February 5, 2010
Circuit Court of Appeals Cases from Last Week6th Circuit Court of Appeals, January 25, 2010
B-Line, LLC v. Wingerter, --- F.3d ---, 2010 WL ---------- (6th Cir. 2010)(bankruptcy court reversed in holding that plaintiff's purchase of a creditor's claim against the debtors was not valid and bankruptcy court abused its discretion in determining that plaintiff's actions violated Rule 9011(b))
February 3, 2010
ABA Preview of the Supreme Court Magazine
This is a great publication I just discovered. I am going to write the preview of the Lanning case, oral arguments coming in March.
The current highlights: www.supremecourtpreview.org (on the right hand column)
The archives: http://www.abanet.org/publiced/preview/highlights.shtml
(Click on the link for “Complete PREVIEW Article” to get the url for the Preview for a specific case.)
Illinois Judge Rules Unemployment is not a Benefit Under Social Security and Therefore is part of CMI
Brief by my associate, Roksana Moradi
In re Kucharz, 418 B.R. 635 (Bkrtcy C.D. Ill, Oct 2009)
Issue: Is unemployment compensation a “benefit received under the Social Security Act” and thus excluded from a Chapter 13 debtor's current monthly income?
The Debtor, Jonathan Kucharz, received unemployment compensation totaling $1,230.00 during the six-month period preceding his bankruptcy filing. He disclosed the unem-ployment compensation but claimed “it as a benefit under the Social Security Act that, as such, does not need to be included in the calculation of his current monthly income.” The Chapter 13 Trustee disagreed and objected.
Current monthly income (CMI) is defined in Section 101(10A) as follows:
(B) includes any amount paid by any entity other than the debtor (or in a joint case the debtor and the debtor's spouse), on a regular basis for the household expenses of the debtor or the debtor's dependents (and in a joint case the debtor's spouse if not otherwise a dependent), but excludes benefits received under the Social Security Act, payments to victims of war crimes or crimes against humanity on account of their status as victims of such crimes . . .
The Social Security Act of 1935 (hereinafter “SSA”) “incentivized the states to adopt conforming laws to pay unemployment insurance benefits to their involuntarily unem-ployed citizens.” Congress “rejected the alternative of a uniform national unemployment insurance system, preferring instead to preserve the autonomy of the states to adopt their own systems.” The incentive for the states to act was a financial one, provided through the Federal Unemployment Tax Act (FUTA), 26 U.S.C. §§ 3301-3311. FUTA imposes an excise tax on wages paid by employers. An employer, however, is allowed a credit of up to 90% of the federal tax for contributions the employer pays to a state fund established under a federally approved state unemployment compensation law. In order to protect the employer contributions against loss, the states are required to invest the funds with the U.S. Treasury. Id. The states' funds are deposited and held in an ‘Unemployment Trust Fund.’ 42 U.S.C. § 1104.”
The court said the legislative history is “inconclusive” and that “the combination of the historical link to the SSA and the element of federal-state collaboration on behalf of un-employment compensation gives rise to the ambiguity.” The court determined that the “inquiry is more specific than whether there is merely an historical link between the SSA and unemployment compensation. Unemployment payments are excluded only if they are properly characterized as benefits received under the Social Security Act. It is not sufficient that the benefits are merely ‘related to’ or ‘envisioned by’ or ‘induced by’ the SSA. More is required. They must have been received under the SSA.”
The Court found the preposition under to be both “the cause of and the key to unlock the mystery. In the context of its usage in Section 101(10A), ‘under’ means ‘required by’ or ‘in accordance with’…Neither the SSA nor FUTA requires the states to enact an unemployment insurance program. As determined by the Supreme Court, inducement is not coercion, and the unemployment insurance programs that were adopted in all 50 states are truly state, not federal, programs. Unemployment benefits are paid as required by state law, not by the SSA. Thus, a purely textual analysis favors the conclusion that unemployment benefits are not received under the SSA.”
The Court did not stop there, “because the language of the provision is ambiguous, it is appropriate to also consider a contextual analysis…Chapter 13 plan payments are based, in part, on the income that a debtor is expected to receive during the term of the plan. The CMI calculation uses a 6-month lookback period as an indicator of future income, in-cluding earnings from employment. So the CMI formula serves a predictive function… Unemployment compensation is a temporary, partial substitute for wages lost due to the involuntary unemployment of one who intends to return to the workforce. The theory behind CMI is premised upon the assumption that their recent earnings history is a valid predictor of how much debtors are likely to earn in the future. Since unemployment benefits replace lost wages, including those benefits in the CMI calculation is consistent with the predictive purpose of the provision. Excluding those benefits would be inconsistent with the statute's policy and purpose. The fallacy of using $0 during periods of temporary unemployment as a predictor of future earnings once the debtor is reemployed seems obvious.” Thus the Court concluded that a “contextual analysis weighs in favor of including unemployment benefits in a debtor's CMI.”
The Court ruled that unemployment compensation, received in the six months before bankruptcy, must included in CMI.
Great New Article from Ronald Mann and Katie Porter
Saving Up for Bankruptcy, Georgetown Law Journal, Jan. 10, 2010
This is a great article, especially since it agrees with what I have been saying forever. Most consumers who file chapter 7 are driven to it by credit card collectors. Chapter 13s of course are driven by foreclosure sales.
This Article looks beneath the raw bankruptcy numbers and examines the mystery of why so few of the consumers for whom bankruptcy would be economically valuable actually choose to file. What prompts the few who seek bankruptcy relief at any given moment to separate themselves from the mass who do not?
From the abstract:
This paper probes the puzzle of why only a few of those for whom bankruptcy would be economically valuable ever choose to file. We use empirical evidence about the patterns of bankruptcy filings to understand what drives the point in time at which the filings occur, and to generate policy recommendations about how the bankruptcy and debt-collection system sorts those that need relief from those that do not.
The paper combines three kinds of data. First, quantitative data collected from judicial filing records that show the weekly, monthly, and annual patterns of bankruptcy filings. Second, 40 interviews with industry professionals (consumer and creditor attorneys, trustees, and judges) from five states (Georgia, Iowa, Massachusetts, Nevada, and Texas). The interviews probe why people file when they do and what distinguishes those that choose to file from those that hold off. Third, survey data from the 2007 Consumer Bankruptcy Project, the first nationally representative sample of bankrupt households. The survey data explores the struggles families endure before they choose to file.
The data support two empirical findings. The first is about the role of aggressive collection in motivating bankruptcy filings. Generally, apart from foreclosure-related filings, the emergency bankruptcy filing is largely a myth. Creditor collection activity does not force people into an immediate bankruptcy. On the contrary, it wears them down slowly but ineluctably, like water dripping on a stone. Second, the primary factor that affects the date on which people actually file is their ability to save up the money to pay their attorneys and filing fees. Thus, among other things, we see an annual peak shortly after families receive their tax refunds, and a semi-monthly peak related to the receipt of paychecks.
Finally, we build two important policy recommendations on those findings. First, we argue that the existing collection process is flawed by a prisoner’s dilemma that leads to excessive and wasteful “dunning” by creditors. Because each creditor has an incentive to be first in line to collect, and because the creditors can dun their debtors at little or no cost to themselves, creditors as a group naturally engage in dunning activities that debtors find intolerable – a level of activities from which a rational single creditor would refrain. We recommend a variety of solutions to strengthen the FDCPA. Some are at the level of detail (extending it to in-house collection, increasing the statutory damages, and the like). But the most important is a “do-not-call” rule modeled on the do-not-call list for telemarketers. Specifically, we recommend a low-transaction-cost mechanism (activated by telephone call or Internet site) that would automatically and immediately stop all creditor collection activity.
Second, corollary to our argument that excessive collection causes inappropriate filings, we also believe that the excessive filing costs deter socially valuable filings. To respond to that problem, building on earlier work, we argue that low-income low-asset filers should have access to a simplified administrative process that provides prompt relief without the costs and delay of judicial process.