Sunday, January 13, 2013

Around the Circuits Regarding Recent Bankruptcy Cases.

“Cases in Review” highlights recent cases that may be of particular interest to consumer bankruptcy practitioners.  It is brought to you by  Consumer Bankruptcy Abstracts & Research ( and  the National Consumer Bankruptcy Rights Center (  

Attorney-client privilege: 
Issuing an opinion “in order to clarify the scope of the attorney-client privilege and the work-product doctrine regarding handwritten notes and comments made by debtors and their counsel on documents used to facilitate the filing of the petition, the Schedules and the statement of financial affairs (SOFA),” the Bankruptcy Court for the Southern District of Texas held that (1) a questionnaire
created by the debtors' counsel was protected both as an attorney-client communication and under the attorney work-product privilege; (2) a copy of the debtors’ original Schedule F containing their handwritten notes and comments was not protected by the attorney-client privilege; and (3) a copy of the debtors’ original Schedule F containing comments by the debtors' counsel was protected as attorney
work-product. In re McDowell, --- B.R. ----, 2012 WL 5837587 (Bankr. S.D. Tex. Nov.16, 2012).

Authority of court—Imposition of sanctions:
 Debtors’ counsel were sanctioned or disciplined in a number of cases. In In re Chang, 2012 WL 6019310 (D. Md. Nov. 26, 2012), a disciplinary panel recommended that an attorney be suspended from practice before the court for one year for her failure to supervise a former employee who altered credit counseling certificates that were filed in 11 cases in Maryland, as well as in other cases in Virginia and the District of Columbia. The employee, the court said,
“brought few, if any qualifications, to the position other than being a former Toyota car salesman.” In Schaffner v. U.S. Trustee, 2012 WL 5988804 (E.D. Ky. Nov. 29, 2012), the district court affirmed the permanent disbarment of a bankruptcy attorney who hired “a former client and convicted felon” who professed to have experience in bankruptcy matters. The employee began defrauding clients by accepting fees for their bankruptcy filings and pocketing the money; later, he absconded with a computer      
containing the bulk of the clients' information, including sensitive information such as Social Security numbers and birth dates. 

And in In re Maldonado, --- B.R. ----, 2012 WL 5516408 (Bankr. N.D. Ill. Nov. 13, 2012), the court held that an actual conflict of interest existed between a Chapter 13 debtor and the attorney who had represented the debtor in three prior Chapter 13 cases, and who was now representing him in the
debtor’s fourth bankruptcy case, where the debtor still owed the attorney a fee for his representation in one of the prior cases.

Chapter 13—Fee-only plans: Following the approach taken in In re Puffer, 674 F.3d 78 (1st Cir. 2012), the Bankruptcy Court for the Southern District of Indiana ruled that, while not all “fee only” Chapter 13 plans are per se filed in bad faith, the debtor has the “heavy burden” of demonstrating “special circumstances” to justify such a plan, and here the debtor failed to meet that burden. In re Platt, 2012 WL 5842899 (Bankr. S.D. Ind. Nov. 19, 2012).

Chapter 13—Projected disposable income: Reversing In re Scholz, 447 B.R. 887 (9th Cir. B.A.P. March 22, 2011), the Ninth Circuit Court of Appeals held that a Chapter 13 debtor’s benefits under the Railroad Retirement Act of 1974 (45 U.S.C. § 231 et seq.) are included in the calculation of the debtor’s projected disposable income. In re Scholz, 699 F.3d 1167 (9th Cir. Nov. 15, 2012).

Chapter 13—Projected disposable income:
 Agreeing with other courts on this issue, the Bankruptcy Court for the Middle District of Georgia held that a Chapter 13 plan satisfies Code § 1325(b) if unsecured claims will be paid in full, even if the claims could be paid in a shorter period of time if the debtor paid his full monthly disposable income in each plan payment. In re Ellis, 2012 WL 5865906 (Bankr. M.D. Ga. Nov.
16, 2012).

Chapter 13—Stripping lien
—By debtor ineligible for discharge: Three courts held that a Chapter 13 debtor may strip a lien unsupported by value in the collateral even where the debtor is not eligible for a discharge. See In re Dolcemascolo, Case No. 7:12-cv-1300 (S.D. N.Y. Nov. 7, 2012); In re Little, Case No. 4:11-bk-73376 (Bankr. N.D. Cal. Nov. 29, 2012) (Bankruptcy Judge William J. Lafferty, III); and In re Elahi, 2012 WL 5305242 (Bankr. N.D. Cal. Oct. 25, 2012) (Bankruptcy Judge M. Elaine
Hammond). One court, however, embraced reasoning that would preclude a lien strip by a debtor ineligible for a discharge, although the case involved a different issue. See In re Stott, 2012 WL 5505065 (Bankr. D. Utah Nov. 13, 2012) (Bankruptcy Judge Joel T. Marker).

Chapter 13—Stripping lien
—On basis of unsecured proof of claim: Where a secured creditor filed a proof of claim for an unsecured debt, the District Court for the Western District of Virginia, reversing the bankruptcy court, held that the Chapter 13 debtor could void the creditor’s lien under Code § 506(d). White v. FIA Card Services, N.A., 2012 WL 5426830 (W.D. Va. Nov. 7, 2012).

Dischargeability of debts—Tax debt—Meaning of “return”:
 Rejecting In re McCoy, 666 F.3d 924 (5th Cir. 2012), the Bankruptcy Court for the District of Colorado held that the untimeliness of an income tax return does not, in itself, render the document not a “return” for the purpose of Code § 523(a)(1). Instead, the court turned to the pre-BAPCPA Beard test and concluded, under the facts of the case, that
the debtor’s federal income tax returns for 2000 and 2001 each constituted a “return” under § 523(a)(1) even though the debtor filed the returns after the IRS had assessed the debtor’s tax liability for the corresponding year. In re Martin, --- B.R. ----, 2012 WL 5554611 (Bankr. D. Colo. Nov. 14, 2012).

Violation of automatic stay:
 Where an unsecured creditor of the Chapter 7 debtor called her nearly twice a day after she filed her bankruptcy petition, continuing through the morning of the hearing on the debtor’s motion for sanctions for violation of the automatic stay, the Bankruptcy Court for the Northern District of Illinois awarded the debtor $15,000 in punitive damages while stating that the court would
consider adding $500 per day that the harassment continued. In re Galutan, Case No.1:12-bk-31837 (Bankr. N.D. Ill. Nov. 16, 2012).

Violation of discharge injunction: Where the Chapter 7 debtor’s mortgage lender willfully violated the discharge injunction by continuing to call the debtor in an attempt to persuade her to enter into a loan modification as an alternative to foreclosure, and to thereby reinstate some or all of the discharged debt, the
Bankruptcy Court for the District of Oregon awarded the debtor $4,000 in emotional distress damages as well as reasonable attorney’s fees. In re Culpepper, 481 B.R. 650 (Bankr. D. Or. Nov. 5, 2012).

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