According to the 2011 Census, the average American will relocate 11.7 times during a lifetime. In many cases a person will move to another state and file bankruptcy as part of a fresh start. A federal statute, 28 USC 1408(1), specifies the proper venue where a bankruptcy case may be filed. This statute states that a bankruptcy case may be filed
in which the domicile, residence, principal place of business in the United States, or principal assets in the United States, of the person or entity that is the subject of the case have been located for the one hundred eighty days immediately preceding such commencement, or for a longer portion of such one-hundred-and-eighty-day period than in any other district.
In most situations the choice of venue is obvious. The debtor will file the case in the judicial district where he or she has resided for the past three months.
Venue is generally considered proper unless a party objects. If venue is found to be improper, the case may be transferred to the proper venue or dismissed. In rare situations a case could be transferred to another venue for the convenience of the parties to the proceeding or if the interests of justice are served by moving the case.
Recently publishing giant Houghton Mifflin Harcourt Publishing Company filed a pre-packaged bankruptcy case in which it proposed a plan of reorganization. This plan had the unanimous consent and approval of its creditors. However, after the case was filed in the Southern District of New York, the bankruptcy trustee assigned to the case objected to improper venue. The bankruptcy court judge publicly criticized the trustee’s objection, but was obligated to examine the propriety of venue because of the objection.
The bankruptcy court identified two issues: first, the court recognized that “a transfer would be destructive to creditor interests, to the great expense and inconvenience of the parties (especially creditors), and the exact opposite of the interests of justice.” On the other hand, the court determined that it was bound by sections 1406 and 1408 to transfer the case to another jurisdiction.
As a solution, the court chose to confirm the plan of reorganization while the Trustee’s objection was still pending. Second, although federal law required transfer of the case, the law does not specify when the court must order such a transfer. As a means to avoid prejudice to the debtor and creditors, the court chose not to transfer the case until either after the effective date of the plan or three weeks from the date of entry of the confirmation order. Essentially, the court ensured that the Houghton Mifflin debtors would be out of bankruptcy before the case was transferred out of the Southern District of New York.
While venue objections are very rare, improper venue can cause expense and delay to your bankruptcy case. If you have recently moved, discuss your situation with an experienced bankruptcy attorney. Your attorney can advise you as to proper venue and the necessary steps to avoid complications in your case.