Cases in Review September, 2013
“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 (www.cbar.pro) and the National
Consumer Bankruptcy Rights Center (www.ncbrc.org).
Authority of the
court—Imposition of sanctions—On creditor’s attorney -
Court can sanction creditor's attorney by requiring that all dischargee complaints comply with the rules:
The Fifth Circuit
Court of Appeals held that the bankruptcy court did not abuse its discretion in
requiring a creditor’s attorney (formerly employed by Weinstein & Riley, P.S.)
to (1) comply with Fed. R. Civ. Proc. 9(b) in filing nondischargeability complaints
under Code § 523(a)(2)(A) and (2) file a copy of the bankruptcy court’s order
in every adversary proceeding commenced by the attorney in the Southern District
of Texas over the next year. The bankruptcy court found that the attorney had a
practice of filing generic credit card nondischargeability complaints that did
not comply with Rule 9(b). The Court of Appeals reasoned that nothing in the
bankruptcy court's limited order prevented the attorney from practicing law or
inconvenienced the attorney to such an extent that it in effect prevented him
from the practice of law. The Court of Appeals therefore agreed with the district
court's analysis that the bankruptcy court's order did not rise to the level of
a suspension and was not quasicriminal in nature. In re Monteagudo, --- Fed. Appx.
----, 2013 WL 3753609 (5th Cir. July 18, 2013).
Chapter 7—Stripping
unsecured lien -
11th Circuit Allows lien stripping second mortgage in Chapter 7 (pub. decision):
The Eleventh Circuit Court of Appeals released an order in
In re McNeal that contains two significant decisions. First, the court granted
the debtor’s motion to publish its opinion, currently found at In re McNeal,
477 Fed. Appx. 562 (11th Cir. May 11, 2012), which held that, under existing circuit
precedent, a Chapter 7 debtor may strip a wholly-unsecured lien. This will result
in a fully-precedential opinion. Second, the court stated that, since the stay
had been lifted in the appellee mortgage creditors’ bankruptcy cases (which are
part of the Residential Capital bankruptcy), the appeal in the pending case was
no longer stayed. This will allow the court to consider the creditors’ petition
for rehearing en banc. The court said that no ruling would be made on that
petition until at least 30 days after publication of the panel decision in the
case. In re McNeal, Case No. 11-11352 (11th Cir. Aug. 2, 2013).
Chapter
13—Confirmation of plan—Calculation of projected disposable income -
Deducting Pension payments from PDI is permitted:
Taking
the intermediate position on the issue, the bankruptcy court held that, in calculating projected disposable income,
a Chapter 13 debtor is permitted to deduct voluntary contributions to an
ERISA-qualified retirement plan that the debtor is making on the petition date.
While the contributions are subject to a good-faith analysis, here the
47-year-old debtor’s commencing a $541.67 monthly contribution less than three
months prior to filing her joint bankruptcy petition was not in bad faith,
where the court found credible the debtor’s explanation that she was worried that
Social Security would not be solvent when she reached retirement age. In re
Jensen, --- B.R. ----, 2013 WL 3877818 (Bankr. D. Utah July 26, 2013).
Chapter
13—Confirmation of plan—Good faith -
Plan can pay 100% to unsecured over 60 months even if Debtor you could it in less months is permitted:
Two more courts held that, where a
Chapter 13 plan pays unsecured creditors in full, it is not bad faith under Code
§ 1325(a)(3) for the plan to do so over the debtor’s full applicable commitment
period, even if the creditors could be paid more quickly if the debtor paid his
or her full projected disposable income each month. In re Braswell, 2013 WL
3270752 (Bankr. D. Or. June 27, 2013); In re McGehan, --- B.R. ----, 2013 WL
4069524 (Bankr. D. Colo. July 19, 2013).
Dischargeability—Court-ordered
restitution -
Restitution was discharged where paid directly to victim:
Court-ordered restitution of $919,356 that the Chapter 7 debtors,
who pled guilty to embezzlement from a vulnerable adult, were directed to pay
did not fall within the discharge exception in Code § 523(a)(7) for a fine,
penalty, or forfeiture payable to and for the benefit of a governmental unit
that was not compensation for actual pecuniary loss. Although the debtors'
restitution may have been initially payable to the probation department, the
Michigan restitution statute required that it then be paid to the victim or her
representative or estate, so that the ultimate destination of the restitution
was not a governmental unit. Moreover, the amount of the restitution was the
amount of damages suffered by the victim, so that the restitution was
compensation for actual pecuniary loss. In re Rayes, --- B.R. ----, 2013 WL
3784159 (Bankr. E.D. Mich. July 16, 2013).
Dischargeability—Student
loan debts -
Hardship proven due to health reasons:
Debtors established undue hardship under Code § 523(a)(8) in two
recent cases, although both involved debtors with serious medical conditions.
In In re Myhre, 2013 WL 3872509 (Bankr. W.D. Wis. July 25, 2013), the court
discharged the student loan debt of a quadriplegic Chapter 7 debtor who was
nonetheless able to work full-time and earn between $29,000 and $35,000 per
year. And in In re O'Donohoe, 2013 WL
2905275 (Bankr. S.D. Tex. June 13, 2013) the court discharged the student loan
debt of a Chapter 7 debtor who, despite having earned in excess of $150,000 per
year for each of 2007, 2008 and 2009, had not worked since then, due to his
multiple medical conditions (cancer, morbid obesity, severe depression, bipolar
disorder, adult ADHD, obsessive compulsive disorder, high blood pressure, and
sleep apnea) and the mental slowness that was a side effect of the medications
required to treat these conditions.
Judicial estoppel -
Re-open Ch. 7 case allowed due to mistake or inadvertence, no presumption of deceit:
Believing that the terms “mistake” and “inadvertence” should be given their
natural meanings in the context of the application of judicial estoppel, the
Ninth Circuit Court of Appeals acknowledged that its approach was less stringent
than that of several other circuits. Where, as here, the debtor reopened her bankruptcy
proceedings, corrected her initial error, and allowed the bankruptcy court to
re-process the bankruptcy case with the full and correct information, a
presumption of deceit no longer was appropriate. Rather, the debtor should be allowed
to establish that the cause of action on which she now sued was omitted from her
prior bankruptcy schedules through mistake or inadvertence, rather than intention.
Ah Quin v. County of Kauai Dept. of Transp., --- F.3d ----, 2013 WL 3814916 (9th
Cir. July 24, 2013).
Means test—Expenses - Don't list Tobacco:
Taking a position that was nothing if not dogmatic, the bankruptcy court declared
that “in the Eastern Division of the Northern District of Alabama, expenses for
tobacco may never be taken as a deduction on Schedule J,” and this “will be a
per se rule in this Court until the Eleventh Circuit or Supreme Court rule
otherwise.” The court said that it had repeatedly sustained the Chapter 13 trustee's
objections to deductions claimed for excessive phone, Internet and cable fees,
pest control services, security monitoring, pet expenses, non-mandatory retirement
payments, and vehicles for non-debtor family members. It was difficult to imagine,
the court continued, that counsel believed tobacco expenses would be approved
by the court or would not draw an objection from the trustee. In re Vest, 2013
WL 3781508 (Bankr. N.D. Ala. July 18, 2013).
Proof of claim—Secured
claim—Post-petition charges—Effect of Rule 3002.1:
Prima Facie Validity does not apply to Post-petition Charges or POC Supplements :
The Bankruptcy Code is not
clear as to the burden of proof with respect to the court's determination under
Bankruptcy Rule 3002.1(h) of whether a debtor has cured a prepetition default
and paid all required postpetition amounts. Rule 3002.1 does provide that Rule
3001(f), which otherwise grants a presumption of prima facie validity to a
proof of claim, does not apply to supplements to the claim, including postpetition
fees, expenses, and charges. The court inferred from the absence of a presumption
of prima facie validity that the claimant bore the burden of proof under Bankruptcy
Rule 3002.1(h). In re Rodriguez, 2013 WL 3430872 (Bankr. S.D. Tex. July 8, 2013).
Use of appearance
attorneys - Not allowed due to lack of accountabililty:
Concluding that the use of appearance attorneys posed such significant
problems to the proper and effective administration of consumer debtor cases
that their use must be barred, Chief Bankruptcy Judge Jeff Bohm ruled that
appearance attorneys would no longer be permitted to appear in cases over which
he presided. Explaining that one of the largest problems with appearance
attorneys was the potential lack of accountability, the court said that
appearance attorneys were rarely listed as an attorney of record or co-counsel
in a case, and this could raise questions as to the legitimacy of their
representation of debtors and their authority to speak for, or make admissions
on behalf of, the debtor. Moreover, appearance attorneys helped promote lazy
and poor lawyering, as there was evidence that some practitioners never met
with their clients. Ultimately, use of appearance attorneys constituted
improper representation for an attorney's client. The client did not hire the appearance
attorney and, almost always, the client had little or no say as to whether the
attorney they did hire would represent them at any given proceeding. Often,
debtors were given no notice that their own attorney would not personally
represent them at their meeting of creditors or at any hearing, and this was what
happened in the case at hand. The court ruled that both Code § 105(a) and
Bankruptcy Rule 9029(b) permitted the court to prohibit the further use of appearance
attorneys. In re Bradley, ---B.R. ----, 2013 WL 3753559 (Bankr. S.D. Tex.July
16, 2013).
