January 10, 2009
Circuit Court of Appeals Cases from Last Week
2nd Circuit Court of Appeals, January 06, 2009
In re Smart World Techs., LLC, --- F,3d ---, 2008 WL ----- (2nd Cir. 2009)(the bankruptcy court's Retention Order was a pre-approval within the meaning of 11 U.S.C. section 328(a) and no subsequent developments warranted modifying the terms of appellee-firm's retention)
2nd Circuit Court of Appeals, January 09, 2009
CFCU Cmty. Credit Union v. Hayward, --- F,3d ---, 2008 WL ----- (2nd Cir. 2009)(New York's homestead exemption increase from $10,000 to $50,000, applies retroactively)
6th Circuit Court of Appeals, January 07, 2009
Settembre v. Fidelity & Guar. Life Ins. Co., --- F,3d ---, 2008 WL ----- (6th Cir. 2009)(Appeal of a district court reversal of a bankruptcy court grant of summary judgment on creditor's complaint for denial of discharge is dismissed where a decision by the district court on appeal remanding the bankruptcy court's decision for further proceedings in the bankruptcy court is not final)
6th Circuit Court of Appeals, January 09, 2009
Shaw v. Aurgroup Fin. Credit Union , --- F,3d ---, 2008 WL ----- (6th Cir. 2009)(District court order affirming the bankruptcy court's denial of confirmation of Chapter 13 bankruptcy plan is affirmed because section 1325(a) is mandatory, and a court has no discretion to confirm a plan which does not comply with that statute)
7th Circuit Court of Appeals, January 08, 2009
In re Wiese, --- F,3d ---, 2008 WL ----- (7th Cir. 2009)(Family dairy farmers who released their lender liability claims against their bank as part of their confirmed Chapter 12 plan, are bound by that release after case was dismissed. In finding "cause" to order this, the bankruptcy court acted within its discretion under 11 U.S.C. section 349(b))
Thanks to Findlaw.com
January 9, 2009
How Big is a Trillion?
To count to a trillion would take 31,000 years (at one number per second). When my son Desmond told me that last night, my wife commented that maybe he does have some of my DNA.
A trillion dollars divided by 300 million American would give $3,333 to each man, woman and child.
Interest on a trillion dollars at 5% is $137 million a day. Take a look at the National Debt Clock. The National Debt is increasing at the rate of $5 million per minute.
With a trillion dollars you could build 6.7 million $150,000 homes.
Text of New "Helping Families Save Their Homes" Senate Bill
S. 61 - Senator Durbin's New Bankruptcy Bill
A summary of the bill is provided below:
Section 1. Short Title. Section 1 sets forth the short title of the bill as the "Helping Families Save Their Homes in Bankruptcy Act of 2009."
Section 2. Eligibility for Relief. Bankruptcy Code section 109(e) sets forth secured and unsecured debt limits to establish a debtor's eligibility for relief under chapter 13, currently equal to just over $1 million of secured debts and abotu $330,000 of unsecured. Section 2 amends this provision to provide that the computation of of these debt limits does not include the secured or unsecured portions of debts secured by the debtor's principal residence, if:
First, the current value of the debtor's principal residence is less than the secured debt limit.
Second, if the debtor's principal residence was sold in foreclosure or the debtor surrendered such residence and the current value of such residence is less than the secured debt limit.
In addition, section 2 amends section 109(h) to waive the mandatory requirement that a debtor receive credit counseling prior to filing a chapter 13 case where the debtor has received notice that the holder of a claim secured by the debtor's principal residence may commence a foreclosure proceeding against such residence.
Section 3. Prohibiting Claims Arising from Violations of Consumer Protection Laws. Section 3 amends Bankruptcy Code section 502(b) to disallow a claim that is subject to any remedy for damages or rescission as a result of the claimant's failure to comply with any applicable requirement under the Truth in Lending Act or other applicable state or federal consumer protection law in effect when the noncompliance took place, notwithstanding the prior entry of a foreclosure judgment.
Section 4. Authority to Modify Certain Mortgages. Section 4 amends Bankruptcy Code section 1322(b) to permit modification of mortgages that are secured by the debtor's principal residence in specified respects. The modification authority applies in a chapter 13 case where the debtor's principal residence is the subject of a notice that a foreclosure may be commenced. New section 1322(b)(11) allows the court to modify the rights of a mortgagee by: (1) providing for payment of the amount of the allowed secured claim as determined under section 506(a)(1); (2) prohibiting, reducing, or delaying any adjustable interest rates applicable on and after the date the case is filed; (3) extending the repayment period of the mortgage for a period that is no longer than the longer of 40 years (reduced by the period for which the mortgage has been outstanding) or the remaining term of the mortgage beginning on the filing date of the case; and (4) providing for the payment of interest at an annual percentage rate calculated at a fixed annual percentage rate equal to that used for conventional mortgages as published by the Board of Governors of the Federal Reserve System, plus a reasonable premium for risk.
Section 5. Combating Excessive Fees. Section 5 amends Bankruptcy Code section 1322(c) to provide that the debtor, the debtor's property, and property of the bankruptcy estate are not liable for a fee, cost, or charge incurred while the chapter 13 case is pending and that arises from a debt secured by the debtor's principal residence, unless the holder of the claim complies with certain requirements. These
requirements consist of the following: (1) the holder files with the court an annual notice of such fee, cost, or charge (or on a more frequent basis as the court determines) before the earlier of one year of when such fee, cost, or charge was incurred or 60 days before the case is closed; (2) the fee, cost, or charge is lawful under applicable nonbankruptcy law, reasonable, and provided for in the applicable
security agreement; and (3) the value of the debtor's principal residence is greater the amount of the claim, including such fee, cost or charge. If the holder fails to give the required notice, such failure is deemed to be a waiver of any claim for fees, costs, or charges (as described in this provision) for all purposes. Any attempt to collect such fees, costs, or charges would constitute a violation of the
Bankruptcy Code's discharge injunction under section 524(a)(2) or the automatic stay under section 362(a). Section 5 further provides that a chapter 13 plan may waive any prepayment penalty on a claim secured by the debtor's principal residence.
Section 6. Confirmation of Plan. Section 6 amends Bankruptcy Code section 1325(a) to provide protections for a creditor whose rights are modified under new section 1322(b)(11). As a condition of confirmation, it requires a plan to provide that such creditor must retain its lien until the later of when the claim (as modified) is paid or the debtor obtains a discharge. In addition, the court must find that the modification is in good faith.
Section 7. Discharge. Bankruptcy Code section 1328 sets forth the requirements for discharge. Section 7 amends section 1328(a) to clarify that a claim modified under section 1322(b)(11) is not discharged to the extent of the unpaid allowed secured portion of the claim.
Section 8. Effective Date; Application of Amendments. Section 8(a) provides that the Act and the amendments made by it, except as provided in subsection (b), take effect on the Act's date of enactment. Section 8(b) provides that the amendments made by the Act apply to cases commenced under title 11 of the United States Code before, on, or after the Act's date of enactment.
January 8, 2009
Deal Between Citigroup and Senate
The Wall Street Journal is reporting that a "deal" has been reached between Citgroup and top Democrats in the Senate. This major player in the industry has agreed to withdraw its opposition to cramdowns on home mortgages. The article can be accessed here. I expect this legislation to pass later this month and then "whoa nelly."
Schizophrenic 9th Circuit Punts on In re Beverly
I can't post a brief on the new 9th Circuit published case of In re Beverly because the opinion says "see the BAP opinion - it's so good we didn't bother." The same 9th Circuit that ruled in Kagenveama that if the BAPCPA amendments, read literally (who are we anyway? - just the judge), lead to a ridiculous result, well who are we anyway? "Congress - you wrote it buddy!" But in Beverly where the BAP reversed the trial court after a lengthy trial and put doubt into many divorce settlements and other prepetition planning, the 9th couldn't be bothered.
In In re Beverly, the debtor and wife were in a nasty divorce. The debtor transferred his interest in a big house to his wife in exchange for her interest in his pension. Those were really their only two assets. As was made clear during the divorce, the two hated each other. The deal was made as part of a mediation, approved by the family court, and no one in the bankruptcy arena even suggested that the deal was not a fundamentally equal exchange or a fair result. The problem you say? Hubby, an attorney with a former client suing him for malpractice, had made several (written) comments to his wife's attorney that we need to get this deal done because I need to file bankruptcy and my creditors will get nothing because the pension will not be property of the estate, see Shumate v. Paterson. The trustee said this shows "actual intent" on his part to hinder creditors and that makes the transfer avoidable and is grounds for denial of the discharge.
So I repeat, "actual intent." Judge Donovan listened to everyone at trial at great length and made factual findings that there was no actual intent. The BAP reversed, see Wolkowitz v. Beverly (In re Beverly), 374 B.R. 221 (9th Cir. BAP July, 2007). On December 24, 2008, the 9th Circuit said, "1. Good job BAP" on the 548 fraudulent transfer issue," and "2. the 727 issue is not ripe so we won't decide that." I can't blame them on the 727 issue. If it's not final its not, but it's a shame that they could not have made that determination a year ago. But the conveyance issue is on the basis of actual intent which seems to me to lead to denial of the discharge (some day) and certainly another round of appeals and certainly more litigation in family court since wife will have to give her half of the house to the trustee.
The BAP opinion discusses California FTA law at length and how there is no "one free fraudulent conveyance" because it's a divorce. This was a great chance for the 9th Circuit to straighten that out but it just punted.
January 6, 2009
NACTT Writing Competition
The National Association of Chapter 13 Trustees is hosting a student writing competition. The article should be limited to 15 pages and "comment on a chapter 13 issue." It is due on April 30, 2009. The flyer with the information can be accessed here.
Bankruptcy Filings Up Again? I Don't Think So
The business section of the LA Times today had a little article entitled, "Bankruptcy filings by consumers soar." The sub-title is "More than 1 million, a 33% rise, sought court protection in 2008." There was of course a 33% increase from 2007 to 2008 - 1.06 million compared to about 801,000 - but filings in December, 2008 went down compared to November on a daily basis which was down compared to October, 2008. Total filings in 2008 are still significantly less than any pre-BAPCPA year going back to 1994. What is especially galling to me is the statement in the article that total filings in 2006 was 573,000 "the lowest level since 1998." That is flat out wrong. Filings in 1998 were almost 1.4 million - the 4th quarter of 1998 was 353,000 alone. 1997 was 1.4 million; 1996 was 1.25 million. But bankruptcy filings soar? I don't think so.
Total filings in December, 2008 were 95,403 compared to November of 91,355 (for only 18 business days) and 108,595 in October. I am certain that the fall off is due to the number of people waiting to see if there is a new law in 2009 which will permit homeowners to re-write their home mortgage. It appears that that will happen and the proposed bill that I saw applied only to cases filed after the law is enacted. I have personally told several persons to wait since they will accomplish more by filing in February or March than today. Of course it is only speculation that Congress will pass anything and heaven only knows what it will say but that appears to be the direction. So persons who have the luxury of waiting are waiting.
January 5, 2009
Judicial Clerkship Institute at Pepperdine
Boy, I wish I were a law clerk so I could attend this program. The faculty is an unbelievable cast. You can access the brochure here.
January 4, 2009
Supreme Court Bankruptcy Jurisprudence
Hennequin v. Clews, 111 U.S. 676 (1884)
Issue: When the debtor fails to return collateral to the owner of the collateral, is the resulting debt dischargeable under the Bankruptcy Act of 1867?
Justice Joseph P. Bradley
The debtor made loans to Hennequin secured by “certain collateral securities.” The debtor used the securities owned by Hennequin “by depositing them with third parties as collateral security to raise money for their own purposes,” at a time when Hennequin owed no debt to the debtor. “Hennequin demanded a return of the collaterals; but [the debtor] having failed in business, did not return them.” Hennequin sued for damages but the debtor filed bankruptcy and received a discharge. Hennequin sought an order that this debt was excepted from the discharge but the court in New York found the debt to be discharged.
The Supreme Court affirmed. Under the Bankruptcy Act of 1867, "no debt created by the fraud or embezzlement of the bankrupt, or by his defalcation as a public officer, or while acting in any fiduciary character, shall be discharged under this act." Citing Chapman v. Forsyth and Neal v. Clark,
[I]t is very difficult to distinguish [this case] in principle from the cases of commission merchants and factors failing to account for the proceeds of property committed to them for sale. There is no more -- there is not so much -- of the character of trustee in one who holds collateral securities for a debt, as in one who receives money from the sale of his principal's property -- money which belongs to his principal alone, and not to him -- and which it is his duty to turn over to his principal without delay. The creditor who holds a collateral, holds it for his own benefit under contract. He is in no sense a trustee. His contract binds him to return it when its purpose as security is fulfilled; but if he fails to do so, it is only a breach of contract, and not a breach of trust. A mortgagee in possession is bound by contract, implied if not expressed, to deliver up possession of the mortgaged premises when his debt is satisfied; but he is not regarded as guilty of breach of trust if he neglects or refuses to do so, but only of a breach of contract.
1. Justice Joseph P. Bradley was appointed to the Supreme Court in 1870 by President Ulysses Grant. He served for 22 years until 1892 when he died.