments completed = discharge entered
Plan payments not completed = case dismissed; do discharge
Bankruptcy Judge closes case

9. Bankruptcy Basics Discharge Injunction 11 U.S.C. § 524
Releases Debtor from personal liability for certain debts
Permanent injunction as to debts that have been discharged
“Fresh Start”
In some cases, Debtor may be not eligible (e.g., serial filer)

10. Bankruptcy Basics Dismissal of Case
May occur for any number of reasons
Failure to properly file required documents in case
Failure to meet counseling requirements
Ch. 13 – failure to get plan confirmed; nonpayment under plan
Etc.
Upon dismissal, automatic stay is terminated and Debtor does not receive a discharge
Creditors may proceed to collect or enforce their claims; any proceedings may resume

11. Idaho Medically Indigent Statutes
Idaho Code: Title 31, Chapter 35
Patient or third party files application for financial assistance
Automatic lien attaches to personal property and real property of the applicant
Lien may be perfected (within 30 days of receiving application)—
As to real property by recording Notice of Lien in county property records
As to personal property by filing with the Secretary of State
Idaho Code § (4)

12. Idaho Medically Indigent Statutes
Obligations—
County’s obligation to make payment, Idaho Code § A
Applicant’s reimbursement obligation to County, Idaho Code § A (order of reimbursement, payment plan, promissory note, etc.)
Automatic lien securing applicant’s reimbursement obligation, Idaho Code § (4)
Any consensual lien executed by applicant, Idaho Code § A

13. Idaho Medically Indigent Statutes
Recovery
Same right of recovery as provided to state of Idaho under Idaho Code §§ and A (Idaho Code § A(5))
Payment of lien from probate estate
Payment of lien upon sale of property subject to lien
State law rights for breach of any signed repayment agreement
Enforcement of rights under any consensual lien (Idaho Code § A(4))

14. Idaho Medically Indigent Statutes
Effect of Bankruptcy Discharge
Personal Obligation to reimburse County is wiped out
No order of reimbursement
No promissory note
No communications (letters, calls, s) demanding payment
Lien on property survives
Lien is a charge against or interest in property to secure payment of a debt or performance of an obligation
“Valid, perfected liens that have not been disallowed or avoided survive the bankruptcy discharge of the underlying debt.” In re Handy
However, lien is limited to applicant’s real and personal property in existence as of the bankruptcy petition filing date. In re Mechling
Check bankruptcy schedules filed by Debtor for property

15. Idaho Medically Indigent Statutes
Effect of Bankruptcy Discharge cont’d
Still must process application, In re Sarty; Johnson v. Minidoka County Commissioners
Determines the lien obligation amount for any lien that arose prior to bankruptcy filing
Determines whether County is obligated to provider (even if no property exists for lien to attach to)
Not to determine Debtor’s personal liability to reimburse (should make this clear to Debtor/Applicant during the investigation and determination process)

16. Nuts & Bolts Notice of Bankruptcy Sent to Creditors – County
Occasionally ends up with other County Department or Office
Cross department/office searches
Information
Debtor’s information
Case number and date of filing
Where to file documents in bankruptcy case
Whether to file a Proof of Claim (No Asset = No Proof of Claim)
Deadline for filing Proof of Claim

17. Nuts & Bolts (Notice of Bankruptcy)

18. Nuts & Bolts Flag File/Account (Stop Everything)
Protects against violations of the automatic stay
Application approved prior to bankruptcy filing – stay applies to collection activities (requesting payment on any order of reimbursement or promissory note, enforcing lien, etc.)
Application pending at time of bankruptcy filing – stay applies to any action or decision on the application, including investigation and initial determination
While automatic stay in place, relief from stay needed to either (1) proceed on application or (2) file application – 3rd party applicant (provider) may ask Court for relief from the stay to proceed

19. Nuts & Bolts Proof of Claim
If there are assets (Ch. 7 notice provides for submitting Proofs of Claim, or if bankruptcy was filed as a Ch. 13)
Consult with your attorney
Proof of Claim forms:
(U.S. Bankruptcy Court, District of Idaho website)

20. Nuts & Bolts (Proof of Claim)

21. Nuts & Bolts Monitor Case
Sale of Property (to ensure payment on lien out of proceeds)
Confirmation of Plan (Ch. 13)
Payment (if Proof of Claim filed)
Discharge
Dismissal of Case
Trustee’s Accounting & Distribution Report
Closing of Case

22. Nuts & Bolts Post-Bankruptcy Efforts
Complete processing application (if necessary)
Consult your attorney on timing (especially Ch. 13 cases)
Did Debtor have property to which lien remains attached?
Check Bankruptcy Property Schedule A/B
Even in No Asset case (“No Asset” ≠ no property)
(PACER - $0.10 per page; see cost info.)
If meaningful property exists, further recovery efforts can be explored as against property
Voluntary payment plan to pay off lien obligation
Recovery from probate estate
Recovery from sale of property
Foreclosure (certain, limited circumstances)

23. Nuts & Bolts (Schedule of Property)

24. Nuts & Bolts (Summary) Notice of Bankruptcy
Stop all Activity – Processing Application/Collecting on Reimbursement Obligation
File Proof of Claim (if appropriate)
Monitor Case
After Dismissal or Closing of Case:
Complete processing of application (if necessary)*
Review bankruptcy schedules to see if lien attached to property
If there was property for lien to attach to, consider additional efforts to recover against property
*May occur sooner if stay relief obtained from Bankruptcy Court

25. Questions ?