The US Supreme Court dismisses cases brought before it on the basis that the party appealing the matter lacks “standing” to make an argument.
This question of “standing” is can be relevant in a Michigan Chapter 7 or Chapter 13 bankruptcy case as well. (In fact, it is relevant in any legal dispute in any courtroom anywhere in the United States.)
What is standing, and when is it a problem for you in your own Chapter 7 or Chapter 13 bankruptcy case?
Legal Standing: An Explanation
Defining standing—itself a bit of legal jargon—requires the use of more legal jargon.
“Standing” is the legal capacity of a party to bring a claim or lawsuit in a court of law.
What is required for a party’s standing will differ from court to court. The rules of standing for, say, Michigan district courts are different than those for the US Supreme Court, or other Federal courts.
The basic idea behind standing is that you can’t just file a lawsuit against a party or against a governmental unit just because you’re unhappy or don’t agree with something that party does, or a law or regulation imposed by that governmental unit.
You have to be personally affected by that action or rule in some way, personally.
This is why big class action lawsuits cannot proceed if they don’t have a few “named class members,” or actual, named parties (humans or corporations, depending) that are personally aggrieved.
The requirement for legal standing is why interest groups such as the ACLU or litigious religious organizations cannot just sue because they believe that a law violates the US Constitution. They must find someone who is injured by that law to actually stand as plaintiff in the lawsuit that they file.
In State of Michigan district and civil courts, standing is required by Rule 2.201(B) of the Michigan Court Rules (MCR).
MCR 2.201(B) states that an action (in court) must be prosecuted by someone who is a “Real Party in Interest.”
The Michigan Supreme Court has defined “real party in interest” in this way: “A real party in interest is one who is vested with the right of action on a given claim, although the beneficial interest may be in another.” Miller v Chapman Contracting, 477 Mich 102, 106 (2007).
We will not dive into the weeds of analyzing the legal tests regarding the meaning of “vested with a right of action” and “beneficial interest,” etcetera, here.
The point is that there is a requirement that you have an interest in a claim, and Michigan courts are empowered to determine whether or not you really do.
In Federal courts, the Constitutional requirement that a party have standing to bring suit has been boiled down to a 3-part test by the US Supreme Court.
The so-called Lujan Test requires analysis of 3 factors in determining whether a party has standing:
- You must have suffered an “injury-in-fact.” (That is, the harm allegedly suffered must be one that is legally protected and which is both “concrete” and “particularized” and that it is “actual” or “imminent” and not vague and hypothetical.)
- You must be able to establish a causal connection between the action or law or regulation perpetrated by the other party and your injury-in-fact.
- You must be able to establish that a favorable decision by the court in which you are bringing suit will actually remedy this injury-in-fact.
Standing in Federal Bankruptcy Court
Bankruptcy Courts are Federal courts and subject to the decisions of the Federal Courts of Appeal in the Circuits in which they sit and subject, of course, to the decisions of the US Supreme Court.
However, Bankruptcy Courts also have their own body of Statutory authority, procedural rules, local court rules, and local bankruptcy court decisions which further define standing in the bankruptcy context.
While the Bankruptcy Court filters the question of standing through its own authoritative precedents, the test here is essentially the same as the Lujan test established by the US Supreme Court.
To have standing in a bankruptcy case, you must, in particular, have a pecuniary interest in the outcome of the proceeding.
That is, given that the bankruptcy process is one involving disputes related to debts and assets, essentially, you must have a personal, financial stake in the outcome of the dispute.
For example, you cannot, in all instances in your bankruptcy process, object to the claim of creditor even if you are the debtor owing that creditor money. (More on this below!)
When you file bankruptcy, the question of whether you yourself have a pecuniary interest in every possible point of dispute in the case will vary greatly depending on whether you have filed a Chapter 7 or a Chapter 13 bankruptcy.
Debtor Standing in Michigan Chapter 7 Bankruptcy Cases
In a Chapter 7 bankruptcy, you, as Debtor, are seeking the entry of a Bankruptcy Court Order discharging in full all of the debt that you owe that is dischargeable under law. (Some, like child support obligations are not dischargeable.)
You pay nothing to your (dischargeable) creditors in a Chapter 7 bankruptcy. Instead, if you own property that is worth more than can be protected (or “exempted”), that property is seized by the Chapter 7 Trustee assigned to the case, liquidated to cash, and then that resulting cash pool is distributed by the Trustee to your creditors.
To be paid any of that money retrieved by a Chapter 7 Trustee, the creditor must file something called a “proof of claim” form in the case. This form says, “I am owed X amount by this Debtor for this reason.” The creditor is required to attached documentation evidencing the amount and basis of that debt to various degrees.
It is procedurally possible to file an objection to a proof of claim filed by a creditor and to then have your Bankruptcy Court Judge rule on the issue.
However, do you, as debtor, have standing to file such an objection in a Chapter 7?
Generally, you do not.
Because you do not repay any of the debt that you owe in a Chapter 7 and because you do not, in most cases, tend to receive money from your Chapter 7 bankruptcy, you lack a pecuniary interest in the amount or veracity of a creditor’s filed proof of claim.
Only the Chapter 7 Trustee has standing to object to a proof of claim in this form of bankruptcy (and they rarely do).
You would, however, arguably have standing to object if the pool of money generated by the Chapter 7 Trustee’s property liquidation was so large that it was sufficient to pay all of your (claimed) debts in full, all of the Trustee’s fees, all of the Trustee’s hired professionals’ fees (attorneys, realtors, etc.), and then still result in a remaining balance.
In this case, any such surplus is refunded to the debtor who filed the bankruptcy case. You would then have a pecuniary interest in, for example, a fraudulent or incorrect proof of claim.
You also, in a Chapter 7, will almost never have standing to object to your Chapter 7 Trustee’s choice realtor or other professional to be retained for purposes of liquidating your non-exempt assets.
You would not have standing, in most cases, to object to the Trustee’s negotiation of a sale price for the sale of non-exempt assets—unless the sale price was such a low-ball amount that a court order requiring a higher sale amount would result in a surplus to be paid to you, after all creditors and other parties are paid.
In a Chapter 7 bankruptcy, you would potentially have standing to engage in other litigation within the bankruptcy unrelated to creditors’ claims.
A key example is your right to file a suit within your Chapter 7 known as an Adversary Proceeding seeking to have a debt that might be considered non-dischargeable declared by your judge to actually be dischargeable.
This is the required for any discharge of student loan debt, in fact. You will always have standing to object to the non-dischargeability of a debt.
Debtor Standing in Michigan Chapter 13 Bankruptcy Cases
All of this is different in a Chapter 13 bankruptcy.
In a Chapter 13 bankruptcy, you do repay at least some of the debt that you owe to your creditors, even the dischargeable ones.
A Chapter 13 bankruptcy is a reorganization, or “payment plan,” bankruptcy in which you repay some of your debt over a period of 3-5 years in exchange for the discharge of whatever debt remains unpaid at the end of that period of time.
You might pay all of it back, or you might pay a few pennies of it back. It all depends upon your income, your expenses, and what you can afford to send each month during that 3-5-year period to the Chapter 13 Trustee assigned to your case.
Either way, the Chapter 13 Trustee’s job is to take your monthly Chapter 13 Plan payment and distribute it to your creditors (and your bankruptcy lawyer) in the amount and in the order mandated by the Chapter 13 Plan that you file with the Bankruptcy Court.
Assets are not seized and liquidated.
No creditor who fails to file a proof of claim in a Chapter 13 bankruptcy proceeding is paid anything at all by the Chapter 13 Trustee.
You do have standing to object to proofs of claims in a Chapter 13. (In fact, if your bankruptcy lawyer is not actively scrutinizing each and every proof of claim filed in your case, both opportunities and legal duties are being missed.)
This is because, in a Chapter 13, you do directly repay your creditors (albeit via the Chapter 13 Trustee). It also because the proofs of claim filed by creditors directly affect your ability to make a monthly Plan payment meeting your own payment obligations within the process.
Likewise, in a Chapter 13 bankruptcy, you maintain the standing to object to the non-dischargeability of debts and other points of possible litigation described above.
Standing in Michigan Bankruptcy: The Bottom Line
The bottom line regarding your standing to engage in litigation in your own Michigan bankruptcy case is that it is limited.
You file bankruptcy in Michigan in order to escape debt and not to generate a profit. This means that, as a debtor in bankruptcy, you will almost never be a real party in interest with an actual or imminent pecuniary stake in the proceedings.
However, limits have limits.
Unless you retain an experienced Detroit bankruptcy lawyer to represent you in your Chapter 7 or Chapter 13 proceeding, you will never know when your creditors and your Trustee have stepped over the line.
If you are considering filing for Chapter 7 or Chapter 13 bankruptcy in Metro Detroit, contact Attorney Walter Metzen to schedule your free initial consultation.