Wednesday, November 27, 2013

Case Law News from NACBA and their important work through Amicus Briefs in Consumer Bankruptcy Cases

Amicus Project Update
November, 2013

Inherited IRA's to be decided:
Cert. Granted
The Supreme Court has granted certiorari in the case of Clark v. Rameker (In re Clark), No. 13-299. In that case, the Seventh Circuit created a split in the circuits when it held that a debtor may not exempt her inherited IRA in bankruptcy. In re Clark, No. 12-1241 & 12-1255 (April 23, 2013). The Fifth Circuit had reached the opposite conclusion in Chilton v. Moser, 674 F.3d 486 (5th Cir. 2012). NCBRC will file an amicus brief on behalf of the NACBA membership in this important case.

Fees upon frivolous appeal sought:
Debtor Moves for Fees on Frivolous Appeal. The debtor in In re Murray, No. 13-34 (B.A.P. 10th Cir.), has moved for fees and costs against the trustee for filing a frivolous appeal. The case involves the question of the constitutionality of Kansas’s bankruptcy specific exemption—an issue upon which the trustee has consistently lost in the bankruptcy court, In re Westby, 473 B.R. 392 (Bankr. D. Kan. 2012), the district court, In re Lea, 2013 W.L. 4431267 (D. Kan. 2013), and the BAP, In re Westby, 486 B.R. 509 (B.A.P. 10th Cir. 2013).Although the trustee filed an appeal of the Westby case to the Tenth Circuit, she later dismissed it, Williamson v. Westby (In re Westby), Case No. 13-3044 (10th Cir. 3/29/13), and, instead, sought another bite at the apple in the BAP with Murray. The trustee’s likelihood of success at the circuit level was further diminished when the Sixth Circuit upheld the constitutionality of state bankruptcy specific exemptions in In Re Schafer, 689 F.3d 601 (6th Cir. 2012), cert. den. sub nom. Richardson v. Schafer, 133 S. Ct. 1244 (2013). In the meantime, as a result of the trustee’s decision to pick away at individual cases in the lower courts rather than seek decisive resolution in the Circuit Court, some debtors have been forced, for financial reasons, to settle the issue at the outset thereby losing the benefit of the exemption. NCBRC was involved in Schafer and has been involved in a number of the cases coming out of the Kansas court on this issue, filing amicus briefs and assisting with debtor’s briefs.

Carving out an equity exception to the debtor's fully encumbered homestead:
Fourth Circuit Allows Trustee/IRS Carve-Out Agreement In an unpublished, per curiam, opinion the Fourth Circuit found that the trustee could sell the debtors’ fully encumbered homestead despite the fact that the debtors were entitled to an exemption for the property. In re Reeves, No. 12-2127 (Nov. 20, 2013). The debtors’ residence was fully encumbered by a first mortgage lien and a tax lien. Under North Carolina law, the debtors claimed an exemption in their homestead in the amount of $60,000.00. The trustee objected to the exemption on the basis that the debtors had no equity in the property. After the bankruptcy court overruled the objection, the trustee moved to sell the property explaining that the IRS had agreed to “carve out” a portion of its share of the proceeds to benefit the bankruptcy estate. The debtors objected to the sale arguing that allowance of the exemption effectively removed the property from the estate. The bankruptcy court disagreed finding that the exemption was as to the debtors’ “interest” in the property rather than in the property itself. The district court affirmed. On appeal, the Fourth Circuit relied on Schwab v. Reilly, 130 S. Ct. 2652, 2661-63 (2010) for the distinction between an “asset” and the “interest” in that asset, finding that the exemption applied only to the latter and did not result in removal of the entire asset from the bankruptcy estate. The court went on to reject the debtors’ argument, which was more fully elucidated in NACBA’s amicus brief, that where an asset is fully encumbered the trustee must abandon it and a side agreement with a creditor to circumvent that rule is not a legitimate exercise of the trustee’s power. In a short discussion notable for its lack of in-depth analysis, the court found simply that the agreement between the IRS and the trustee “assigned equity” to the asset for the benefit of the estate. As an unpublished opinion this decision is not precedential.

Extent of Lien Avoidance Posers:
Argued: In re Traverse, No. 13-9002 (1st Cir.) Issue: Whether upon avoidance of a lien the trustee gains the debtor’s power to sell the property for which the debtor has claimed a homestead exemption, or whether the trustee’s powers are limited to what the lienholder could have done. Argument date: October 10, 2013. NCBRC filed an amicus brief on behalf of the NACBA membership.

Surcharging Homestead Exemption:
Set for Argument:
Law v. Seigel, No. 12-5196 (U.S.S.Ct.) Issue: Whether the debtor’s homestead exemption may be surcharged as a result of the debtor’s failure to comply with discovery. Argument date: January 13, 2014. NCBRC filed an amicus brief on behalf of the NACBA membership.

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