Bankruptcy - Creditor

[INSIDE]

What is the name of your state? Colorado

I am seeking Guidance....I was employed by company that filed Chapter 11, I rec’d severance pay 90 day prior to the debtor filing for Bankruptcy. Now the Trustee is trying to recover the transfers made to me. They claiming the amount paid is “Preferential Transfers” or “Fraudulent Transfers” according to in Section 547 / Section 548 of Bankruptcy Code. The reason for my separation was laid off, due to reorganization and I was not aware that they were filing Bankruptcy. In cooperation with the separation from employment, I signed the agreement; the company gave me the wages in exchange. I have continued to comply with all parts agreed upon. Hope you can help with some of my question?

1) If the Agreement is between the Company and me (Employee). Does the Trustee also have to abide by the term and condition of Severance Agreement?

2) Beside Severance Agreement, what defense is applicable for avoidance?
3) What are my rights as creditor?
4) What is the Court Cost to me if the case goes to Trial?
5) Does Section 547 or Section 548 of Bankruptcy Codes applies to my case?

Thank you for your time.

 

[AttorneyOney]

I'm surprised that there is a trustee in a ch. 11 case -- normally, the debtor continues to operate its own business. It has the powers of a trustee, too.

If there is a trustee, be aware that bankruptcy trustees are chosen from amongst attorneys with a great deal of bankruptcy experience, so you can assume that the trustee is within his rights to seek repayment. Don't read too much into the phrase "fraudlent transfer", however. There is no implication of falsehood in that phrase. There are certainly defenses to an avoidance action by the trustee, but they're based on bankruptcy law (rather than your contract), are extremely technical and fact intensive, and difficult for a pro-se litigant to assert.

If there is in fact no trustee in this case, you shouldn't assume that the debtor's attorney knows what he's doing. Hire your own attorney to oppose the debtor's avoidance action.

You may want to read section 507(a)(3)(A) (see http://www4.law.cornell.edu/uscode/11/507.html), which grants third priority for wages and salaries, including severance pay, up to $4,925 and received within 90 days of the bankruptcy filing. One has to file a proof of claim, which costs nothing at all if you do it yourself. You can download the official from from the court's web site (home page http://www.cob.uscourts.gov/bindex.htm). According to section 1129(a)(8)(B), the debtor's plan of reorganization must pay the entire amount of an allowed claim in this class, either all at once or over time (with interest to account for the delay).

Any wage claim above $4,925 is treated as a general unsecured claim, as to which the ch. 11 can (and probably will) provide less favorable treatment.

The reorganization plan may also provide for treatment of severance agreements like yours. If those promises are sufficiently valuable that the company decides to affirm the agreement, section 365(a) basically requires the company to cure defaults first. But read this yourself and form your own conclusions, because it would be incorrect for me to give you a firm opinion about how it applies to your case.