Judge Perris Denies Discharge to Chapter 7 Debtors Under Section 727(a)(4)(A) for Making "a False Oath or Account"

By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, Andy@BLSforAttorneys.com

U.STrustee v. Killian and Lesser (In re Killian and Lesser)
Case No. 07-33641-elp7
November 17, 2008
Unpublished

This opinion, in which debtors were denied a Chapter 7 discharge for making a series of written and oral false oaths, is a painful-to-read story about very difficult debtors and their attorney and legal assistant, with a lot of pointing of fingers back and forth among them. It is a lesson in the kind of clients for debtors' attorneys to avoid, or else to educate very thoroughly at the beginning of representation. It also seems to be a lesson, admittedly from the perspective of the "Monday morning quarterback," of a number of important ways the attorney could have done a better job avoiding this situation.


Judge Perris' Holding

Given the egregiousness of the debtors' behavior as described in Judge Perris' factual findings, Judge Perris' decision to deny discharge is not surprising. She recited the four elements of a violation of § 727(a)(4)(A):

(1) the debtor made a false oath in connection with the case; (2) the oath related to a material fact; (3) the oath was made knowingly; and (4) the oath was made fraudulently.

The judge indicated that the first two elements were easily met as she recited a series of false oaths about debtors' assets and business affairs: 1) woefully incomplete original schedules signed under oath, 2) oral false oaths at the meetings of creditors (three meetings were needed), and 3) continued false oaths in amended schedules which still lacked significant information. These written and/or oral false oaths involved omitting numerous significant real estate transactions, continued ownership in significant items of jewelry, nondisclosure of multiple business ownerships, their disposal of jewelry and household furnishings recently purchased for many tens of thousands of dollars, and large amounts of undisclosed income. In the judge's words, debtors "omitted a breathtaking amount of significant financial information."

The key section of the opinion, on the last two elements, was introduced with: "The only remaining question is whether the false oaths were knowingly and fraudulently made." The judge determined as follows:

1) As to debtors' testimony that they were only presented by their attorney's legal assistant with the signature pages of the original bankruptcy documents, it was enough that their signatures represented that the information on them was true when it was not true: "That was a lie." Furthermore, debtors had access to the other pages and had the opportunity to review them before signing. Thus the false oath signatures on the original bankruptcy documents were knowingly and fraudulently made.
2) As to the amended bankruptcy documents, these were also false oaths knowingly and fraudulently made in that the debtors had been warned by the trustee at the original meeting of creditors of the inadequacy of the documents, a draft of the amended documents were emailed to clients, their attorney advised them to review them carefully, and yet they were still signed with a "continued failure to include anywhere near complete information."
3) And as to the debtors' testimony at the various meetings of creditors, the judge did not believe debtors "that their lawyer told them to lie under oath," and in any event "[i[t was the debtors . . . who were under oath" and '[i]t was debtors' obligation to tell the truth, regardless what their counsel may have said." So the oral false oaths were also knowingly and fraudulently made.

In sum, the debtors exhibited "a shocking level of disregard for the obligation to assure accuracy in the information provided in a bankruptcy case." "They utterly disregarded their obligation to tell the truth." The US Trustee met the four elements of

Because the justification for denial of discharge was so strong under § 727(a)(4)(A), Judge Perris did not see a need to go into three other potential statutory bases for denial of discharge.


The Monday Morning Quarterback's Areas of Improvement for Debtors' Counsel

This is a website for bankruptcy attorneys, authored by someone who spent seventeen years first as a creditors' and then mostly debtors' attorney, and then has spent the last eight years working as a paralegal for many attorneys, as an employee and on a contract basis,for those who run a tight ship and for those barely afloat. From these 25 years of varied experience, I have perhaps a better perspective on these kinds of situations than those who have primarily seen this situation from only one angle. And because I have lots of past experience in representing very difficult clients, poorly chosen and perhaps insufficiently "educated," contributing to very difficult ethical problems, I have both sympathy and strong warnings for attorneys who allow themselves and their staff to get sloppy.

In that spirit, here are some attorney-client problems Judge Perris' opinion highlights, all the more important as bankruptcy work heats up and the temptation to cut corners rears its head:

[This portion being edited--please return in a few minutes. Thanks for your interest. Please feel free to comment--I respond to all comments.]

by: Andrew Toth-Fejel
Bankruptcy Litigation Support for Attorneys
Andy@BLSforAttorneys.com

Please note that this writer is not licensed to practice law in Oregon. This means that he is not legally permitted to give any legal advice or provide and legal services. This Bulletin and the entire contents of this website is written only for attorneys. and is not intended for the public. If any non-attorney is reading this, you must consult an attorney about ANYTHING you read here. Nothing in this website is intended to be nor should be read as being legal advice to anyone.

© 2008 Bankruptcy Litigation Support for Attorneys

Ninth Circuit Overturns BAP in Preserving Creditor's Non-Dischargeability Claim Against Embezzling Debtor After Creditor's Payment of Preference

By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, Andy@BLSforAttorneys.com

Busseto Foods, Inc. v. Laizure (In re Laizure)
Ninth Circuit Court of Appeals, Case No. 06-16857
November 17, 2008

In this opinion released on Monday, the Ninth Circuit overturned both the bankruptcy court and the BAP (Bankruptcy Appellate Panel) in holding that a creditor which paid the trustee a preference preserved its right to pursue the debtor on its nondischargeability claims. The lower courts had ruled that the creditor could not pursue the debtor for nondischargeability because at the time the debtor filed the bankruptcy case he owed nothing to the creditor; having paid off the creditor during the preferential period, the debt only arising again post-petition after that creditor paid back the preferential payment to the trustee. This was strictly a case of statutory construction, focusing on the meaning of § 502(h) of the Bankruptcy Code, apparently the first time this issue has been addressed by any Circuit Court.

The Crucial Facts
Debtor embezzled from his employer while he was its controller and CFO, and after leaving employment arranged to repay the employer. Within 90 days after his final payment of about $39,000, debtor and his wife filed a Chapter 7 bankruptcy, and trustee demanded employer pay the $39,000 to the estate. While in negotiations with trustee about this and just before the filing deadline, employer filed an adversary proceeding alleging the nondischargeability of the debt under § 523(a)(4) of the Code. Employer then paid trustee $34,000 in settlement of the preference matter. It filed a proof of claim for that amount, but all of the Chapter 7 estate assets went to pay debtor's priority tax claims and the trustee's fees so employer received nothing through the estate. On debtor's motion, the bankruptcy court dismissed the employer's nondischargeability complaint on the basis that the debtor owed employer nothing on the date of the bankruptcy filing. The BAP affirmed; employer appealed.

The Statute
"Generally, § 502(h) allows claims arising from recovery of property by the trustee under § 550 the same as if the claim had arisen before the filing date of the bankruptcy petition."

§ 502(h) states in full:

A claim arising from the recovery of property under section 522, 550, or 553 of this title shall be determined, and shall be allowed under subsection (a), (b), or (c) of this section, or disallowed under subsection (d) or (e) of this section, the same as if such claim had arisen before the date of the filing of the petition.

Primarily at issue was whether the "claim" which "shall be allowed" was a claim against the estate or against debtor personally.

The Ninth Circuit's Rationale
The Court couched the issue as follows: "whether the trustee's action in requiring [employer] to pay to the bankruptcy estate the amount it received from [the debtor] deprived [the employer] of its nondischargeability claim."

Its statutory analysis focused on the word "determined," stating that "[t]here would be no reason to require a § 502(h) determination if it were subsumed by allowability, so the plain language of § 502 demonstrates that the determination is an independent inquiry." Also, "the statute's use of the word 'and' shows Congress' intent to reinstate both determined and allowed claims."

Then the Court noted that the "phrase 'determination of dischargeability' appears twice in § 523" (regarding exceptions to discharge). The Court found this important because § 523(a) introduces the list of exceptions to discharge by speaking of not discharging "an individual debtor from any debt," and this term "any debt" the Court found to be "certainly broad enough to apply to personal claims," so "if a § 550 claim is determined to be nondischargeable under § 502(h), § 523 permits that reinstated claim to be brought against the debtor personally."

The Ninth Circuit concluded with a public policy argument. "Here, allowing [the debtor] to avoid repaying the funds he embezzled from [the employer] would only encourage debtors to pay outstanding debts that are nondischargeable and later file for bankruptcy protection, thus avoiding the nondischargeability of their debt under the veil of our bankruptcy laws." The Court remanded the case back to the bankruptcy court to resolve the employer's nondischargeability complaint against the debtor.

The Bottom Line
Creditors who are paid in full before debtor files a bankruptcy case, and so are not owed anything by the debtor as of the date of filing, may nevertheless pursue the debtor on a nondischargeability complaint if the creditor ends up returning some of the payments to the trustee on a preference claim. Therefore, if a creditor has reason to believe it will be pursued on a preference claim, that creditor should file a nondischargeability complaint against the debtor if it has grounds to do so, even if the creditor was owed nothing on the date of filing the case. The seeming lack of a debt at the date of filing of the petition will no longer preclude creditor from pursuing debtor on nondischargeability as to any preference funds it pays to the trustee.

by: Andrew Toth-Fejel
Bankruptcy Litigation Support for Attorneys
Andy@BLSforAttorneys.com

Please note that this writer is not licensed to practice law in Oregon. This means that he is not legally permitted to give any legal advice or provide and legal services. This Bulletin and the entire contents of this website is written only for attorneys. and is not intended for the public. If any non-attorney is reading this, you must consult an attorney about ANYTHING you read here. Nothing in this website is intended to be nor should be read as being legal advice to anyone.

© 2008 Bankruptcy Litigation Support for Attorneys

New Chapter 13 Mortgage Modification Bill Introduced During Lame-Duck Session

By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, Andy@BLSforAttorneys.com

Earlier this week Senator Richard Durbin introduced another Chapter 13 mortgage modification bill, S.3690, during this lame-duck session of Congress. It is called the Homeowner Assistance and Taxpayer Protection Act. Here is the full text of the bill in the Congressional Record for 11/17/08, with Senator Durbin's introductory speech. In truth this bill is highly unlikely to pass during this short session--which is expected to be over with in a matter of days, but in light of all the political and financial upheavals since last spring when a somewhat similar bill was narrowly defeated in committee, this new version merits at least a few moments of attention. The bill is very likely to be reintroduced early in the next Congress.

The Proposed Modification Language

We have all heard much talk about a Chapter 13 mortgage modification amendment to the Bankruptcy Code during the last year or so, with this issue and other bankruptcy law reform proposals even getting into the campaign speeches and website of candidate Obama. See my Bulletin from late August entitled Prospects for Amendments to BAPCPA Under an Obama-Biden Administration.

But have you ever looked at the terms of any of these mortgage modification proposals? Frankly, the details are quite interesting.The core language would amend section 1322 of the Code ("Contents of plan") so a chapter 13 plan would be able to modify a secured claim secured solely by the debtor's principal residence, as follows:

(A) modify an allowed secured claim secured by the debtor's principal residence, as described in subparagraph (B), if, after deduction from the debtor's current monthly income of the expenses permitted for debtors described in section 1325(b)(3) of this title (other than amounts contractually due to creditors holding such allowed secured claims and additional payments necessary to maintain possession of that residence), the debtor has insufficient remaining income to retain possession of the residence by curing a default and maintaining payments while the case is pending, as provided under paragraph (5); and

(B) provide for payment of such claim--


(i) in an amount equal to the amount of the allowed secured claim;
(ii) for a period that is not longer than 40 years; and
(iii) at a rate of interest accruing after such date calculated at a fixed annual percentage rate, in an amount equal to the most recently published annual yield on conventional mortgages published by the Board of Governors of the Federal Reserve System, as of the applicable time set forth in the rules of the Board, plus a reasonable premium for risk."

So if Chapter 13 debtors would be able to work their budget into the calculations indicated, they would be permitted to reduce their mortgage claim down to the value of their residence, change the interest rate as indicated, and increase the term for up to 40 years.

Other Noteworthy Provisions of the Homeowner Assistance and Taxpayer Protection Act

• A Chapter 13 plan would also be able to provide for the waiver of any prepayment penalty.
• The credit counseling requirement would be waived for any debtor who files a certification that her principal residence has been scheduled for a foreclosure.
• The recent Emergency Economic Stabilization Act would be amended to require instead of merely encourage the Department of the Treasury, the Federal Reserve, the FDIC and FHFA to restructure mortgage loans which these entities now own or have a controlling interest in.
• Loan servicers would be required to restructure mortgage loans that qualify for the Hope for Homeowners program, rather than simply be encouraged to do so.
• Creditors would be required to go through a noticing procedure to add any post-petition contractual fees or costs to a claim secured by a principal residence, thereby avoiding the addition of hidden costs.
• The Bankruptcy Code amendments would apply to cases filed on or after the date of enactment, as well as cases pending on that date.
  

The "Taxpayer Protection" Portion of the Bill

Senator Durbin's website's news release contains the following summary of the remaining non-bankruptcy provisions of the bill:

"The financial rescue bill also failed to put in place enough taxpayer protections. Congress meant for banks to use the money provided by the Treasury to lend to qualified borrowers, rather than enriching their shareholders and executives. Recent reports indicating that AIG will lavish more than a half billion dollars on its employees at the same time that it receives an even larger $152 billion taxpayer bailout than originally announced speaks loudly to this problem.

"Durbin’s bill would add additional taxpayer protections by:

• Baring banks participating in the Capital Purchase Program, authorized by the Emergency Economic Stabilization Act, from increasing common share dividends as long as the government owns preferred shares; and by
• Requiring participating banks to reduce the next year's dividends in an amount equal to the compensation paid to the top five executives in excess of $500,000."

by: Andrew Toth-Fejel
Bankruptcy Litigation Support for Attorneys
Andy@BLSforAttorneys.com

Please note that this writer is not licensed to practice law in Oregon. This means that he is not legally permitted to give any legal advice or provide and legal services. This Bulletin and the entire contents of this website is written only for attorneys. and is not intended for the public. If any non-attorney is reading this, you must consult an attorney about ANYTHING you read here. Nothing in this website is intended to be nor should be read as being legal advice to anyone.

© 2008 Bankruptcy Litigation Support for Attorneys

New Oregon Employment Data: The Trends Behind the News

By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, Andy@BLSforAttorneys.com

Yesterday (11/17/08) the Oregon Employment Department released statewide employment data for October 2008, highlighted by an unusually large 0.9% one-month increase in the unemployment rate to 7.3%. Even though the national average unemployment rate also went up--from 6.1% to 6.4%--this increase took the state in one month from slightly worse to significantly worse than the national average. Next month will give a better idea of the trend, particularly compared to the national average, but this large monthly unemployment rate increase is certainly troublesome considering the continued negative economic indications locally and nationally.

The news reports focus on a few items of that most grab the public's attention, but here I'll instead 1) provide easy access to the direct sources for this news, and 2) then give some valuable yet less publicized information gleaned from these sources.

The Sources

a) Here is the basic News Release from the State of Oregon Employment Department, a two-page summary of the employment and unemployment data for the month, broken down by industry.

b) A much more detailed 8-page report from the same source entitled Oregon’s Employment Situation: October 2008, which includes a number of tables and graphs, including a table of data comparing October 2008, September 2008, & October 2007 employment data broken down by industry and sub-industry.

c) The increase in the unemployment rate has triggered an Extended Benefit program for Oregon unemployment benefits, beginning the week of December 7, 2008. This is in addition to the usual 26-week program and the previously implemented 13-week Emergency Unemployment Compensation program. Here is a FAQ's sheet about this.

d) And here is a long Oregonian article on the story, although largely a re-hash of the Employment Department's data it also includes some noteworthy observations from some knowledgeable people such as Oregon's state economist Tom Potiowsky, Oregon Senate President Peter Courtney, and John McGrath, owner of McGrath's Fish House, a 20-restaurant chain.


Important, Less Publicized Analysis

1) The Oregon Unemployment Rate Trend
The seasonally adjusted unemployment rate from January through June of 2008 had hovered between 5.4 and 5.6%, but has generally been climbing since then, with July at 5.9%, August at 6.5%, September at 6.4%, and now October at 7.3%.

2) Longer-Term Oregon Unemployment History
Although the unemployment rate has climbed steeply in the last few months, it has not (yet?) reached the early 2002 high point of about 7.9% or the highest point of the decade at about 8.5% in mid-2003. However, Tom Potiowsky, the state economist is saying that the rate could reach or exceed 8%, and others are predicting it will hit double-digits.

3) Total Payroll Employment Trends
Since mid-2003, Oregon nonfarm payroll employment had climbed from about 1,580,000 to a high of about 1,740,000 in very early 2008, but has fallen off sharply since especially this summer, with a reduction of 24,500 jobs since October 2007, and 3,100 of those between just September and October 2008.

4) Employment in the Legal Services Sub-industry
This sub-industry of the "Professional and business services" industry has continued to stay quite stable in the last year, with about 12,800 employees, no indicated change from last month, and about an increase of 100 since October of 2007. Compare this, for example, with one of the other sub-industries in the same industry, with a similar size employee base, "Architectural and engineering services," which lost about 300 positions in the last month and 1,700 in the last year.

The Next Shoe to Drop
The state economist, Tom Potiowsky, issues his quarterly economic forecast on Wednesday, 11/19/08.

by: Andrew Toth-Fejel
Bankruptcy Litigation Support for Attorneys
Andy@BLSforAttorneys.com

Please note that this writer is not licensed to practice law in Oregon. This means that he is not legally permitted to give any legal advice or provide and legal services. This Bulletin and the entire contents of this website is written only for attorneys. and is not intended for the public. If any non-attorney is reading this, you must consult an attorney about ANYTHING you read here. Nothing in this website is intended to be nor should be read as being legal advice to anyone.

© 2008 Bankruptcy Litigation Support for Attorneys

Debtor's Error in Social Security Number on Petition Results in Failure to Discharge Tax Debt

By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, Andy@BLSforAttorneys.com

Ellett v. Goldberg (In re Ellett)
Ninth Circuit Court Case No. 05-16677
October 29, 2007


In this case of first impression for the Ninth Circuit, indeed for any Circuit, the Court held that if a debtor prepares a bankruptcy petition with an inaccurate social security number, containing one inaccurate digit, the bankruptcy notice with that inaccuracy sent to a creditor does NOT put the creditor on sufficient notice to protect its rights, even if that notice included the debtor's accurate name and address. Accordingly, more than $21,000 of otherwise dischargeable tax liabilities were left not discharged after this debtor's Chapter 13 case.

The Facts
This individual debtor filed his Chapter 13 case before BAPCPA (when FRBP Rule 1005 required that the bankruptcy petition include the debtor's entire social security number not just its last four digits). His petition was filed with an inaccurate last digit in his security number. So a tax creditor, the California Franchise Tax Board (FTB) received a bankruptcy notice with the inaccurate social security number, and did not file a proof of claim or participate in any other way in the Chapter 13 case because its records showed no debt owed by the person with that social security number. The FTB's usual procedure when a social security number did not match the name on the petition was to put this information into a special list, and FTB's policy provided "an alternative procedure for an FTB employee to investigate further and attempt to match the name of the debtor to the correct SSN. This procedure, however, was used infrequently, if at all, due to resource limitations." The creditor here did not attempt to match the debtor with an accurate social security number, and so did not connect this taxpayer to his Chapter 13 case filing until after the claims bar date had passed.

After the completion of the Chapter 13 case and entry of discharge, the FTB contacted debtor to attempt to collect the debt, and debtor filed an adversary proceeding to determine dischargeability of the debt. The bankruptcy court held that the tax debt was not discharged because the erroneous social security number left FTB without proper notice, the U.S. District Court affirmed, and debtor appealed.

The Ninth Circuit's Rationale
The Court weighed the debtor's obligation to provide accurate identifying information--the social security number--against the creditors' obligation to identify the debtor from the other accurate information--name and address--it had received. Its rationale was that a § 1328(a) discharge covers "all debts provided for by the plan or disallowed under section 502" of the Code, and that a debt is not "provided for" if it does not receive adequate notice of the case. But what is adequate notice? Although this was a case of first impression, the Court spent most of its analysis reviewing its own and other related case law in answering this question. It concluded that, in spite of the fact that FTB had readily accessible information, between its records and the accurate information on the petition, to identify the debtor, and indeed had a policy and procedure to do so:

[the debtor] was in the best position to list the correct SSN on his petition and comply with the additional requirements of Rule 1005 of the Federal Rules of Bankruptcy Procedure. Requiring a creditor to ferret out a debtor’s correct identity when incorrect identifying information is provided would be overly burdensome and inappropriate. . . . . Here, due to [the debtor’s] negligence in listing an erroneous SSN on his bankruptcy petition and § 341(a) notice, proper notice was not provided to the FTB. Consequently, [debtor's] Chapter 13 plan did not “provide for” the FTB taxes. The FTB should not be punished because [debtor] failed to provide proper notice including his correct SSN.

Observation
The Court came to this conclusion in spite of the tax creditor having sufficient information very readily available to connect the bankruptcy notice it had received to the correct taxpayer. The Court is close to saying that if there is ANY inaccuracy in the petition information, the creditor has no duty to investigate, no duty to look at the other, accurate, information provided to it by the debtor or at the creditor's own records, to identify the debtor. The Court is being very solicitous of the governmental agency's administrative burden, perhaps recognizing both their limited personnel resources and contemporary realities of computer automation requiring that such information be completely accurate in order to be efficiently found in creditors' databases.

The Clear Bottom Line
Clearly debtors' attorneys must take extreme care to ensure that all of debtors' identifying information is accurate as shown on their bankruptcy petitions, including adding to their client disclosure forms a place for clients to sign or initial that the clients verify the accuracy of that petition information. Otherwise, the Professional Liability Fund will be paying off such nondischarged debt.


by: Andrew Toth-Fejel
Bankruptcy Litigation Support for Attorneys
Andy@BLSforAttorneys.com

Please note that this writer is not licensed to practice law in Oregon. This means that he is not legally permitted to give any legal advice or provide and legal services. This Bulletin and the entire contents of this website is written only for attorneys. and is not intended for the public. If any non-attorney is reading this, you must consult an attorney about ANYTHING you read here. Nothing in this website is intended to be nor should be read as being legal advice to anyone.

©2008 Bankruptcy Litigation Support for Attorneys

U.S. District Judge Rules That Debtor's Attorney's Withdrawal from Representation Can Be Conditioned on Refund of Attorney Fees & Waiver of Balance

By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, Andy@BLSforAttorneys.com


Muhlheim Boyd, LLP v. U.S. Trustee (In re Ryan)
District Court of Oregon Case No. 08-6250-HO
October 31, 2008

This unpublished opinion explores the interplay between the Oregon Rules of Professional Conduct and the U.S. District Court Local Rule 83.11(a) on the withdrawal of counsel. District Court Judge Michael Hogan ruled that bankruptcy judge Albert Radcliffe did not abuse his discretion when it offered debtor's attorney "the option of waiving its fees as a condition of withdrawal as counsel or continued representation of the debtor and the ability to seek fees."

Facts
Muhlheim Boyd LLP (Muhlheim) was substituted as counsel for an individual Chapter 7 debtor after the U.S. Trustee moved to dismiss the case for abuse and debtor's original attorney (probably sensibly) determined that she did not have sufficient expertise to continue to represent her. Debtor paid Muhlheim a retainer of $1,000. After working with the assigned Muhlheim attorney "over several weeks," the debtor "determined that it was not worth paying [Muhlheim] to proceed further with the case"--she "decided she could not afford it and asked [Muhlheim] to withdraw from representation." She was not dissatisfied with the firm's services, but said "that she was ready to proceed pro se." She "later asserted that she would love to be represented but that she can't afford it."

Muhlheim filed a motion to withdraw, to which the U.S. Trustee objected on the basis that there were pending discovery requests and other deadlines. At a hearing on this motion Judge Radcliffe did not accept Muhlheim's argument that it could no longer ethically represent the debtor because the debtor had discharged the firm, determining that "the withdrawal was sought for financial reasons." The judge noted that the original attorney would likely be refunding to debtor part of the $1,700 she had paid to her, funds which could be available to pay Muhlheim. So Judge Radclifffe gave Muhlheim three days to either refund the $1,000 retainer and be withdrawn from the case, or else the motion to withdraw would be denied. The next day Muhlheim refunded the $1,000. The "Trustee" (U.S.Trustee?) then sought clarification whether Muhlheim could ask for attorney fees for its services, and in the meantime the original attorney refunded all of her fees. Judge Radcliffe "clarified its order regarding withdrawal to note that unless [Muhlheim's attorney] files a declaration within 5 days that he is not waiving his fees, his motion to withdraw is granted and his fees are deemed waived and that if such declaration is filed, the motion to withdraw is denied and he is permitted to require payment for the $1,000 previously refunded." Muhlheim challenged this order on the basis that it violated the Oregon Rules of Professional Conduct and the Bankruptcy Code, and sought to have the order amended. Judge Radcliffe denied this motion. Muhlheim appealed.

Judge Hogan's Specific Holdings and Rationales

1) Oregon Rules of Professional Conduct 1.16: Judge Radcliffe did not abuse his discretion in conditioning Muhlheim's withdrawal as counsel on its refunding and waiving of all attorney fees, since the judge had considered all of the pertinent issues "and made a compromise." "[D]ispite the unusual ruling, it cannot be said such a compromise is an abuse of discretion." And as for Muhlheim's assertion that to continue representation after being discharged by its client was unethical under Oregon Rules of Professional Conduct 1.16(a) (which states that "a lawyer . . . shall withdraw from the representation of a client if: . . . the lawyer is discharged"), Judge Hogan pointed out that ORPC 1.16(a) is expressly conditioned on ORPC 1.16(c), which states:

A lawyer must comply with applicable law requiring notice to or permission of a tribunal when terminating a representation. When ordered to do so by a tribunal, a lawyer shall continue representation notwithstanding good cause for terminating the representation.

2) Section 329 of the Bankruptcy Code: In response to Muhlheim's argument "that it was denied notice and a hearing about its property right to fees for its services," Judge Hogan agreed that the "Ninth Circuit has noted that some sort of notice and hearing is required if the bankruptcy court materially reduces the amount sought by a fee applicant." He remanded to the bankruptcy court to give Muhlheim an opportunity to present legal argument and evidence about its fees.

Curious Sidenote about Application of Local Rule
Judge Hogan referred for support of his position to LR 83.11(a) of the U.S. District Court's Local Rules of Civil Procedure. This Local Rule states in pertinent part that "An attorney may withdraw as counsel of record only with leave of Court, if doing so leaves the party unrepresented or without local counsel." But this Local Rule appears not to be applicable to bankruptcy court. LR 2100.3(b) states that the "bankruptcy court Local Rules . . . apply to all matters before a bankruptcy judge." Local Bankruptcy Rule 9029-3 states that "LR's 2100 - 2300 apply to cases and adversary proceedings in this court. The other LR's do not apply unless specifically referred to in an LBR." I have found no LBR that specifically refers to LR 83.11(a). So it was not applicable to the case before Judge Radcliffe.

The Bottom Line

1) Be well aware that ORPC 1.16(c) allows any judge to require an attorney to continue representation even in the face of good cause for ending representation. And an appellate judge will be very reluctant to second-guess a trial judge's exercise of discretion between these inherently competing interests.

2) Judge Radcliffe understandably tried to provide for the debtor the funds with which to pay for continued representation. But his "compromise," at least from the information in Judge Hogan's opinion, seemed to give nothing to the two debtor's attorneys and take everything away from them.

The original attorney, who presumably earned most if not all of her $1,700 of fees for counseling the debtor, preparing the petition documents, attending the meeting of creditors, and dealing preliminarily with the U.S. Trustee's abuse challenge, was forced to refund all her fees, apparently giving no credit at all to her efforts.

Then Judge Radcliffe gave Muhlheim the seemingly unfair choice of surrendering all of its $1,000 retainer, at least some of which it presumably had legitimately earned, in order to be permitted to withdraw from representation. At that time, accordin to Judge Hogan, the "court indicated that [the original attorney] would likely be required to refund a portion of the $1700 [debtor] had paid her for representation which could be used to pay Muhlheim ... ." Under these circumstances, the Muhlheim attorney, represented to the judge at that hearing that the firm would refund the retainer. On the very next day after that hearing, not knowing whether the original attorney would indeed refund her fees but reasonably relying on being able to request to be paid from such a potential refund, Muhlheim refunded its own $1,000 retainer. Then a few days later the original attorney did refund all of her fees. But another two days later Judge Radcliffe "clarified its order," imposed a NEW condition for Muhlheim's withdrawal, now requiring it to waive its fees or else continue representation.

Although I recognize that I do not know the full story as it unfolded before the judge, his imposition of this second condition, after Muhlheim acted in reasonable reliance and satisfied the first condition, seems like insult on injury. The real lesson: the time-honored principles of contract law do not apply to judges.


by: Andrew Toth-Fejel
Bankruptcy Litigation Support for Attorneys
Andy@BLSforAttorneys.com

Please note that this writer is not licensed to practice law in Oregon. This means that he is not legally permitted to give any legal advice or provide and legal services. This Bulletin and the entire contents of this website is written only for attorneys. and is not intended for the public. If any non-attorney is reading this, you must consult an attorney about ANYTHING you read here. Nothing in this website is intended to be nor should be read as being legal advice to anyone.

©2008 Bankruptcy Litigation Support for Attorneys

After 18 Years of Litigation Ninth Circuit Holds $2.8 Million Medical Malpractice Judgment "Not Non-Dischargeable" Under Section 523(a)(6)

By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, Andy@BLSforAttorneys.com


Ditto v. McCurdy (In re McCurdy)
Ninth Circuit Case No. 02-16252
December 14, 2007

This Ninth Circuit opinion addressed both substantive issues about nondischargeability "for willful and malicious injury by the debtor" under § 523(a)(6) of the Bankruptcy Code, and various procedural issues including the retroactive effect of a Supreme Court opinion decided during the pendency of a case. The nondischargeability matters are addressed in this Bulletin, the procedural one in an upcoming weekly Litigation Report.

Ninth Circuit's Holding
In the Ninth Circuit quoted the U.S. Supreme Court in Kawaauhau v. Geiger, 523 U.S. 57 (1998), “debts arising from recklessly or negligently inflicted injuries do not fall within the compass of § 523(a)(6).” Therefore, in this case the debtor, a plastic surgeon, could discharge a malpractice claim against him in the amount of nearly $2.8 million after a state supreme court reversed a portion of the judgment, dismissing the portion based on fraud and affirming the portion based on gross negligence.

Procedural History
This case is noteworthy in the length and number of appeals. Briefly, the plaintiff filed her malpractice case in state court in 1989, won a judgment in 1992, when defendant filed an appeal to Hawaii Intermediate Court of Appeals and also filed his bankruptcy case, resulting in this adversary proceeding being filed by plaintiff in 1993, initially resulting in a summary judgment for plaintiff based on pre-Kawaauhau v. Geiger law. But in 1997 the state court case reached the Hawaii Supreme Court, which overturned a fraud claim and left only the gross negligence one, after which defendant filed an FRCP Rule 60(b) motion in bankruptcy court to set aside the nondischargeability summary judgment in light of the Hawaii Supreme Court decision. The bankruptcy court denied this motion, as did the district court on appeal, but the Ninth Circuit in 2000 remanded to the bankruptcy court with instructions to grant the motion to set aside the summary judgment. At the rehearing in bankruptcy court the defendant then moved for summary judgment, which was granted by the bankruptcy court, the district court affirmed, and the matter was now back at the Ninth Circuit for a final decision, no less than the sixth appellate decision on the matter, eighteen years after the case was originally filed.

The Ninth Circuit's Rationale

"[A]s to the exact mental state required of the debtor in order for a debt to fall into the [§ 523(a)(6)] exception," before Geiger in 1998 some circuits, "including this circuit, interpreted § 523(a)(6) to include unintended injuries, so long as the acts themselves were deliberate, wrongful, and necessarily caused injury." In contrast, the Supreme Court in Geiger "stated definitively that 'debts arising from recklessly or negligently inflicted injuries do not fall within the compass of § 523(a)(6)'." The plaintiff, besides arguing against retroactive application of Geiger (a subject of my upcoming Litigation Report), asserted that her "malpractice judgment rested, in part, on [defendant's] failure to adequately disclose the risks inherent in her surgery," and negated her consent to the surgery, thus making her claim an intentional tort, "an unconsented touching--in other words, a battery."

But the Court here responded that "[t]he failure to obtain informed consent, without evidence of intent to injure, does not give rise to a willful and malicious injury within the meaning of § 523(a)(6)." "The elements of this cause of action--duty, breach, causation, damages--are those of a negligence claim." "In order to qualify for the § 523(a)(6) “willful and malicious” exception to discharge, therefore, the debtor must have acted with either the desire to injure or a belief that injury was substantially certain to occur." Without any such evidence, defendant's debt "is not non-dischargeable under § 523(a)(6)."

by: Andrew Toth-Fejel
Bankruptcy Litigation Support for Attorneys
Andy@BLSforAttorneys.com

Please note that this writer is not licensed to practice law in Oregon. This means that he is not legally permitted to give any legal advice or provide and legal services. This Bulletin and the entire contents of this website is written only for attorneys. and is not intended for the public. If any non-attorney is reading this, you must consult an attorney about ANYTHING you read here. Nothing in this website is intended to be nor should be read as being legal advice to anyone.

©2008 Bankruptcy Litigation Support for Attorneys

New Streamlined Home Mortgage Modification Program: Making Sense of Yet Another Federal Effort to Rescue Homeowners

By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, Andy@BLSforAttorneys.com

On November 11, 2008 the federal government announced another major home mortgage modification program. It is being presented by the Federal Housing Finance Agency (FHFA), which was established by the Housing and Economic Recovery Act of 2008 signed into law on July 30, 2008, the same agency which took control of Fannie Mae and Freddie Mac in September by authority of that Act. This Bulletin focuses on the bankruptcy aspects of this story, plus outlines the program's main components, and concludes with some of the key perceived shortcomings of the new program as highlighted by some of the immediate criticism that greeted it the very day it was presented.

The Bankruptcy Aspects

Most important for bankruptcy practitioners, this program is NOT available to homeowners in bankruptcy. According to the "Questions and Answers on the Streamlined Modification Program" attached to FHFA's news release about it, an eligible homeowner is one who "has not filed bankruptcy." This is in contrast to the Hope for Homeowners program of the federal Department of Housing and Urban Development (HUD), which IS available to debtors in bankruptcy, according to Oregon Chapter 13 trustee Brian Lynch, who is Chair of the Loss Mitigation Subcommittee of the Mortgage Liaison Committee of NACTT (National Assn. of Chapter Thirteen Trustees).

(Please see my two earlier Bulletins, on the Housing and Economic Recovery Act of 2008 entitled
The Impact of the New Major New Federal Housing Law on Your Bankruptcy Practice, and on The Hope for Homeowners Program Launched on Oct. 1, 2008: What Do I Need to Know About It?)

What is the effect of this and various other mortgage modification programs--governmental as well as a recent series of them by major mortgage holders--on the prospects for the oft-proposed Chapter 13 mortgage modification amendment? I have been monitoring the blogosphere of bankruptcy attorneys and law professors and have not recently seen any noteworthy analysis about this. The facts on the ground seem to be moving too fast to allow for time for analysis. But with the Presidential election now decided, everybody is will be trying to discern what steps the Obama administration will take on bankruptcy legislation and other ways of dealing with the mortgage crisis, as the ground continues to move quickly beneath us.

The FHFA's "Streamlined Modification Program"

For a brief outline of the new program, click here for statements on November 11 by FHFA head James Lockhart and by Treasury Interim Assistant Secretary for Financial Stability Neel Kashkari.

Eligibility: Owner-occupied as primary residence, three or more missed payments, "has not filed bankruptcy," with "a Freddie Mac, Fannie Mae or portfolio loan with participating investors. . . . must certify that he or she experienced a hardship or change in financial circumstances, and did not purposely default to obtain a modification."

"Streamlined"?: This program requires less documentation and processing, largely by using a "benchmark ratio of housing payment to monthly gross household income" of 38%. "This is the first time the industry has agreed on an industry standard. . . . Once the affordable payment is determined, there are several steps the servicer can take to create that payment – extending the term, reducing the interest rate, and forbearing interest. In the event that the affordable payment is still beyond the borrower’s means, the borrower’s situation will be reviewed on a case-by-case basis using a cash flow budget."

The Procedure: A "seriously delinquent borrower should contact his or her servicer and provide the requested information – monthly gross household income, association dues and fees, and a hardship statement." "Upon receiving the Modification Agreement from the servicer, the borrower signs it and returns it with the 1st payment at the modified terms along with income verification. Once the borrower makes three payments at the modified terms and the account is current as of day 90 of the modified plan, the modification is complete."

Effective Date: December 15, 2008.

Limitations on and Criticism of the New FHFA Program

Even though FHFA's Director James Lockhart made a point of stating that "we have drawn on the FDIC’s experience and assistance, and have greatly benefited from the FDIC’s input," and indeed the new program is largely based on a similarly streamlined one formulated by FDIC for IndyMac mortgages after its takeover of that lender, nevertheless the FDIC's outspoken chairman Sheila Bair used the occasion to both applaud the step and continue her argument that some of the recently approved bailout funds be used to deal directly with the foreclosure problem.

U.S. Senator Charles Schumer also released a statement on the same day as the new FHFA program was announced complaining that this program will work only where "Fannie and Freddie hold the whole loan, which is true in too few cases" . . . . “When the loan is chopped up into a million pieces . . . any investor can block a modification from happening.” Instead Schumer again argued for loan modification through bankruptcy code amendment as the best solution to get at this otherwise intractable problem. Depending on how the ground continues to move beneath us, the larger majorities of Democrats in both Houses of Congress two months from now may be able to overcome the heretofore strong Republican and banking industry opposition to this bankruptcy component.

FHFA's Lockhart anticipated this concern about this program only dealing with mortgages owned or guaranteed by Fannie Mae and Freddie Mac, and effectively pleaded with other mortgage holders to use this program as a model for their own efforts:

Although these [Fannie and Freddie] mortgages only represent 20% of serious delinquencies, I believe their leadership role combined with the many partners of HOPE NOW should spread this approach throughout the whole mortgage loan servicing business. The performance of private label mortgage backed securities that were sliced and diced and sold to investors is just the opposite of Fannie Mae’s and Freddie Mac’s. Private label securities represent less than 20% of the mortgages but 60% of the serious delinquencies. As the regulator of the housing GSEs that own over a quarter of a trillion dollars of private label securities, I ask the private label MBS servicers and investors to rapidly adopt this program as the industry standard. Not only will this streamlined program assist borrowers, but broad acceptance and effective implementation could stabilize communities and property values.

Query: Does the bankruptcy disqualification apply only to homeowners in pending bankruptcy cases or also to those who have recently completed a Chapter 7 or 13 case? And if a homeowner qualifies for and signs the Modification Agreement, can she file a bankruptcy case after the three months of new payments "completes" the modification? We should have more guidance about such critical details in early December when the implementing regulations are completed.

by: Andrew Toth-Fejel
Bankruptcy Litigation Support for Attorneys
Andy@BLSforAttorneys.com

Please note that this writer is not licensed to practice law in Oregon. This means that he is not legally permitted to give any legal advice or provide and legal services. This Bulletin and the entire contents of this website is written only for attorneys. and is not intended for the public. If any non-attorney is reading this, you must consult an attorney about ANYTHING you read here. Nothing in this website is intended to be nor should be read as being legal advice to anyone.

©2008 Bankruptcy Litigation Support for Attorneys

The Now-Limited Right to Convert from Chapter 7 to 13, & from Chapter 13 to 7: the U.S. Supreme Court's Marrama and the 9th Circuit's Rosson Opinions

By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, Andy@BLSforAttorneys.com


Marrama v. Citizens Bank of Massachusetts
127 S.Ct. 1105
Decided February 21, 2007

In a Bulletin on this website in September entitled There's An Absolute Right for a Debtor to Dismiss a Chapter 13 Case, Right? NO, the Ninth Circuit Said on 9/24/08, I summarized the Ninth Circuit opinion Rosson v. Fitzgerald (In re Rosson),---- F. 3d ----, 2008 WL 4330558 (9th Cir 2008), which addressed conversion of a Chapter 13 case to a Chapter 7 one. In that opinion the Ninth Circuit expressly overturned a long-standing Ninth Circuit BAP opinion, based on the authority of the 2007 U.S. Supreme Court Marrama opinion cited above. Marrama dealt with conversion of a Chapter 7 case to Chapter 13, while Rosson dealt with conversion from Chapter 13 to 7. Because of its differences from and broader application than Rosson, and simply because it is one of the relatively rare Supreme Court bankruptcy opinions, Marrama is definitely worth knowing well.


Supreme Court Holding
Marrama involved the right of a debtor to convert a Chapter 7 case to Chapter 13 under § 706(a). The Supreme Court held "that the right to convert to Chapter 13 was impliedly limited by the bankruptcy court’s power to take any action necessary to prevent bad-faith conduct or abuse of the bankruptcy process."

The Facts and Procedural Context
This opinion provides a vague standard for determining when debtors have a right to convert to Chapter 13, but its very vagueness demands that it be well understood in order to be able to counsel clients on this issue. So knowing the facts in this opinion--the specific "bad-faith conduct or abuse of the bankruptcy process" which confronted the Supreme Court here--is critical.

The debtor filed a Chapter 7 case showing that he was the sole beneficiary of a trust that owned a residence with no value as to him personally. He also stated in his documents or at the Meeting of Creditors that he had not transferred any assets in the year before filing, had no tax refunds pending, and no debts owed to him. In fact, the residence "had substantial value, and Marrama had transferred it into the newly created trust for no consideration seven months prior to filing his Chapter 13 petition," with the intent of protecting it from his creditors. And months before the case was filed, he had submitted to the IRS an amended tax return showing a refund, which ended up being more than $8,700. Mr. Marrama was clearly not a forthright debtor.

Yet he sought to convert to Chapter 13 on the basis that he became employed in the meantime, with the primary argument that he had an absolute right to convert under the plain language of §706(a) of the Code. The bankruptcy court disagreed and denied his motion to convert, holding that debtor's concealment of assets constituted bad faith. The BAP affirmed, as did the First Circuit Court of Appeals. And yet in spite of all this unanimity in the lower courts, this was a 5-4 decision at the Supreme Court, with the more "liberal" and "centrist" members of the Court--Stevens, Kennedy, Souter, Ginsburg, and Breyer, siding in favor of the trustee and a creditor against the debtor, while the "conservative" members--Alito, Roberts, Scalia, and Thomas--sided with the debtor.

The Statute
In essence this was a dispute about statutory construction. The pertinent statutes are subsections (a) and (d) of §706, which provide:

(a) The debtor may convert a case under this chapter to a case under chapter 11, 12, or 13 of this title at any time, if the case has not been converted under section 1112, 1208, or 1307 of this title. Any waiver of the right to convert a case under this subsection is unenforceable.
(d) Notwithstanding any other provision of this section, a case may not be converted to a case under another chapter of this title unless the debtor may be a debtor under such chapter.

The Majority's Rationale
Justice Stevens' majority opinion acknowledged that the legislative history of §706 states that "[s]ubsection (a) gives the debtor the one-time absolute right to conversion of a liquidation case to a reorganization or individual repayments plan case." But Stevens' asserts that the direct "reference to an 'absolute right' of conversion is more equivocal that petitioner suggests." His opinion focuses on subsection (d) allowing conversion only if the debtor "may be a debtor" in Chapter 13, and from there argues that conversion to Chapter 13 is not appropriate if the debtor runs afoul of § 1307(c), the provision which governs dismissals and conversions of Chapter 13's "for cause."

§ 1307(c) "includes a nonexclusive list of 10 causes justifying" dismissal or conversion, none of which "mentions prepetition bad-faith conduct."

Bankruptcy courts nevertheless routinely treat dismissal for prepetition bad-faith conduct as implicitly authorized by the words 'for cause.' In practical effect, a ruling that an individual's Chapter 13 case should be dismissed or converted to Chapter 7 because of prepetition bad-faith conduct, including fraudulent acts committed in an earlier Chapter 7 proceeding, is tantamount to a ruling that the individual does not qualify as a debtor under Chapter 13. . . . . The text of §706(d) therefore provides adequate authority for the denial of his motion to convert.

The Court's Dissatisfactory Ambiguity
So what guidance does the majority opinion give to distinguish what Chapter 7 debtors may convert to 13 from those whose "bad-faith" provides "cause" disallow conversion? The answer is intentionally ambiguous: "The class of honest but unfortunate debtors who do possess an absolute right to convert their cases from Chapter 7 to Chapter 13 includes the vast majority of the hundreds of thousands of individuals who file Chapter 7 petitions each year." At that point the Court inserts this footnote: "We have no occasion here to articulate with precision what conduct qualifies as 'bad faith' sufficient to permit a bankruptcy judge to dismiss a Chapter 13 case or to deny conversion from Chapter 7. It suffices to emphasize that the debtor's conduct must, in fact, be atypical." So the Court reiterates "an absolute right to convert . . . to Chapter 13" if the debtor is of the "class of honest but unfortunate debtors," but not if the debtor is "atypical"!

Dissent
This Bulletin cannot focus nearly as much attention on Justice Alito's dissenting opinion, although it was nearly as long as the majority opinion and arguably better reasoned.

Briefly, the dissent read § 706(a) and (d) plainly to state that a Chapter 7 debtor may convert to Chapter 13 as long as she meets the two "--and only two--" stated conditions: that 1) there have been no prior conversions to Chapter 7 and 2) the debtor meets the necessary conditions to "be a debtor under such chapter [13]." "By contrast, the Code pointedly does not give the bankruptcy courts the authority to deny conversion based on a finding of 'bad faith.' There is no justification for disregarding the Code's scheme."

The dissent asserted that "§706(d)'s requirement that a debtor may convert only if 'the debtor may be a debtor under such chapter' " "obviously refers to the chapter-specific requirements of §109" (which is entitled "Who may be a debtor"). For example, to qualify to be a debtor under Chapter 13, §109(e) refers to the familiar jurisdictional "noncontingent, liquidated" secured and unsecured debt limits for "an individual with regular income" to be able to file a Chapter 13 case. The dissent strongly disagreed with the majority's contrary focus on §1307(c) as a basis for restricting conversion to Chapter 13:

§1307(c) plainly does not set out requirements that an individual must meet in order to 'be a debtor' under Chapter 13. Instead, §1307(c) sets out the standard ("cause") that a bankruptcy court must apply in deciding whether, in its discretion, an already filed Chapter 13 case should be dismissed or converted to Chapter 7. Thus, the Court's holding in this case finds no support in the terms of the Bankruptcy Code.

by: Andrew Toth-Fejel
Bankruptcy Litigation Support for Attorneys
Andy@BLSforAttorneys.com

Please note that this writer is not licensed to practice law in Oregon. This means that he is not legally permitted to give any legal advice or provide and legal services. This Bulletin and the entire contents of this website is written only for attorneys. and is not intended for the public. If any non-attorney is reading this, you must consult an attorney about ANYTHING you read here. Nothing in this website is intended to be nor should be read as being legal advice to anyone.

©2008 Bankruptcy Litigation Support for Attorneys

Will President-Elect Obama Now Make Chapter 13 Mortgage Modification Part of His First-100-Days Economic Plan?

By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, Andy@BLSforAttorneys.com

What did Barack Obama say before his election about bankruptcy reform in general and specifically about mortgage modification through bankruptcy, and what is likely to occur now that he is the President-elect?

In my Bankruptcy Bulletin on August 28 of this year titled Prospects for Amendments to BAPCPA Under an Obama-Biden Administration, I referred to references in candidate Obama's website to his proposed reforms to bankruptcy law and to his speech the prior month almost exclusively on bankruptcy reform issues. I said "in Barack Obama's website one of his 10 key bullet-points on the Economy is 'Reform Bankruptcy Laws.' He proposes amending bankruptcy law to allow modifications of mortgages, and to create some kind of streamlined medical bankruptcy."

I concluded that Bulletin with:

Perhaps a more realistic view turns on broader economic and political developments in the next few months. IF Obama-Biden win in November, and especially IF there are some Democratic gains, as is generally expected, in both the House and the Senate, there will be tremendous political pressure on the Democrats to address the foreclosure and other economic problems. The new Housing and Economic Recovery Act's $300 billion voluntary program to refinance troubled mortgages begins being implemented on October 1, 2008, with much speculation about whether it will indeed help 400,000 households as was projected. If this program, and the other components of the Act, are successful, together with all the other forces on the real estate and financial sectors, at significantly improving the foreclosure and general economic situation, there may be less pressure to act. Given that this is just a few months from now, a greatly improved outlook seems doubtful. More likely BANCAP reform of some sort would be part of their "first 100 days" plan.

Obama gave his speech and these bankruptcy reforms were put on his website, and I wrote the above, before the incredible financial events of September and October. Obama-Biden did win the election, the Congressional gains by the Democratic party were even larger than many expected, including Gordon Smith's very close loss to Jeff Merkley in the Senate here in Oregon, and the Help for Homeowners program was implemented more than a month ago. And my conclusion that "a greatly improved outlook seems doubtful" now seems like a vast understatement, making it more likely that something dramatic to deal directly with the foreclosure situation will be part of Obama's economic plan. But with so much else unexpected that has happened, I believe that some initiative bigger than, or perhaps in conjunction with, Chapter 13 mortgage modification will be implemented.

Here is a sampling of what the blogosphere is saying about the current prospects for bankruptcy law reform and specifically Chapter 13 mortgage modifications.

At the outset, the Housing and Economic Recovery Act's Hope for Homeowners voluntary FHA refinancing program has gotten off to a very slow start since October 1 when it went into effect, according to the blog story entitled Government's Mortgage Relief Program Not Popular. It states that in contrast to the initial publicized goal to help as many as 400,000 homeowners in its three-years in existence, "it appears that [Hope for Homeowners] is turning out to be just one more failed attempt to break the foreclosure crisis, as less than 100 people applied for the program last month. The FHA [now] projects that only 13,300 struggling homeowners will actually use the program during the first year."

In mid-October Senator Chris Dodd (D-CT), Chairman of the Senate Banking, Housing, and Urban Affairs Committee, made the following announcement, contained on his Committee's website: DODD . . . OUTLINES CONSUMER-FOCUSED AGENDA TO COMPLETE ECONOMIC RECOVERY. Issues pertinent to foreclosures covered two of the four items in his agenda:

Homeownership Preservation: 9,800 families enter foreclosure each day. We should declare a temporary moratorium on foreclosures so that lenders, servicers and homeowners can come together to try to restructure their loans on terms agreeable to all. Bankruptcy Reform: It is irrational and unjust that a family that owns one home receives less protection under our laws than a family that owns two or more homes. The average American homeowner should be able to seek the protection of bankruptcy court to save his or her home.

And according to a blog story entitled Senate banking chairman: credit card reform on tap:

the Connecticut Democrat [Dodd] said he plans to include credit card reform as well as bankruptcy law reform in a package of consumer protection measures he hopes to schedule during special hearings in November or when Congress returns from winter break in January under a new administration.

Here's a day-after-election blog story: Obama will usher in credit card reform, observers say: Bankruptcy, mortgage reform and credit card industry rules on tap, which includes:

Sam Gerdano, executive director of the American Bankruptcy Institute, a nonpartisan educational research foundation, agreed that pressure is on for quick results and passage of something to help debt-ridden consumers. He said members of the current, lame duck 110th Congress, may attempt to pass consumer-friendly legislation and hope that President Bush will sign it before leaving office.

And finally, here is a day-after-election plea by a Florida attorney for quick mortgage modification amendment to the bankruptcy law: President Elect Obama-Congratulations-Please Amend the Bankruptcy Code.

by: Andrew Toth-Fejel
Bankruptcy Litigation Support for Attorneys
Andy@BLSforAttorneys.com

Please note that this writer is not licensed to practice law in Oregon. This means that he is not legally permitted to give any legal advice or provide and legal services. This Bulletin and the entire contents of this website is written only for attorneys. and is not intended for the public. If any non-attorney is reading this, you must consult an attorney about ANYTHING you read here. Nothing in this website is intended to be nor should be read as being legal advice to anyone.

© 2008 Bankruptcy Litigation Support for Attorneys