The Fifth Circuit today held that a debtor may exempt an inherited IRA from the bankruptcy estate under section 522(d)(12). In re Chilton, No. 11-40377 (March 12, 2012) (affirming the decision of the U.S. District Court for the Eastern District of Texas). [Read more…] about Fifth Circuit Holds that Debtor May Exempt Inherited IRA
Lien Strip Allowed in Chapter 20
In a positive outcome in the growing debate over “chapter 20” lien stripping, the Eastern District of California found that a debtor may strip off of a wholly unsecured junior lien in chapter 13 even though the debtor was ineligible for discharge because of a prior chapter 7 discharge. Real Time Resolutions v. Frazier, No. 11-290 (E.D. Cal. March 9, 2012) (creditor appealed bankruptcy court’s allowance of lien strip). [Read more…] about Lien Strip Allowed in Chapter 20
NACBA Amicus Brief on Issue of Applicable Commitment Period
NACBA has filed an amicus brief in the case of American Express Centurion Bank v. Henderson, No. 11-35864 (9th Cir.), arguing that a chapter 13 plan for an above-median debtor with negative disposable income need not extend for 60 months under the plain language of section 1325(b)(4) because there is no “projected disposable income.” [Read more…] about NACBA Amicus Brief on Issue of Applicable Commitment Period
Debtor May File Protective POC for Tax Claim
The Sixth Circuit Court of Appeals found that, under section 501(c), a debtor could file a protective proof of claim for a tax debt that became due and payable post-petition. Michigan Dept. of Treasury v. Hight (In re Hight), No. 10-2103 (6th Cir. March 5, 2012). While the court agreed with the Michigan DOT that the debtor could not file the POC under section 1305, as that section only permits the creditor to file, it went on to find that section 1305 was not exclusive. The debtor could file the claim under section 501(c) if the claim is of the type specified in section 502(i) which permits treatment of post-petition claims as pre-petition if they have priority under section 507(a)(8)(A). Because the claim came due after three years before the filing of the bankruptcy petition, it had priority under section 507(a)(8)(A)(i), and section 502(i) applied. Therefore, the debtor was permitted to file the proof of claim under section 501(c).
Exemption May Not Be Claimed as 100% FMV
The Bankruptcy Appellate Panel for the First Circuit found that a debtor may not claim an exemption in property in the amount of 100% of the fair market value. In re Massey, No. 11-60 (B.A.P. 1st Cir., Feb. 27, 2012). The court mischaracterized the issue as whether a debtor was permitted to exempt an asset “in kind,” thereby entitling the debtor to the actual asset regardless of whether its value exceeds the statutory limit. This is not the purpose of the 100% FMV exemption, however, and the Massey decision simply bypasses the unequivocal statement by the Supreme Court that an exemption may be claimed in the amount of 100% of the FMV. Schwab v. Reilly, 560 U.S. __,130 S.Ct. 2668 (2010).
Debtor May Exempt Inherited IRA
The Bankruptcy Appellate Panel for the Ninth Circuit has found that debtors may exempt an inherited IRA from the bankruptcy estate under section 522(b)(3)(C). In re Hamlin, No. 11-1083 (B.A.P. 9th Cir. February 21, 2012). Under section 522(b)(3)(C) an IRA may be exempted if it meets two requirements: “(1) the amount the debtor seeks to exempt must be retirement funds; and (2) the retirement funds must be in an account that is exempt from taxation under one of the provisions of the [IRC].”
The trustee argued that inherited IRAs do not qualify as “retirement funds” as they are not funds that the debtor personally amassed for retirement purposes. The court found that the plain language of the Code does not limit “retirement funds” to those contributed by the debtor. As the funds at issue were contributed to a retirement fund they retain their status as “retirement funds” upon transfer. As to the second requirement for exemption, the court found that, under section 408(e) of the Tax Code, inherited IRAs enjoy the same tax exempt status as those funded by the debtor’s own contributions. Therefore the second prong of the exemption test was met. Finally, the court found support for its decision in section 522(b)(4)(C) which provides that certain transfers of IRA accounts similar to the type in an inherited IRA, do not alter the exempt status of the account.
NACBA filed an amicus brief in support of debtors’ position in this case.
The Fifth Circuit heard oral arguments on this issue on February 8th in the case of In re Chilton, No. 11-40377. NACBA filed an amicus brief in that case as well.
Bad Faith Cannot Be Based on Income Determined in Compliance with Code
The Ninth Circuit BAP found that a chapter 13 plan could not be determined to be in bad faith solely on the basis of debtors’ deduction of payments made on secured debts, without regard to “necessity” of those debts, and their exclusion of social security income from their calculation of disposable income. Drummond v. Welsh (In re Welsh), No. 10-1465 (B.A.P. 9th Cir. Feb. 17, 2012).
Welsh judgment [Read more…] about Bad Faith Cannot Be Based on Income Determined in Compliance with Code
Post-Petition Funds from 401(k) Loan Payoff May Not Be Voluntarily Contributed to Retirement Fund
In an opinion that strains to uphold the conclusion that the “core purpose” of BACPA is to “maximize[e] creditor’s recover[y],” the Sixth Circuit has held that “post-petition income that becomes available to debtors after their 401(k) loans are fully repaid is ‘projected disposable income’ that must be turned over to the trustee for distribution to unsecured creditors pursuant to § 1325(b)(1)(B) and may not be used to fund voluntary 401(k) plans.” Seafort v. Burden, No. 10-6248 (6th Cir. Feb. 15, 2012). The debtor appealed the Bankruptcy Appellate Panel’s reversal of the Bankruptcy Court’s decision in debtor’s favor.
Seafort Opinion [Read more…] about Post-Petition Funds from 401(k) Loan Payoff May Not Be Voluntarily Contributed to Retirement Fund
Mortgage Plan Settlement Agreement
News of a settlement between forty nine state attorneys general (Oklahoma did not join the settlement), the federal government, and five leading mortgage lenders, was released on Thursday, February 9. The settlement purports to resolve the investigation of lenders for the pervasive practice of “robo-signing” foreclosure-related documents. The deal, which will not be final until it receives court approval, promises approximately $25 billion in relief for distressed borrowers as well as funds to state and federal governments. The agreement is expected to benefit millions of homeowners by reduction of loan principal for delinquent borrowers, or refinancing of loans to non-delinquent borrowers whose homes are underwater. The agreement also provides for compensation to victims of foreclosure abuses. The settling banks include; Ally/GMAC, Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo. Although the final agreement is not yet available, a summary of its contents can be found at http://www.nationalmortgagesettlement.com/states [Read more…] about Mortgage Plan Settlement Agreement
Tenth Circuit Requires Proof of Possession of Note Indorsed in Blank
Last week, the Tenth Circuit Court of Appeals found that Deutsche Bank (DB) had not proved its status as a “party in interest” in a motion for relief from stay due to its failure to produce evidence of possession of the promissory note. In re Miller, No. 11-1232 (10th Cir., Feb. 1, 2012). The Millers filed a chapter 13 petition to prevent foreclosure sale of their home after the Colorado state court had granted an “Order Authorizing Sale” (OAS) under Civil Rule 120. In its motion for relief from stay DB presented only a copy of the Note indorsed in blank The bankruptcy court granted relief from stay based on the evidentiary showing, and the BAP affirmed on the basis of the state court’s OAS and the Rooker-Feldman doctrine. [Read more…] about Tenth Circuit Requires Proof of Possession of Note Indorsed in Blank