National Consumer Bankruptcy Rights Center
Protecting The Rights Of Consumer Debtors In Bankruptcy
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In a thoughtful and comprehensive opinion, the BAP for the Ninth Circuit held yesterday that the absolute priority rule does not apply to individual debtors filing chapter 11 bankruptcy. In re Friedman, Nos. 11-1149, 11-1105 (B.A.P. 9th Cir. March 19, 2012).
Daniel Press is to be congratulated on his fine oral argument on behalf of NACBA in this case.
[Read more…] about Win for Debtors on Absolute Priority Rule in Chapter 11
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The Colorado District Court found that a chapter 13 debtor may strip a lien even though he is ineligible for discharge due to a prior chapter 7 discharge within the preceding four years. In re Waterman, No. 11-929 (D. Colo. March 13, 2012). The court rejected the trustee’s argument that section 1325(a)(5) prohibits strip-off, finding that that section applies only to “allowed secured” claims and that where there is no value in the collateral, the claim is not secured. The court further noted that strip-off was not prohibited by the plain language of section 1328(f) and that, where discharge only applies to personal liability, allowance of the strip-off did not constitute a de facto discharge. See also, In re Frazier, No. 11-290 (E.D. Cal. March 9, 2012) (reaching the same holding). But see, Victorio v. Billingslea, No. 11-1825 (S.D. Cal. Feb. 24, 2012) (relying on pre-BAPCPA decisions to find that a chapter 13 case may end in one of only three ways: discharge, dismissal, conversion, and that a lien strip becomes permanent only upon discharge).
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Creditor’s counsel is appealing an order by the Bankruptcy Court of the Western District of Missouri awarding chapter 7 debtor sanctions in the amount of $1,500.00 as a result of creditor’s violation of the discharge injunction under section 524(a)(2) and (3). In re King, No. 12-6014 (B.A.P. 8th Cir.). The appeal, filed on February 21, 2012, is before the 8th Circuit BAP. The debtor had filed a motion to reopen his bankruptcy case to add the creditor and the underlying debt was thereafter discharged with no objection. The creditor then filed suit in State Court seeking recovery on that debt. After notifying creditor’s counsel of the bankruptcy discharge to no avail, debtor sought sanctions and attorney fees against creditor’s counsel. The creditor’s counsel appeals the bankruptcy court’s denial of creditor’s motion for reconsideration of the court’s order granting sanctions.
The BAP for the 9th Circuit is also considering an appeal of an order granting sanctions against creditors and their counsel in the amount of $11,217 for violation of the automatic stay under section 362(a). In re Knapp, No. 12-1092 (B.A.P. 9th Cir.). Like King, that case involves pursuit of a state court lawsuit against chapter 7 bankruptcy debtor even after debtor’s counsel sought to educate creditor’s counsel about the automatic stay.
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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
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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
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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
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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).
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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).
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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.
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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