BankruptcyProf Blog

ABI Zinman Scholar Announcement

From Prof. Bob Lawless.

Sam Gerdano, executive director of the American Bankruptcy Institute, asked me to pass along the following announcement for any interested academics on the list:

The American Bankruptcy Institute is looking for an academic to serve as the Robert M. Zinman Resident Scholar for the Fall 2009 semester. The position is funded by the ABI Endowment and includes corporate housing and travel in addition to a salary. The ABI Scholar performs a variety of tasks, including advising Congressional staff and testifying before Congressional committees, speaking at CLE programs, writing and editing and handling media calls. The Scholar is expected to be in the ABI offices (in Alexandria, Va) 3-4 days per week but has the flexibility to continue to teach a class.  Jack Williams is the current ABI Scholar.  Past Scholars have included Marianne Culhane, David Epstein, Margaret Howard, Nathalie Martin, Jeff Morris, Mark Scarberry, David Skeel and Ray Warner.  Anyone interested should contact ABI Executive Director Sam Gerdano at SGerdano@abiworld.org. 

You can find more information about the Resident Scholars, including narratives about the activities of past Resident Scholars here.   

Bob

Robert Lawless
Professor of Law and Galowich-Huizenga Faculty Scholar
University of Illinois College of Law
rlawless@illinois.edu

6th Circuit BAP Rules that Student Loan Litigation Can be Ripe Early in Chapter 13 Case

In re Cassim,  395 B.R. 907 (6th Cir. BAP November, 2008)

Issue:   Is the issue of whether a student loan should be discharged for undue hardship “ripe” at the beginning of a chapter 13?                     

Holding:    Yes, at least here where the debtor’s condition will not change during the plan period.   

This chapter 13 debtor filed an adversary proceeding to have her student loans of $22,000 discharged.  She filed the AP shortly before her chapter 13 plan was confirmed.  Her plan was $50 per month which was sufficient to pay only her attorney for the chapter 13 case.  No creditor would receive a distribution.  She was disabled with monthly income of $675 from social security.   The lender filed a “motion to dismiss for lack of subject matter jurisdiction” saying the matter was not ripe.  The bankruptcy court denied the motion. 

The BAP affirmed.  “The constitutional ripeness of a declaratory judgment action depends upon ‘whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.’”  “Delay of the dischargeability determination would deprive Cassim of the opportunity to pay any non-dischargeable student loan debt and attorneys fees related to the adversary proceeding through the chapter 13 plan as well as potential loss of the automatic stay.  The Bankruptcy Code’s  purpose is to provide a debtor with a fresh start.  Requiring a debtor to wait until after completion of the plan and entry of the general discharge may well unnecessarily prolong that fresh start.”  “We reject the notion raised by ECMC that because there is a chance that Cassim will not complete her plan and qualify for a general discharge, any determination of dischargeability is too speculative to warrant the issuance of a declaratory judgment.  Confirmation of Cassim's plan was premised on a finding that ‘the debtor will be able to make all payments under the plan[.]’  Indeed, ECMC has never asserted any facts suggesting that Cassim will not be able to complete her plan; its concern is strictly hypothetical.”  “Moreover, it is noteworthy in the present case that there is no suggestion that Cassim's completion of her plan will ‘significantly advance our ability to deal with the legal issues presented[.]’”

The BAP cited an 8th Circuit case, Bender v. Educ. Credit Mgmt. Corp. (In re Bender), 368 F.3d 846 (8th Cir.2004).   “In that case, the Eighth Circuit held that the student loan dischargeability claim was not ripe three and a half years before the general discharge would occur.  The court noted that the exception for a hardship discharge must be measured considering the facts at the time of discharge and rejected the debtor's argument that her situation was ‘so dire, and the possibility of improvement so remote, that a court could determine whether repayment of her student loans three and a half years down the road would constitute undue hardship.’ Id. at 848.  The court held that ‘[d]eferring a decision until the case is ripe will allow a court to make its undue hardship determination on the basis of real rather than speculative circumstances.’”  The 8th Circuit commented that “such proceedings should take place relatively close to that date so that the court can make its determination in light of the debtor's actual circumstances at the relevant time.”  The BAP distinguished the facts of Bender saying that this debtor’s situation will not change during the plan period and therefore the case is different. 

The BAP commented in a footnote, “Because the Appellant did not raise the issue on appeal, the Panel will not address whether a 0% plan, which pays only a debtor's attorney fees for filing the bankruptcy case, meets the good faith requirement for plan confirmation under 11 U.S.C. § 1325(a)(3).”

5th Annual Bankruptcy Ethics Symposium

The Bankruptcy Section of the Federal Bar Association and the Los Angeles Chapter of the Federal Bar Association is sponsoring the

5th Annual Bankruptcy Ethics Symposium

On Friday, December 12, 2008, 8:30 a.m. at

725 South Figueroa Street
Los Angeles, California

The flyer can be accessed here. 

10h Circuit Chimes in on "Projected Disposable Income" Rejecting a Mechanical Test: In re Lanning

In re Lanning,  --- B.R.  ---, 2008 WL 4879134 (10th Cir. November, 2008)

Issue:   In determining “projected disposable income” for purposes of chapter 13 plan confirmation, should the court use the mechanical test set forth in the code or a “forward looking approach”?                     

Holding:    The mechanical approach “subject to a showing of substantial change in circumstances,” in other words the forward-looking approach. 

This is an above-median chapter 13 debtor.  Her I and J net income was $149.  Her B22C net disposable income was $1,114.  The reason for the difference was termination pay she received in the previous 6 months when she left her job at Payless.  She proposed a 36 month plan of $144 per month.  The trustee objected and proposed a 60 month plan of $756 “despite acknowledging that Ms. Lanning did not have the means to fund such a plan.”  The bankruptcy court rejected both positions saying “monthly disposable income’ reflected on Form B22C constituted ‘projected disposable income’ under § 1325(b)(1)(B), subject to a showing ‘that there has been a substantial change in circumstances such that the numbers contained in Form B22C are not commensurate with a fair projection of the debtor's budget in the future.’”  “The court also noted that the prefatory portion of § 1325(b)(1) requires the determination of ‘projected disposable income’ to be made ‘as of the effective date of the plan.’”  The bankruptcy court said the “mechanical approach” leads to an absurd result.  For one reason, if the debtor’s income has gone down, the debtor, who clearly would need bankruptcy help, could not get a plan confirmed.   The bankruptcy court reasoned that the schedule I income less the B22C deductions resulted in a negative numberin this case.   He said, “[n]othing prevents debtors from electing to pay more than the statutory means test requires, in order to meet the requirement that a plan must be feasible.”  He then confirmed the plan at $145 per month for 60 months.   The trustee appealed. 

The BAP affirmed.  “The BAP adopted a rebuttable presumption that the Form B22C figures were correct subject to a showing of ‘a substantial change in circumstances’ by way of documentation similar to that required by Chapter 7 debtors under the means test.”

The 10th Circuit also affirmed.  It said, “Congress left § 1325(b)(1)(B) substantially unchanged (for present purposes).”  “[T]he Bankruptcy Code should not be read ‘to erode past bankruptcy practice absent a clear indication that Congress intended such a departure.”  It went through an analysis of the cases so far dealing with the issue.  It concluded the “forward looking approach” was closest to what Congress intended.  “[T]he mechanical approach advocated by the Trustee would effectively foreclose bankruptcy protection to debtors like Ms. Lanning, who lack adequate income going into the commitment period to pay the amount of disposable income on Form B22C, while at the same time permitting above-median debtors who have greater income at the time of plan confirmation to pay less to unsecured creditors than they are able to.”    

Judge Robert L. Krechevsky 1922-2008

Thanks to Bob Hiller,

First chief judge of the Connecticut Bankruptcy District court died earlier this month at age 86.  Article from the Connecticut Law Journal can be accessed here.

Circuit Court of Appeals Cases for Last Week

3rd Circuit Court of Appeals, November 04, 2008
In re Sterten, --- F. 3d ---, 2008 WL ------ (3rd Cir. 2008)(judgment for Truth in Lending Act (TILA) defendant affirmed)

5th Circuit Court of Appeals, November 06, 2008
In the Matter Of: Entringer Bakeries Inc., --- F. 3d ---, 2008 WL ------ (5th Cir. 2008)(pre-petition transfers avoided where the "earmarking" doctrine did not apply)

7th Circuit Court of Appeals, November 06, 2008
Moglia v. Pac. Employers Ins. Co., --- F. 3d ---, 2008 WL ------ (7th Cir. 2008)(issue is enforcement of arbitration clause against trustee and whether matter is ripe for appeal)

9th Circuit Court of Appeals, November 05, 2008
In the Matter of: Caneva, --- F. 3d ---, 2008 WL ------ (9th Cir. 2008)(judgment denying discharge for failure to keep sufficient records under Section 727(a)(3) is affirmed)

10th Circuit Court of Appeals, November 04, 2008
In re Rafter Seven Ranches L.P., --- F. 3d ---, 2008 WL ------ (10th Cir. 2008)(judgment re liability for equipment leases affirmed)

Thanks to Findlaw.com

So Who Owns the Promissory Note?

This story is posted on wsj.com/law.  It seems Joanne Fredenburg, a widowed homeowner in Lehigh Acres, Fla., where real estate prices have plummeted was served with two foreclosure lawsuits from two different plaintiffs that both claimed to own her promissory note and mortgage and said she owed them each more than $276,000.  One of the complaints alleges that the promissory note cannot be found and seeks equitable relief resolving the issue in favor of the plaintiff.  The story (posted on Nov. 14) including the two complaints can be accessed here.   

Judge Samuel Bufford in Los Angeles is requiring lenders moving for relief from stay to bring the original promissory note into court at the time of the hearing and testimony from a witness who has personal knowledge that the debtor actually owes the movant something.  I've been told that Motions for Relief are not being filed in his courtroom any longer.