BankruptcyProf Blog

Nice Summary of Pending Legislation on Chapter 13 Mortgage Issues

A big Thank You to Scott Clarkson, bankruptcy attorney in Torrance, who sent me the following email:

Please find attached a recent report (updated February 29, 2008) by the Congressional Research Service on the various proposals to amend Section 1322(b)(2) (which now prohibits cramdown on debt secured by a debtor’s primary residence).   Besides a good overview of section 1322(b)(2), the report compares the pending bills. 

Best regards,
Scott Clarkson

Ford Motor Credit Repos Auto After Debtor Reaffirms and Even Though Debtor is Current on Loan

Press Release From local bankruptcy Attorney Peter Lively can be accessed here. 

Apparently, the debtor and his counsel executed a reaffirmation during the bankruptcy and sent it to FMC.  The monthly payments, insurance etc were at all times current.  After the bankruptcy case closed, Ford picked up the car, a 2003 Escort, without notice or warning, shortly before the holidays.  They demanded a full payoff plus repo and storage costs.  After receiving a cashier's check, it took a month before they returned the vehicle. 

Lively has filed a complaint for violation of the discharge injunction. 

Although I don't do a lot of consumer chapter 7 work, I have a client whose vehicle is financed by Citizens Auto Finance.  They have refused to accept my client's checks now that the chapter 7 has been filed.  10 days ago I called telling them my client will reaffirm.  They promised to send a reaff.  Yesterday I received a Motion for Relief - no reaff.  Today I called the attorney in Ohio (the chapter 7 is in Los Angeles) and left a voicemail.  I will keep you advised.         

Erwin Chemerinsky Comments on New Law School at UC Irvine

Professor Chemerinsky was his usual entertaining self last night at the Los Angeles Bankruptcy Forum dinner. 

On the new law school at UC Irvine, he said,

• It will open in the fall of 2009.  He expects 60 students the first year and expects that to grow to 200 per class. 
• He is the first and second dean of the school after having been fired once so far.  Some people are calling him "Dean Again."  Someone somewhere recognized him from having his picture in the paper and asked him kindly, "What were you arrested for again?" 
• He has committed to be dean at Irvine for 10 years.
• He is hoping to give every student entering in 2009 a full scholarship. 

On the Supreme Court he commented that it is undergoing dramatic downsizing and no one, even the Court itself, is sure why.  He said with Samuel Alito now, it is the most pro-business Court since 1937. 

On the constitutional issues arising from BAPCPA, he talked about

• the 1st Amendment implications of being a Debt Relief Agency.  It, of course, suggests that attorneys can not say certain things to their clients, even when lawful, i.e., suggesting the debtor incur new debt before filing. 
• As to the required language in advertising, the code now "compels speech" i.e., the language about being a debt relief agency - this requires a very high standard (I'm not sure of the right word) to be constitutional.
• As to the regulation of debt relief agencies, if that includes attorneys, it may violate the 10th amendment as impinging on state rights to regulate attorneys.  He commented however that there is already a significant amount of regulation of attorneys by the federal government certainly in the area of District Courts regulating the conduct of attorneys in their particular courts. 
• He commented that an involuntary individual chapter 11 may be involuntary servitude since the plan would require payments for five years. 

It was a great program.  Chemerinsky said he had just come from a debate at UCLA with Professor John Yoo.  I wish I could have seen that. 

6th Circuit Resolves Hanging Paragraph Issue - Not!

Americredit Financial Services v. Long (In re Long)  ---- F.3d ----, 2008 WL 564798 (6th Cir. Mar. 2008)

Issue:   When the debtor surrenders a vehicle under Section 1325(a)(5)(C), is the surrender in full satisfaction of the debt or does the secured creditor continue to have a right to a deficiency?         

Holding:      The secured creditor continues to have the right to a deficiency.   

Merritt wrote the “majority opinion,”  Cox a concurring opinion and Clay a dissenting opinion. 

The chapter 13 debtor proposed the surrender of a “910 vehicle” in full satisfaction of the debt owed to Americredit.  The bankruptcy court affirmed the plan. 

Citing In re Wright, 492 F.3d 829, 830 (7th Cir. 2007), the opinion said, “we agree with the Seventh Circuit that the bankruptcy courts should not simply allow the debtor to surrender the car and then wipe out the deficiency, as the bankruptcy court in the instant case ruled.”  The opinion went on to say however that the reasoning in Wright that state law provided the secured creditor’s rights was faulty.  “A uniform national rule should be adopted and substituted for the widely varying procedural and substantive foreclosure, repossession and deficiency judgment rules provided by the 50 states.”  The opinion says that “a claim cannot be an ‘allowed secured claim’ for purposes of § 1325(a)(5) without first coming through the §506 gateway.  Consequently, we decline to read the hanging paragraph to use state law or some unknown, federal law to create an allowed secured claim.”  “Because section 506 was applicable to the surrender of collateral before the 2005 amendments, and makes the situation incoherent if no longer applicable, we believe the best solution is to regard section 506 as continuing to apply to surrender cases.”  “Because we are unable to find any legislative history that suggests that Congress intended to eliminate all deficiency claims upon surrender of the collateral and because we conclude that a literal interpretation of the statute would create an unintended and illogical result, we decline to adopt a literal interpretation of the statute.”

The opinion concluded, “We hold that claims subject to the hanging paragraph where the debtor elects to surrender the collateral pursuant to § 1325(a)(5)(C) will be governed and adjudicated the same as they were before the 2005 amendments.”

The concurring opinion by District Judge Cox says, “Under its clear terms, for purposes of § 1325(a)(5), § 506 does not apply to claims falling within the definition set forth in the hanging paragraph, otherwise referred to as 910 claims.”  “§506 is not the source for a deficiency claim when collateral is surrendered.  Section 506 is not applicable to surrender of collateral because once the collateral is surrendered, the estate no longer has an interest in the property.”  Therefore Butner applies and the secured creditor has the rights given to it under state law. 

The one paragraph dissent concludes with, “The lead opinion would require us not simply to construe an ambiguity in the statute, but actually to rewrite the statute.  I would be reluctant to do so because Congress has had two years since the enactment of the statute to correct any problems that it sees with the statute and has not seen fit to do so.  I would affirm based upon the well reasoned opinion of the bankruptcy court.”

Comment:  This is just what we need - circuit courts deciding "uniform national rules."  This 1 - 1 - 1 opinion may be reviewed en banc especially since the concurring judge is a District Court Judge and not a Cirucit Court of Appeals Judge.   JH

Professor Erwin Chemerinsky Speaks Tonight at the Los Angeles Bankruptcy Forum Dinner

"The Battle Between Debtors’ Rights and Creditors’ Remedies in American Bankruptcy Law; Hey! It’s in the Constitution!"

On March 10, 2008, the Los Angeles Bankruptcy Forum will host the annual Joe Bernfeld dinner program. (Joe was a founder of the Los Angeles Bankruptcy Forum, a scholar of the law, and a colorful trial lawyer.)  This year our dinner program will feature an evening with the witty Professor Erwin Chemerinsky (Alston & Bird Professor of Law and Professor of Political Science, Duke Law, and Founding Dean of the Donald Bren School of Law at the University of California, Irvine).  Professor Erwin Chemerinsky will speak on "The Battle Between Debtors’ Rights and Creditors’ Remedies in American Bankruptcy Law; Hey! It’s in the Constitution!"

You can sign up here.