Bankruptcy Mediation FAQ
Answers to Frequently
Asked Questions, by Larry Folks
Bankruptcy mediation is a highly successful negotiation process facilitated by a
neutral third-party mediator who assists the parties to resolve their dispute.
Mediation is available in Arizona and all other jurisdictions.
1. When is
bankruptcy mediation available?
Bankruptcy mediation is available at any
point during a commercial bankruptcy or
consumer bankruptcy proceeding when the parties and their legal counsel
agree to participate in the mediation process.
2. What types of
bankruptcy disputes are typically mediated?
Disputes asserted by Chapter 7 trustees
and parties in adversary proceedings concerning preference, avoidance, non-dischargeability,
fraudulent conveyance and claims allowance actions are frequently mediated.
Bankruptcy mediation is also useful
for resolving multi-party disputes and discrete issues in all types of contested
matters such as valuation, interest rate and state law specific disputes.
3. What are the
primary benefits of bankruptcy mediation?
The parties control the outcome of their
dispute through a voluntary, immediate, confidential and cost-effective process.
In addition, the parties select a resolution that can be creative, flexible and
actually complied with instead of being subject to a “winner takes all” court
4. How do I select
a qualified bankruptcy mediator?
The United States Bankruptcy Court of
the District of Arizona (the “Bankruptcy Court”) appoints attorneys and
bankruptcy trustees who demonstrate significant bankruptcy expertise and
mediation training to serve as both uncompensated and compensated bankruptcy
mediators (the “Panel Mediators”). There are also many well qualified mediators
who may be located from sources including, without limitation, the Alternative
Dispute Resolution Section of the State Bar of Arizona.
The names and contact information of
the Panel Mediators (compensated and uncompensated) are available for review at
the Bankruptcy Court’s website.
5. What rules
govern a bankruptcy mediation?
Bankruptcy Rules 9072-1 through 9072-9 govern the appointment of Panel
Mediators and the procedures for scheduling and conducting a bankruptcy
6. How much does a
bankruptcy mediation typically cost?
Local Bankruptcy Rule
9072-7(e) provides that the parties shall share equally all fees and
expenses of a bankruptcy mediation unless the parties agree otherwise.
Counsel for the parties must submit a
Confidential Mediation Position Statement, in the form required by Local
9072-8(c), to the mediator in advance of the mediation and, of course,
participate in the mediation with the client. That cost varies depending upon
the complexity of the case.
Additionally, Local Bankruptcy Rule
provides that, unless otherwise ordered by the Bankruptcy Court, assignment of a
matter to mediation does not delay or stay discovery, pre-trial hearing dates or
trial schedules. As such, any fees and costs incurred by the parties to
compensate their legal counsel and the mediator are an additional litigation
expense. Comparatively speaking, however, any fees and costs incurred by the
parties to participate in the mediation process are well spent if the process
results in either: (i) an immediate resolution of the dispute; or alternatively;
or (ii) the parties having an improved understanding of their respective
positions and the issues to be resolved through subsequent settlement
negotiation or litigation.
Bankruptcy mediators typically charge
their standard hourly rate for an attorney, or other professional, of their
level of experience to prepare for and conduct a mediation. Most bankruptcy
mediations last an entire day. The parties may, however, agree to limit the
mediation to one-half day to minimize the expense of the mediation process.
Unless the mediator’s fees are to be
paid from assets of the bankruptcy estate, a fee application does not have to be
submitted to the Bankruptcy Court to pay the mediator’s fees and costs.
7. What steps are
required to schedule a bankruptcy mediation?
The parties must:
select a mutually acceptable
mediator who satisfies the qualification requirements of the Bankruptcy
contact the mediator to verify that
the mediator is available when required and has no conflicts of interest to
preclude the mediator from conducting the mediation; and
file an Application For Appointment
of Mediator and Verified Statement of Mediator and lodge a form of Order
Appointing Mediator with the Bankruptcy Court. Templates of said pleadings
are available in Word format at the same website location listed above.
appointment by the Bankruptcy Court, the mediator will arrange a conference call
with counsel for the parties, or take other steps, to assist the parties to
select a date, time and location for the mediation that must be attended, in
person, by a representative of each party with authority to resolve the dispute
and their legal counsel.
8. Is the
information disclosed during a bankruptcy mediation confidential?
Absolutely. The combination of Local
9072-8(f), Bankruptcy Rule 9017, Federal Rule of Civil Procedure 408 and
A.R.S. §12-2238 preclude all oral, or written, information revealed during a
bankruptcy mediation from being disclosed outside the mediation or used as
evidence in any manner in the related bankruptcy proceeding. In addition, the
bankruptcy mediator may not be called as a witness in the bankruptcy proceeding.
9. What is
required if the bankruptcy mediation results in a resolution of the dispute?
It is imperative that a
successful mediation result in a binding settlement term sheet signed by the
parties and their legal counsel on the day of the mediation. The mediator is
responsible for preparing the term sheet.
9072-9(a) provides that the mediator is authorized to designate a party to
prepare and file the pleadings to seek Bankruptcy Court approval of the terms of
the settlement agreed upon at the mediation. Bankruptcy Rules 2002 and 9019
apply for approval of the settlement by the Bankruptcy Court. Most counsel file
a Motion For Approval Of Settlement And Compromise which appends the signed term
sheet from the day of the mediation and send out a 20-day negative notice which
summarizes the terms of the settlement. If no party-in-interest objects, a
certification of service and no objection and form of order approving the
settlement are lodged with the Bankruptcy Court.