June 6, 2008
9th Circuit Sets Chapter 13 Plans on Their Head - In re Kagenveama
Maney v. Kagenveama (In re Kagenveama), ---- F. 3d ----, 2008 WL 2278681 (9th Cir. June 2008)
Issue: Where an above-median chapter 13 debtor has negative “disposable income” per the means test but $1,500 per month per schedules I and J, is the debtor required to propose a five year plan and must the plan payment be based on actual income and expenses or may it be based on the means test calculations?
Holding: A five-year plan under these facts is not required nor must the plan payment be based on actual ability to pay.
appeal (direct) from the Bankruptcy Court Arizona
Judge Siler for the majority,
Judge Carlos Bea, concurring and dissenting
The debtor, an above-median debtor, proposed a chapter 13 plan offering to pay $1,000 per month for 36 months. Her net “I and J income,” i.e., real net income, was $1,524 per month. Her “means test” net income was minus $4. The proposed plan would “yield” some $9,000 to the unsecured creditors. The trustee objected to the 36 month proposed length. The bankruptcy court confirmed the plan.
The 9th Circuit affirmed. The code says that “the plan [must pay] all of the debtor’s ‘projected disposable income’ received during the ‘applicable commitment period.’” Section 1325(b)(1). “Disposable income” is defined in Section 1325(b)(2) but “projected disposable income” is not. “There can be no reason for § 1325(b)(2) to exist other than to define the term ‘disposable income’ as used in § 1325(b)(1)(B). ‘If ‘disposable income’ is not linked to ‘projected disposable income’ then it is just a floating definition with no apparent purpose.” “The plain meaning of the word ‘projected,’ in and of itself, does not provide a basis for including other data in the calculation because ‘projected’ is simply a modifier of the defined term ‘disposable income.’”
Also according to the panel, “projected disposable income” has always been linked to "disposable income." “To get from the statutorily defined ‘disposable income’ to ‘projected disposable income,’ ‘one simply takes the calculation . . . and does the math.” In re Alexander, 344 B.R. at 749. Further, this does not lead to an absurd result. The fact that it reaches a different result than pre-BAPCPA practice doesn’t matter. “We ‘will not override the definition and process for calculating disposable income under § 1325(b)(2)-(3) as being absurd simply because it leads to results that are not aligned with the old law.” In re Alexander, 344 B.R. at 747. “Furthermore, we will not de-couple ‘disposable income’ from the ‘projected disposable income’ calculation simply to arrive at a more favorable result for unsecured creditors, especially when the plain text and precedent dictate the linkage of the two terms.” “While the new law may produce less favorable results for unsecured creditors when applied to above-median income Chapter 13 debtors, it is far from absurd to hold that debtors with no ‘disposable income’ have no ‘projected disposable income.’”
As to applicable commitment period, the “applicable commitment period” requirement is inapplicable to a plan submitted voluntarily by a debtor with no “projected disposable income.” “Thus, only ‘projected disposable income’ is subject to the ‘applicable commitment period’ requirement. Id.” “Any money other than ‘projected disposable income’ that the debtor proposes to pay does not have to be paid out over the ‘applicable commitment period.’” “When there is no ‘projected disposable income,’ there is no ‘applicable commitment period.’”
The opinion adds, “We stress that nothing in our opinion prevents the debtor, the trustee, or the holder of an allowed unsecured claim to request modification of the plan after confirmation pursuant to § 1329.”
The dissent argues that the debtor should be required to propose a five-year plan but otherwise he agreed with the majority. “The applicable commitment period allows unsecured creditors who are otherwise not receiving payment from a debtor five years to monitor the debtor’s finances and, in the event the debtor’s disposable income increases during that time, file for plan modification under § 1329."
June 5, 2008
Sub-Prime Mortgages Fiasco
Entertaining explanation with stick figures here.
June 4, 2008
May Bankruptcy Filings - Hot Off the Press
Professor Bob Lawless has posted his update on bankruptcy filings through May, 2008. There were 89,560 filings in May compared to 93,096 in April, 2008. The Credit Slips posting is here.
Belated Congratulations to UWLA Moot Court Team
University of West Los Angeles School of Law
Office of the Dean, George Dezes
9920 S. La Cienega Boulevard · Suite 415 · Inglewood, California 90301
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Traynor Moot Court Competition
Last weekend, on Saturday, April 5, UWLA students Caroline Rath and Joshua Siegel were among the 47 California law students competing in the 39th annual Roger J. Traynor Moot Court competition. The competition, inspired by the renowned former Chief Justice of California, is a nationally recognized event in which all California law schools may participate. Each competitor-school fields a team of students who have prepared written and oral arguments in a simulated appeal. The competition judges are made up exclusively of appellate court judges and certified appellate specialists. Seventeen law schools entered the competition this year. Participating schools of law included UC Berkeley, UCLA, UC Davis, Hastings, the University of San Diego, USF and McGeorge.
At the conclusion of Saturday's competition, ten of the competing students received special distinction for averaging a score of at least 90% in oral argument, as graded by the judges. Both Ms. Rath and Mr. Siegel were in the top ten. The university salutes their accomplishment and congratulates all of the UWLA moot court honors students who distinguished themselves in various moot court competitions this year, as UWLA enjoyed another successful year in moot court.
Last but certainly not least, our special gratitude, admiration and congratulations go out to the longtime director of UWLA’s Moot Court program, Professor David Glassman, without whose always-tireless and –conscientious efforts none of this would be possible.
Following is a listing of all 2007-2008 UWLA Moot Court Honors participants: Devre Bates, Ronald Binder, Kevin Cottrell, Matthew Jewett, Susan Livshin, Caroline Rath, Steven Ross, Joshua Siegel, Nadia Taghizadeh and Richard Uss.
June 3, 2008
NACBA Program Available on CD
The National Association of Consumer Bankruptcy Attorneys (NACBA) annual program held on May 15 - 18, 2008 is available on CDs. You can buy one particular program or all 24 volumes at very reasonable prices at ActsRecording.com.
June 1, 2008
6th Circuit Rules on Ford's Right to Administrative Claim for Post-Confirmation Default by Chapter 13 Debtor
Ford Motor Credit Company v. Parmenter (In re Parmenter) --- F.3d --- (6th Cir., May, 2008)
Issue: When the chapter 13 plan provides that the debtor will assume a vehicle lease and pay it outside the plan, does the lessor have the right to an administrative claim when the debtor fails to make the payments?
Appeal from District Court
Counsel for Ford is Ricardo Kilpatrick
In their chapter 13 plan, the debtors “agreed to assume the Ford lease and to pay the remaining lease payments directly to Ford.” There were no objections and the plan was confirmed. Post-confirmation, the debtors defaulted on the lease, Ford obtained relief from stay, repossessed the vehicle and sold it. Ford then “filed a motion for administrative expenses of $5,919.28, which included the deficiency balance on the lease and attorney fees.” The bankruptcy court denied the motion and the District Court affirmed.
The 6th Circuit Court of Appeals also affirmed in a per curiam opinion with a dissent. The opinion says that the confirmed plan was res judicata as to these issues, Section 1327(a). Ford was a class three creditor in the plan and now wants to “jump to class one.” “The plan says nothing about permitting the estate to make lease payments to Ford. Yet Ford’s motion, if granted, would allow the company to impose an obligation on the estate where none existed and indeed would give that claim the highest priority permitted. Well before the [debtors] defaulted, Ford had made its own bed outside the plan and now must lie in it: If the car company wishes to obtain any additional relief against the [debtors], it must do so outside the plan.” The opinion does not even suggest what this relief “outside the plan” means. Modification of the plan does not apply, according to the court, because the allowance of an administrative claim would be “the creation of a new obligation on the estate.” “If Ford wanted the security of receiving payments directly from the Trustee, it should have objected to the proposed plan.”
The opinion distinguishes chapter 11 cases where this administrative expense clearly would be allowed and chapter 13 cases. “Whereas a Chapter 11 debtor-in-possession acts on behalf of the estate when it assumes a lease and thus creates a legal obligation on the estate, a Chapter 13 debtor who assumes and
pays for a lease outside of the plan does not.” It does not explain how it reached that conclusion.
The dissent begins with “First, I see no convincing reason for treating creditors dealing with a Chapter 13 debtor differently from creditors dealing with a Chapter 11 debtor-in-possession. The Code offers no basis for treating the two scenarios differently.” “[S]econd, . . . I see no basis for drawing a line between Chapter 13 creditors who receive lease payments directly from the debtor and those who receive them indirectly through a trustee.” As to res judicata, the dissent disagrees. The plan did not deal with and therefore resolve any issues about the right to administrative claims for post-confirmation defaults.