Today the Supreme Court denied certiorari in the case of Baud v. Carroll, which raised the issue of the appropriate applicable commitment period for an above-median income debtor with no “projected disposable income.” The Sixth Circuit Court of Appeals held below that above-median income debtors with no projected disposable income must propose five year plans if the trustee or unsecured creditor objects to a shorter plan period. See 634 F.3d 327 (6th Cir. 2011). Attention will now turn to Flores v. Danielson, No. 11-55452 (9th Cir.), where the Ninth Circuit will consider whether the Supreme Court’s ruling in Hamilton v. Lanning, 130 S.Ct.2464 (2010), abrogated the Ninth’s Circuit prior ruling on the applicable commitment period in Kagenveama v. Maney, 541 F.3d 868 (9th Cir. 2008).
Seventh Circuit on Jurisdiction Post-Stern
The fallout from Stern v. Marshall, — U.S. —, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011) is really picking up. The Seventh Circuit Court of Appeals became the first circuit court to weigh in, ruling, in a case with facts similar to those of Stern, that the bankruptcy court lacked jurisdiction to issue a final judgment on a claim, asserted by debtors in two proposed class actions, that a medical services creditor violated a Wisconsin state statute by filing proofs of claim revealing the debtors’ medical information. In re Ortiz, — F.3d —-, 2011 WL 6880651 (7th Cir., Dec 30, 2011). Courts disagree over whether a bankruptcy court may issue a final judgment in a proceeding to avoid an allegedly fraudulent transfer. Compare In re Citron, 2011 WL 4711942 (Bankr. E.D. N.Y., Oct. 6, 2011) (court may issue final judgment), with In re Heller Ehrman LLP, — F.Supp.2d —-, 2011 WL 6179149 (N.D. Cal., Dec. 13, 2011) (court may not issue final judgment). A question several courts have asked is what a bankruptcy court should do when a matter designated as “core” in 28 U.S.C. § 157(b)(2) is one that must be decided by an Article III court. The two possibilities are that “unconstitutional core” matters default to the procedure used for non-core matters, (i.e., proposed findings and recommendations under 28 U.S.C. § 157(c)) or, alternatively, that such matters should be entirely removed from the bankruptcy courts. Most courts considering the issue hold that bankruptcy courts retain the power to enter proposed findings and recommendations in this class of cases. See, e.g., In re Byce, 2011 WL 6210938 (D. Idaho, Dec. 14, 2011); In re Mortgage Store, Inc., 2011 WL 5056990 (D. Hawai’i, Oct. 5, 2011); In re Heller Ehrman LLP, above.
Fee-Only Chapter 13
NACBA has filed an amicus brief opposing the imposition of a bright line rule prohibiting attorney-fee-only chapter 13 cases as being filed in bad faith. Berliner v. Pappalardo (In re Puffer), No. 11-1831 (1st Cir.). [Read more…] about Fee-Only Chapter 13
Berliner v. Pappalardo (In re Puffer), No. 11-1831 (1st Cir.)
NACBA has filed an amicus brief opposing the imposition of a bright line rule prohibiting attorney-fee-only chapter 13 cases as being filed in bad faith. Berliner v. Pappalardo (In re Puffer), No. 11-1831 (1st Cir.). The brief emphasizes that bad faith is necessarily a case-by-case, fact specific inquiry, and that there exist legitimate, good faith, reasons for seeking chapter 13 relief solely to make payments toward attorney fees and administrative costs. Because debtors eligible for chapter 7 relief frequently cannot afford to pay the attorney fees to file their cases, chapter 13 presents a viable alternative and nothing in the Code prohibits such filing. NACBA member David Baker filed the brief on NACBA’s behalf.
Brief
Debtor’s Standing to Avoid Lien
The Sixth Circuit BAP found that the debtor has derivative standing to exercise the trustee’s strong-arm powers under section 542 by seeking avoidance under section 544 of an unperfected lien on his manufactured home. U.S. Bank Nat’l Ass’n v. Barbee, No. 10-8074 (B.A.P. 6th Cir.) The court identified certain realities that supported its finding: the trustee’s lack of resources to pursue every legitimate avoidance claim, the requirement that the plan conform to section 1325(a)(4), and the possibility of the debtor’s being accused of bad faith if he proposes a plan that does include avoidance of a clearly avoidable lien. In so deciding, the court agreed with the holding in Countrywide Home Loans v. Dickson, 427 B.R. 399 (B.A.P. 6th Cir.), aff’d on other grounds, 655 F.3d 585 (6th Cir. 2011).
Opinion
Chapter 20 Lien Stripping 8th Circuit
The issue of whether a debtor may strip a wholly unsecured lien in chapter 13 where discharge is unavailable is before the Eighth Circuit Court of Appeals in the case of Keller v. Fisette (In re Fisette), No. 11-3119, after debtor won before the bankruptcy appellate panel. The debtor argues in his brief, filed on December 8, 2011, that Nobelman v. American Sav. Bank, 508 U.S. 324 (1993), has been consistently and correctly interpreted by all the circuit courts addressing the issue to permit strip-off of wholly unsecured liens in chapter 13. Because BAPCPA permits chapter 13 cases even where discharge is unavailable debtors may avail themselves of all the benefits of a chapter 13 case with the exception of discharge upon completion of the case. One of those benefits is stripping of wholly unsecured liens pursuant to section 1322(b).
[Read more…] about Chapter 20 Lien Stripping 8th Circuit
Denial of Motion to Dismiss for Abuse Final Appealable Order
In McDow v. Dudley, No. 10-1732 (4th Cir. Nov. 30, 2011) the fourth circuit found that an order denying a trustee’s motion to dismiss a debtor’s chapter 7 case as abusive under section 707(b) is a final, appealable order under section 158(a). In the bankruptcy court, the trustee sought dismissal based on a means test calculation that the debtors had $2,000/month available to pay creditors. The bankruptcy court granted debtors’ motion for summary judgment finding that section 707(b) applies only to cases filed originally under chapter 7 and does not encompass cases converted from chapter 13, as debtors’ case was. The district court dismissed the trustee’s appeal as interlocutory.
The circuit court vacated and remanded. The court reasoned that when Congress enacted BAPCPA and added the means test it created a presumption of abuse when debtor’s income exceeded a statutory threshold. Because BAPCPA imposed a strict deadline for the trustee to raise the issue of bad faith the court found that resolution of that issue was essential to the continuation of the case and therefore constituted a conclusion of a discrete dispute which was an appealable order. The court further noted that pragmatic considerations, including the possible liquidation of assets and depletion of resources if the case goes forward, militated in favor of treating the denial of dismissal for abuse as a final appealable order.
Contract Interest Rate Only Through Confirmation
In First United Security Bank v. Garner, No. 11-10465 (11th Cir. Nov. 30, 2011) the court found that, under section 506(b), FUSB, an over-secured creditor, was entitled to receive post-petition interest at the contact rate of 10.5% until confirmation at which time the interest rate would drop to 4.25% as determined under the standard set forth in Till v. SCS Credit Corp., 541 U.S. 465 (2004). In so holding, the court relied on the Supreme Court’s statement in Rake v. Wade, 508 U.S. 464 (1993), that the temporal aspect of section 506(b) applies only from the date of filing to confirmation. The court additionally noted that the Second and Ninth Circuits have interpreted section 506(b) and the “cram-down” provision of section 1325(a)(5)(B)(ii) as allowing accrual of interest at the contract rate to continue only through confirmation.
NACBA files Amicus in Absolute Priority Rule Case
NACBA has filed an amicus brief in the case of In re Maharaj, No. 11-1747 (4th Cir.) challenging the application of the absolute priority rule to individual debtors in chapter 11.
Brief
NACBA files Amicus in Conversion Case
NACBA filed an Amicus brief in the case of DeHart v. Michael, No. 11-1992 (3d Cir.). The case involves a debtor who converted his chapter 13 case to a chapter 7 after paying into his plan for several years. At the time of the conversion, the estate held some undistributed post-petition wages and the trustee argued that the creditors had a vested right to those funds. The lower courts rejected this argument and the trustee brought this appeal. NACBA’s brief argues that, under section 348(f) a chapter 7 estate that has been converted from chapter 13 consists of the property owned by the debtor at the time of the original chapter 13 petition, and, therefore, the debtor is entitled to return of his post-petition wages.
NACBA member, Irv Ackelsberg, filed the brief on behalf of NACBA.
Brief