The Bankruptcy Appellate Panel for the First Circuit affirmed the bankruptcy court’s reduction of the mortgage creditor’s attorney fee “penalty” against the debtor where the penalty, ten percent of the original loan, was provided for in the mortgage document. RNPM, LLC v. Alvarez, No. 11-80 (B.A.P. 1st Cir. June 28, 2012). [Read more…] about Puerto Rican Law Justifies Reduction of Attorney Fee Penalty
Ninth Circuit BAP Permits Appellate Attorney Fee Award for Stay Violation
When a debtor is forced to defend both the ruling that the creditor violated the automatic stay and the award of sanctions for that violation, the debtor may recover her appellate attorney fees under section 362(k). Schwartz-Tallard v. America’s Servicing Co., No. 11-1429 (B.A.P. 9th Cir. June 28, 2012). [Read more…] about Ninth Circuit BAP Permits Appellate Attorney Fee Award for Stay Violation
Social Security Income Amicus Brief
On June 12, 2012, NACBA filed an amicus brief on the issue of whether social security income should be excluded from the calculation of projected disposable income and whether the existence of social security benefits is an appropriate factor to be considered in a good faith analysis under 1325(a)(3). Anderson v. Cranmer, No. 12-4002 (10th Cir.). The brief outlines the explicit statutory protections for social security benefits in both the Social Security Act and the Bankruptcy Code and emphasizes the historical protection afforded to retirement benefits in general. From a practical standpoint the brief discusses the negative ramifications of permitting a trustee to distribute the debtor’s social security income which would discourage debtors from filing a chapter 13 plan when they could, alternatively, file under chapter 7. Finally, NACBA argues that because the Code permits exclusion of social security benefits from the calculation of disposable income, a debtor’s failure to include that income in the plan can never be the basis for a finding that the plan is not proposed in good faith.
Fourth Circuit Finds Absolute Priority Rule Applicable to Individual Debtors
The Fourth Circuit Court of Appeals has dealt a blow to debtors on the issue of whether the absolute priority rule applies in individual chapter 11 cases. In re Maharaj, No. 11-1747 (4th Cir. June 14, 2012). The decision turned on the court’s finding that the reference in section 1129(b)(2)(B)(ii) to “property included in the estate under section 1115,” and the words “in addition to” as found in section 1115 were amenable to differing interpretations. Having found the meaning ambiguous, the court went on to base its decision on its view of congressional intent. [Read more…] about Fourth Circuit Finds Absolute Priority Rule Applicable to Individual Debtors
Post-Petition Tax Liability Not Incurred by Chapter 12 Estate
The Supreme Court found that debtors could not have their income tax liability resulting from the post-petition sale of their farm treated as a non-priority, dischargeable debt in their chapter 12 bankruptcy case. Hall v. United States, No. 10-875, 182 L. Ed. 2d 840, ___ U.S. ___ (May 14, 2012). The debtor relied on section 1222(a)(2)(A) which permits certain tax liabilities, which would otherwise be priority debts under section 1222(a)(2), to be treated as non-priority, unsecured debts, if they are “incurred by the estate,” under section 503(b). Justice Sotomayor, joined by Justices Roberts, Thomas, Alito, and Scalia, found that post-petition income tax liability adheres to the debtors rather than the estate and the debtors, therefore, could not avail themselves of the benefit of section 1222(a)(2)(A).
While this case forecloses a potential avenue of relief for the chapter 12 debtor, it is likely to have little effect in the realm of chapter 13 bankruptcy. In chapter 13 taxes incurred post-petition are not incurred by the estate. 11 TX2 Collier on Bankruptcy ¶ TX2.03[2][a][ii] (16th ed.). However, under section 1305, the taxing authority in chapter 13 may file of proof of claim for post-petition tax liability if it so chooses. [Read more…] about Post-Petition Tax Liability Not Incurred by Chapter 12 Estate
RESPA Prohibition Against Fee-Splitting not Applicable to Undivided Unearned Fee
The Supreme Court declined to interpret RESPA’s prohibition against fee-splitting as applying to the situation in which fees were charged for services that were not provided but where the fees were not divided between two or more parties. Freeman v. Quicken Loans, No.10-1042, __U.S.___ (May 24, 2012). [Read more…] about RESPA Prohibition Against Fee-Splitting not Applicable to Undivided Unearned Fee
Circuit Court Permits Strip-off in Chapter 7
The Eleventh Circuit has come through for consumer debtors on the issue of stripping off wholly unsecured liens in chapter 7. In In re McNeal, No. 11-11352, (11th Cir., May 11, 2012), the court found that once a lien is determined to be wholly unsecured under section 506(a) it may be stripped off under section 506(d), which provides “[t]o the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void.” [Read more…] about Circuit Court Permits Strip-off in Chapter 7
Seventh Circuit to Address Inherited IRAs
On May 4, NACBA filed an amicus brief in the consolidated cases of Rameker v. Clark, No. 12-1241 and, Adili v. Clark, No. 12-1255 (7th Cir.) on the issue of whether a debtor may exempt an inherited IRA under section 522(b)(3)(C). NACBA has been actively involved in the successful presentation of this issue in courts around the country, arguing that the plain language of the Bankruptcy Code and the Internal Revenue Code militates in favor of recognizing the exemption. The Bankruptcy Code exempts from the debtor’s estate “retirement funds to the extent that those fund are in a fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986.” Section 408(e) of the IRC provides that any IRA, including one that is inherited from a non-spouses, is exempt from taxation.
Recently, debtors obtained favorable outcomes on this issue in the Fifth Circuit, In re Chilton, No. 11-40377 (5th Cir., March 12, 2012) (exemption under section 522(d)(12)), and the Bankruptcy Appellate Panel for the Ninth Circuit, In re Hamlin, No. 11-1083 (B.A.P. 9th Cir. February 21, 2012). NACBA has also filed an amicus brief on this issue in the Bankruptcy Court District of Massachussetts. In re Seeling, No. 11-30957 (Bankr. D. Mass.)
Trustee Has Power to Require Turnover of Property Securing Tax Lien
The District Court for the Northern District of West Virginia found that the trustee had the power under section 724(b) to require turnover of debtor’s 2002 Lincoln LS for the purpose of selling it to pay a substantial portion of the tax debt even though the tax lienholder had not sought relief from stay for that purpose. Sheehan v. Posin, No. 11-160 (N.D. W.Va., April 23, 2012). In reversing the decision of the bankruptcy court, the district court relied on the plain language of section 724(b) concluding that the trustee’s power to require turnover under section 542 for sale of property securing a tax lien was not contingent upon the lienholder taking the affirmative step of seeking relief from stay.
Stern v. Marshall Construed
Interpreting the Supreme Court decision in Stern v. Marshall, 131 U.S. 2594 (2011), the Bankruptcy Court for the Eastern District of Kentucky found that it had subject matter jurisdiction over debtor’s state common law counterclaims but did not have jurisdiction over the counterclaims based on Kentucky’s usury and consumer protection statutes. In re Tolliver, No. 09-2076 (Bankr. E.D. Ky. February 2, 2012). The issue arose in an adversary proceeding in which debtor objected to a proof of claim filed by Ocwen Federal Bank, as servicer to Bank of America. Debtor filed counterclaims advancing state statutory and common law claims based on Ocwen’s alleged charging of unauthorized and duplicative fees and costs and improperly inflating debtor’s balance causing her to default. [Read more…] about Stern v. Marshall Construed