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My Case Was Dismissed - Now What?

A primary purpose of a bankruptcy proceeding is to gather all of the assets of a debtor for the distribution to creditors in accordance with bankruptcy principles. One such principle is that a debtor may not “prefer” one creditor over another. With this goal in mind, a bankruptcy trustee may seek to “avoid” or undo certain transfers made during the 90 day period immediately before the bankruptcy petition is filed, commencing the bankruptcy case. If successful in this action, the money from the challenged transfers will be pulled back into the estate to be distributed pro rata to unsecured creditors. 
A preferential transfer is a payment: (1) to or for the benefit of the creditor, (2) for or on account for an antecedent debt owed by the customer before the payment was made, (3) made while the customer was insolvent, (4) made on or within 90 days before the date of the Bankruptcy Petition, and (5) that such payment enabled the creditor to receive more than it would receive if there was a liquidation of the debtor’s bankruptcy estate under Chapter 7. (11 U.S.C. § 547)
Some common defenses to preference actions include:

• Contemporaneous exchange: This applies to situations where the debtor provides payment for goods or services at substantially the same time they are received and thus it is not subject to avoidance as a preference. This is because a preference requires that the payment be received on account of “antecedent” debt. If you are receiving an item of a certain value and paying for it contemporaneously, there is no antecedent debt involved in the transaction, and thus it is not subject to recovery as preferential payment.
• New Value: If after receiving a “preference payment” for goods or services, a company then delivers additional goods or services to a debtor, the value of those items offset the preference amount dollar for dollar. For example, if a debtor pays money for products ordered within the 90 day preference period, and then the creditor sends you additional products prior to the petition date, the money which has already been paid cannot be taken back into the estate because this debtor has provided “new value,” for which no payments have yet been made.
• Mere conduit: If a debtor transfers money to an entity that does not exercise dominion or control over it, but instead transfers it to another entity, the initial recipient of the payment may be able to assert the defense that it was a “mere conduit” as opposed to a transferee.
• The ordinary course of business defense: A creditor may not have to return preference payments if the payment was consistent with the historical business relations between the debtor and creditor and followed the industry norms.

The vast number of recovery actions for preferences are settled before litigation. If you find yourself being sued for the recovery of preferential payments, speak to an attorney with experience in bankruptcy matters. Your lawyer will:

• Analyze your preference exposure;
• Determine whether you have any applicable defenses;
• Discuss settlement options with you;
• Discuss litigation strategy if settlement is inadvisable.

Join me next time when I’ll take you to the intersection of bankruptcy and divorce.
Adrienne Woods
The Law Offices of Adrienne Woods, P.C.
[email protected]
917.447.4321

By JESSICA SILVER-GREENBERG The dentist set to work, tapping and probing, then put down his tools and delivered the news. His patient, Patricia Gannon, needed a partial denture. The cost: more than $5,700.
Ms. Gannon, 78, was staggered. She said she could not afford it. And her insurance would pay only a small portion. But she was barely out of the chair, her mouth still sore, when her dentist’s office held out a solution: a special line of credit to help cover her bill. Before she knew it, Ms. Gannon recalled, the office manager was taking down her financial details.
But what seemed like the perfect answer — seemed, in fact, like just what the doctor ordered — has turned into a quagmire. Her new loan ensured that the dentist, Dr. Dan A. Knellinger, would be paid in full upfront. But for Ms. Gannon, the price was steep: an annual interest rate of about 23 percent, with a 33 percent penalty rate kicking in if she missed a payment.
She said that Dr. Knellinger’s office subsequently suggested another form of financing, a medical credit card, to pay for more work. Now, her minimum monthly dental bill, roughly $214 all told, is eating up a third of her Social Security check. If she is late, she faces a penalty of about $50.
“I am worried that I will be paying for this until I die,” says Ms. Gannon, who lives in Dunedin, Fla. Dr. Knellinger, who works out of Palm Harbor, Fla., did not respond to requests for comment.
In dentists’ and doctors’ offices, hearing aid centers and pain clinics, American health care is forging a lucrative alliance with American finance. A growing number of health care professionals are urging patients to pay for treatment not covered by their insurance plans with credit cards and lines of credit that can be arranged quickly in the provider’s office. The cards and loans, which were first marketed about a decade ago for cosmetic surgery and other elective procedures, are now proliferating among older Americans, who often face large out-of-pocket expenses for basic care that is not covered by Medicare or private insurance.
The American Medical Association and the American Dental Association have no formal policy on the cards, but some practitioners refuse to use them, saying they threaten to exploit the traditional relationship between provider and patient. Doctors, dentists and others have a financial incentive to recommend the financing because it encourages patients to opt for procedures and products that they might otherwise forgo because they are not covered by insurance. It also ensures that providers are paid upfront — a fact that financial services companies promote in marketing material to providers.
One of the financing companies, iCare Financial of Atlanta, which offers financing plans through providers’ offices, asks providers on its Web site: “How much money are you losing everyday by not offering iCare to your patients?” Over the last three years, the company’s enrollment has grown 320 percent. Another company posted a video online that shows patients suddenly vanishing outside a medical office because they cannot afford treatment. The company offers a financing plan as a remedy, with the scene on the video shifting to a smiling doctor with dollar signs headed toward him.
A review by The New York Times of dozens of customer contracts for medical cards and lines of credit, as well as of hundreds of court filings in connection with civil lawsuits brought by state authorities and others, shows how perilous such financial arrangements can be for patients — and how advantageous they can be for health care providers.
Many of these cards initially charge no interest for a promotional period, typically six to 18 months, an attractive feature for people worried about whether they can afford care. But if the debt is not paid in full when that time is up, costly rates — usually 25 to 30 percent — kick in, the review by The Times found. If payments are late, patients face additional fees and, in most cases, their rates increase automatically. The higher rates are often retroactive, meaning that they are applied to patients’ original balances, rather than to the amount they still owe.
For patients, the financial consequences can be dire.
Ms. Gannon said she was happy with her dental care, despite the cost, and there was no suggestion that Dr. Knellinger had done anything wrong. But attorneys general in a several states have filed lawsuits claiming that other dentists and professionals have misled patients about the financial terms of the cards, employed high-pressure sales tactics, overcharged for treatments and billed for unauthorized work.
The New York attorney general’s office found that health care providers had pressured patients into getting credit cards from one company, CareCredit, a unit of General Electric, which gave some providers discounts based on the volume of transactions. Patients, the investigation found, were misled about the terms of the credit cards, and in some instances, duped into believing that they were agreeing to a payment plan with dental offices when, in fact, they were being pushed into high-cost credit.
In June, CareCredit reached a pact with Eric T. Schneiderman, the New York attorney general, to improve protections for consumers, and a spokeswoman said the company “does not incentivize providers to have patients open accounts” or give referral fees to providers.
In Ohio, the attorney general has sued the operators of several hearing aid clinics, claiming that they misled customers about using medical credit cards to pay for batteries and warranties.
Cameron P. Kmet, a chiropractor in Anchorage, Alaska, said he had stopped offering medical cards. “One missed payment can really ruin a patient’s life,” he said. Mr. Kmet now runs a company that administers payment plans directly between providers and patients, with annual interest rates around 8 percent.
Regarding medical credit cards, Mr. Kmet said he had urged providers to ask themselves “whether this is something that you would recommend to a family member or friend.” The answer, he said, is usually no.
While medical credit cards resemble other credit cards, there is a critical difference: they are usually marketed by caregivers to patients, often at vulnerable times, such as when those patients are in pain or when their providers have recommended care they cannot readily afford. In addition to G.E., large banks like Wells Fargo and Citibank, as well as several specialized financial services companies, offer credit through practitioners’ offices.
The growth of this form of consumer credit is difficult to quantify because data on medical credit cards specifically, as opposed to credit cards generally, is unavailable. But credit cards of all types are playing a growing role in financing medical care. In 2010, people in the United States charged about $45 billion in health care costs on credit cards, according to the consulting firm McKinsey & Company.
“When the economy got worse, our business got better,” said Katie Kessing, an iCare spokeswoman. 
In 2010, a little more than a thousand dentists offered the iCare finance plan — a program that requires patients to pay 30 percent down as well as a fee of 15 percent of the total procedure cost. The number of participating providers has since risen to 4,200. Russell A. Salton, the chief executive of Access One MedCard, a credit card company in Charlotte, N.C., said demand for specialized cards — the MedCard has an annual interest rate of 9.25 percent — is driven by providers interested in removing an “obstacle to providing valuable care.” The company says the number of hospitals offering its credit cards has grown about 25 percent a year in recent years.
While neither national medical or dental associations have formal policies, ADA Business Enterprises, a profit-making arm of the American Dental Association that connects dentists and businesses, endorses G.E.’s CareCredit, whose cards are used by more than seven million people nationwide.
“Cardholders tell us they like using CareCredit because it gives them the ability to plan, budget and pay for certain elective health care procedures over time,” said Cristy Williams, the spokeswoman for CareCredit. She said the company had improved consumer protections, going so far as to telephone “senior cardholders with significant first transactions to confirm their understanding of the program and terms.”
She said roughly 80 percent of patients who opted for the deferred interest paid off their debts before they were charged any interest. She and others in the industry said the credit cards and credit lines had helped patients afford otherwise prohibitively expensive care not paid for at all, or in its entirety, by insurance providers.
But state authorities and care advocates in California, Florida, Illinois, Michigan and elsewhere say that older people — many of them grappling with dwindling savings and mounting debt — are running into trouble with medical credit cards and loans.
“The cards prey on seniors’ trust,” said Lisa Landau, who heads the health care unit at the New York attorney general’s office.
Minnesota’s attorney general, Lori Swanson, is investigating the use of medical credit cards, which she said could come with “hidden tripwires and other perils.”
Interviews with patients, along with the review of contracts and lawsuits, show just how significant those perils can be.
Carl Dorsey, 74, recalled his experience at Aspen Dental Management, a nationwide chain that has come under scrutiny for its practices. Mr. Dorsey said that after a dentist at Aspen’s office in Seekonk, Mass., told him that he needed dentures, at a cost of $2,634, he was urged to take out a medical credit card. He was charged the full cost upfront, financial statements reviewed by The Times show. Mr. Dorsey, who made about $800 a month working as a used-car salesman, in addition to receiving Social Security, has since fallen behind on his payments. The lapse set off a penalty interest rate of nearly 30 percent. Mr. Dorsey said he was being pursued by debt collectors.
“This whole ordeal has been devastating,” said Mr. Dorsey, who along with other patients is part of a civil lawsuit filed against Aspen in a federal court in upstate New York. He said he still needed dentures, noting that the ones he received from Aspen were unusable.
Diane Koi-Thompson said that her father, Harold Koi-Than, did not realize that he had signed up for a CareCredit card during a dental visit. She said Mr. Koi-Than, 82, was shocked when a company representative called his home near Niagara Falls, N.Y., saying he had missed a payment. “My dad had no idea he had a credit card, let alone that he was behind on it,” Ms. Koi-Thompson said. She said her father was upset because he is normally meticulous with his finances and thought his memory was failing. Mr. Koi-Than, through a family member, was able to cancel the credit card.
The industry’s growth is being driven by people seeking dental care and devices like hearing aids, which are not covered by Medicare.
Dental care is a large and expensive gulf, according to Tricia Neuman, the director of Medicare policy research at the Kaiser Family Foundation. The new federal health care law, she said, will not change that. “Lack of dental coverage remains a huge concern and expense,” Ms. Neuman said.
Working with care providers, financial services companies have rushed to fill the void. To make medical cards attractive, some companies offer them without checking patients’ credit histories. The cards can be arranged in minutes, with no upfront charges. Such features are attractive selling points.
“Your patient does not require good credit,” First Health Funding of Salt Lake City, Utah says on its Web site. On the site of another lender, the words “No Credit Check” flash in bright letters. First Health Funding did not respond to requests for comment.
Lawyers and others who assist patients say such features make it easy for people who are already on a weak financial footing to take on new debt.
“Ultimately, this credit facilitates a bad financial decision that will haunt a patient because it adds to indebtedness,” said Ellen Cheek, who runs a legal help line for older people through Bay Area Legal Services in Tampa, Fla.
Such critics also say that because there are no industrywide standards for pricing care — costs vary from practice to practice — the cards could encourage providers to charge more for treatment.
Brian Cohen, the lawyer representing Mr. Dorsey, said the cards enabled providers to “bill whatever they want for care, regardless of whether the cost is reasonable.”
State authorities say health care finance in general, and medical credit cards in particular, are a growing worry. In 2010, Aspen Dental, the chain where Mr. Dorsey signed up for a card, reached a settlement with Pennsylvania authorities over claims that, among other things, it had failed to tell patients that missing a payment would mean the rate would rocket from zero to nearly 30 percent. A review of court records and online forums shows hundreds of customer complaints against Aspen, which is based in Syracuse. A civil case brought on behalf of customers is pending in a federal court in upstate New York.
Kasey Pickett, a spokeswoman for Aspen, which is fighting the lawsuit, said the accusations were “entirely without merit.”
Aspen provides mandatory training for office employees who discuss financing with patients, according to Ms. Pickett. “We know that for many patients,” she said, “the availability of third-party financing may be the only way that they are able to afford the care they need.”  Copyright 2013 The New York Times Company.  All rights reserved.

A bankruptcy trustee in Brooklyn is telling the U.S. Bankruptcy Court that there’s no value in going to Catholic school.
Robert L. Geltzer, a Chapter 7 bankruptcy trustee, filed suit against a local Catholic seeking a combined total of about $21,000 for what he seems to think as a valueless education.
His position calls into question the value of a Catholic school education as well as the right of a parent to decide what’s best for their children.
We’ve been watching the Brooklyn bankruptcy case of Geltzer v. Xaverian High School (Adversary Proceeding No. 1-13-01105-cec) for some time.  Now the New York Post has reported on the matter in a piece titled, Bankruptcy trustee targets Catholic schools.
What, I wonder, is Geltzer getting at? And more to the point, what is he saying about the place of a bankruptcy court to decide value of a private school education?

The Nature Of The Lawsuit
The people who had filed for bankruptcy were sending their son to Catholic school rather than opting for the free New York City Public School system.
The lawyer for Xaverian, in court papers filed seeking a dismissal of the lawsuit, indicates that the parents “sought out grants from Xaverian equaling nearly half of the tuition due, with the other half paid by the Debtors in monthly installments during the annual billing cycles.”
Under the U.S. Bankruptcy Code, the trustee can avoid (in other words, undo) any transfer of property (including money) that was made in the run-up to the bankruptcy filing under certain circumstances.
For the purposes of these lawsuits, Geltzer is able to avoid the payments made to the Catholic schools on the basis that they didn’t receive reasonably equivalent value for their money.
Interestingly enough, the only other time such a lawsuit has been filed was in the case of Geltzer v. St. Frances de Chantel School (In re Fitzpatrick), Adv. Pro. No. 11-2918 (Bankr. S.D.N.Y. Nov. 28, 2011) – which Geltzer later dismissed.
See also:

• Reasonably Equivalent Value Required To Avoid Fraudulent Transfer

Schools On The Defense
As you can imagine, this is an issue being watched closely by not only parents but also by private schools of all stripes.
If Judge Craig comes down on the side of the Chapter 7 trustee, schools could be forced to cough up large chunks of money for tuition paid up to 6 years ago. Even the most well-heeled institutions could find themselves in tight financial situations overnight.
More important, however, is the long-term effects of such a decision. If Geltzer wins the day, private schools of all stripes will need to begin running credit reports on parents to ensure that they aren’t at risk for filing for bankruptcy.
They’ll no longer worry solely about whether the tuition bill gets paid, but about the overall financial health of their students’ parents. Credit scores will factor into the decision of whether to admit a particular student.
Many of my own clients through the years have sent their children to Catholic schools to avoid exposing them to underperforming schools in their own neighborhoods.
In the event of a Geltzer win, those parents could be forced to sacrifice their childrens’ educational future in order to protect themselves from their creditors through bankruptcy.
Putting Faith In Parents
It’s important to note that it was the choice of the parents to put their son into Catholic school. They looked at their faith, the relative abilities of various schools to educate and care for their son, and acted accordingly.
I don’t see the bankruptcy court overturning that judgment, regardless of the parents’ financial problems. To do so would undoubtedly cast a shadow over the right of a parent to act in the best interests of a child.
The matter is under consideration by Judge Carla E. Craig, and I’ll report back once a decision is issued.
Click here for a copy of the Complaint filed against Xaverian.