Recent Bankruptcy Cases from around the Circuits: Jan - March 2013.

NACBA is the national Association of Consumer Bankruptcy Attorneys, for which I am a member.  They provide “Cases in Review”, which  highlights recent cases that may be of particular  interest to consumer bankruptcy practitioners.  It is brought to you by Consumer Bankruptcy Abstracts & Research (www.cbar.pro) and the National Consumer Bankruptcy Rights Center (www.ncbrc.org).

Settlement proceeds are not included as part of plan funding as they are not part of the projected disposable income:

Connor v. Carroll, --- Fed. Appx. ----, 2013 WL 150150 (6th Cir. Jan. 15, 2013).

Chapter 13—Confirmation of plan—Calculation of projected disposable income: The proceeds of the settlement of a prepetition personal injury claim, received post-petition by the Chapter 13 debtors, did not constitute projected disposable income of the debtors as the proceeds were not known or virtually certain at the time of confirmation of their plan. Accordingly, the debtors did not have to remit the proceeds to the Chapter 13 trustee for distribution to unsecured creditors.  

Paying tax sale purchaser’s claim:

In re Romious, --- B.R. ----, 2013 WL 221432 (Bankr. N.D. Ill. Jan. 18, 2013). Chapter 13—Confirmation of plan—Treatment of secured claims—Propriety of inclusion in plan: A Chapter 13 plan may modify a tax sale purchaser’s secured claim by paying it in installments over the term of the plan, so long as the redemption period has not expired prior to the debtor’s bankruptcy filing.

Contract rights come within the purview of the anti-discrimination statute, applying here to IRS OIC:

In re Mead, 2013 WL 64758 (Bankr. E.D. N.C. Jan. 4, 2013).

Discrimination against debtor: In a case that appears to be the first of its kind, the bankruptcy court held that an interpretation of the Chapter 13 debtors’ offer in compromise, which the IRS had accepted prepetition, as voiding the offer in compromise upon the debtors’ bankruptcy filing would constitute discrimination against the debtors in violation of Code § 525(a). Although abrogation of contract

rights is not explicitly listed in the prohibited discriminatory acts mentioned in § 525(a), the legislative history of the section makes it clear that the list is not meant to be exhaustive, and the court concluded that contract rights clearly come within the purview of § 525(a). Accordingly, the court would interpret the offer in compromise in a manner not violating § 525(a); under this interpretation, the offer in compromise remained in effect, and the IRS could file a proof of claim only for the amount due under the agreement, as well as for amounts due for tax years not covered by the offer in compromise.

State did not discriminate as “employment” did not apply regarding interim appointment to position otherwise elected:

Chasensky v. Walker, 2013 WL 160273 (E.D. Wis. Jan. 14, 2013).

Discrimination against debtor: In an action in which a debtor in a pending bankruptcy case claimed that the governor of Wisconsin violated Code § 525(a) by failing to appoint her to an interim position of county register of deeds after he discovered that she had filed a bankruptcy petition, the court held that the word “employment” in Code § 525(a) does not encompass an interim appointment by a state governor to an otherwise elected position.  Accordingly, the court granted the United States’ motion for a rehearing of the decision in Chasensky v. Walker, 2012 WL 1287659 (E.D. Wis. April 16, 2012), which held that the states had not waived their sovereign immunity as to the appointment powers of a state's duly-elected governor. Applying the doctrine of constitutional avoidance, the court instead decided the

viability of the debtor’s claim as a matter of statutory interpretation .

“house hold” = “economic unit”:

In re Reinsch, 2013 WL 256734 (Bankr. D. Neb. Jan. 23, 2013).

Means test—Household size: Agreeing with In re Robinson, 449 B.R. 473 (Bankr. E.D. Va. 2011), the court said that the term “household” as used in Code § 1325(b) includes the debtor and the persons who operate in the aggregate with the debtor as an “economic unit.” Thus, here, the above-median Chapter 13 debtor could calculate her expenses under the means test by using a household size of three, rather than two, even though this included the debtor’s oldest child, a 20–year–old full-time college

student attending a school out of state. The debtor testified that her daughter returned home during school breaks and on some weekends and that the debtor provided substantial financial support to her, including college expenses, food, clothing, car insurance, and cellular phone. It seemed clear that the oldest daughter was, at this time, a part of the household economic unit.

Nonfiling spouse’s social security benefits not included in debtor’s current monthly income:

In re Scott, 2013 WL 140461 (Bankr. M.D. Ga. Jan. 11, 2013). Contribution by nondebtor: In one of the few decisions to explicitly address this issue, the court found In re Miller, 445 B.R. 504 (Bankr. D. S.C. 2011) more persuasive than In re Olguin, 429 B.R. 346 (Bankr. D. Colo. 2010) and held that Social Security benefits received by a person other than the debtor, such as the debtor’s nonfiling spouse, are not included in the debtor’s current monthly income defined in Code § 101(10A) even where the person’s other income is included in the debtor’s current monthly income under § 101(10A)(B) as paid “on a regular basis for the household expenses of the debtor or the debtor's dependents.” Accordingly, in a Chapter 13 case these Social Security benefits are not included in the debtor’s “projected disposable income.”

Means Test: Distinguishing between joint and individual expenses for the nonfiling spouse in current monthly income:

 In re Toxvard, --- B.R. ----, 2013 WL 122508 (Bankr. D. Colo. Jan. 9, 2013). Contributions on a regular basis by a nondebtor are included in a debtor’s “current monthly income” under Code § 101(10A)(B) only where the contribution is for (1) “household expenses,” (2) “of the debtor or the debtor's dependents.”  Here, all of the expenses paid by the debtor’s nonfiling husband were “household expenses,” so that the determinative issue was whether each expense was an expense “of the debtor” (there being no dependents in the household). Accordingly, if a household expense was the debtor's sole expense, then the debtor needed to include her husband’s entire payment of the expense in the calculation of her current monthly income. If a household expense was the husband’s sole expense, then the debtor could deduct the entire expense from her calculation. If a household expense was a joint obligation, then the debtor needed to include the husband’s payment of the expense in her calculation, but only to the extent the husband’s payment satisfied the debtor's share of the obligation. Absent evidence to the contrary, this amount would be 50 percent of the total expense.

Kansas state exemption on earned income credits does not violate the Uniformity Clause:

 In re Westby, --- B.R. ----, 2013 WL 415599 (B.A.P. 10th Cir. Feb. 4, 2013).

Affirming In re Westby, 473 B.R. 392 (Bankr. D. Kan. April 4, 2012), the Bankruptcy Appellate Panel held that a new Kansas statute, Kan. Stat. Ann. § 60-2315, that permits a debtor in bankruptcy, but not a general debtor, to exempt the right to receive a federal and state earned income tax credit does not violate either the Uniformity Cause, or the Supremacy Clause, of the U.S. Constitution. The BAP said that it agreed with the bankruptcy court’s detailed analysis and reasoning and found it unnecessary to duplicate that court’s extensive efforts. The BAP also noted that, subsequent to the bankruptcy court’s decision, the Sixth Circuit Court of Appeals, in In re Shafer, 689 F.3d 601 (6th Cir. 2012), upheld the constitutionality of a Michigan bankruptcy-only homestead exemption statute.

Wells Fargo class certification for signing affidavits without personal knlwedge or failing to be notarized in the presence of the notary:

 In re Brannan, --- B.R. ----, 2013 WL 85158 (Bankr. S.D. Ala. Jan. 8, 2013).

Although the court in its earlier opinion, In re Brannan, 2011 WL 5331601 (Bankr. S.D. Ala. Nov. 7, 2011), declined to certify a class in a proposed class action, the court concluded that the plaintiffs had now demonstrated that the prerequisites for the certification of two classes in a proposed class action were satisfied. The class action asserts that Wells Fargo committed fraud on the court through its practices in generating affidavits filed in connection with motions for relief from stay. Specifically, the action asserts that (1) persons signing affidavits did not, in fact, possess personal knowledge of the facts stated in the affidavits, as the affidavits represented; and (2) the person signing the affidavits did not actually sign them in the presence of a notary public, as represented in the affidavits. These allegations, if established, warranted relief, the court concluded, both under Code § 105(a) and under the court’s inherent authority to punish contempt of the court.

Can’t force secured creditor to foreclose, thus no discharge violation:

 In re Canning, --- F.3d ---, 2013 WL 388060 (1st Cir. Feb. 1, 2013).

The refusal by the Chapter 7 debtors’ mortgage creditor to accede to the debtors’ demand that the creditor either foreclose the mortgage on their residence, which the debtors had surrendered and vacated, or release its lien on the property did not violate the discharge injunction. Distinguishing In re Pratt, 462 F.3d 14 (1st Cir. 2006), in which the court held that a secured creditor's refusal to foreclose or release its lien on an inoperable, worthless car was intended to objectively coerce the debtor into paying a discharged debt, the court observed that the creditor offered to release its lien through either a settlement offer or a short sale, which indicated the intent to collect no more than the value secured by the underlying lien, as well as a willingness to negotiate a palatable solution for all involved.