tag:blogger.com,1999:blog-15614633945484819962023-08-26T02:29:38.667-07:00Today's Practice-Critical Bankruptcy BulletinsBankruptcy Litigation Supporthttp://www.blogger.com/profile/03101092341657335203noreply@blogger.comBlogger129125tag:blogger.com,1999:blog-1561463394548481996.post-44923050804235519532010-02-12T06:00:00.000-08:002010-04-03T08:30:45.219-07:00What Damages Is a Debtor Entitled to in the Ninth Circuit for a Creditor’s Violation of the Automatic Stay, After Sternberg v. Johnston?<span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-size:78%;"><br />By Andrew <span class="blsp-spelling-error" id="SPELLING_ERROR_0">Toth</span>-<span class="blsp-spelling-error" id="SPELLING_ERROR_1">Fejel</span>, Bankruptcy Litigation Support for Attorneys, </span><a href="mailto:Andy@BLSforAttorneys.com"><span style="font-size:78%;">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></span></a><br /><br /></span></span><!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:trackmoves/> <w:trackformatting/> <w:punctuationkerning/> <w:validateagainstschemas/> <w:saveifxmlinvalid>false</w:SaveIfXMLInvalid> <w:ignoremixedcontent>false</w:IgnoreMixedContent> <w:alwaysshowplaceholdertext>false</w:AlwaysShowPlaceholderText> <w:donotpromoteqf/> <w:lidthemeother>EN-US</w:LidThemeOther> 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style=";font-family:";font-size:16;" ><span style="font-style: italic;"></span><span style="font-style: italic;"><br /></span><i style=""><o:p></o:p></i></span></b></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><b style=""><i style=""><span style=";font-family:";font-size:12;" ><o:p> </o:p></span></i></b></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size:100%;"><b style=""><i style=""><span style=";font-family:";" ><a href="http://www.ca9.uscourts.gov/datastore/opinions/2010/02/08/07-16870.pdf">Sternberg v. Johnston (In re Johnston)</a><o:p></o:p></span></i></b></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:100%;" >9th Circuit Court of Appeals Case Nos. 07-16870 & 08-15721<o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:100%;" >Original opinion of October 1, 2009, amended on February 8, 2010.<br /></span></p><p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:100%;" >Also, <a href="http://bulk.resource.org/courts.gov/c/F3/322/322.F3d.1178.01-56384.01-56319.html">In re Dyer</a>, 322 F. 3d 1178 (9th Cir. 2003).<br /></span></p><p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:100%;" ><br /></span><span style="font-family:arial;"></span></p><p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-family:arial;"><br /></span></p><p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:arial;font-size:130%;" ><br /></span></p><span style="line-height: 115%;font-family:";font-size:130%;" ></span><p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:130%;" ><o:p> </o:p></span></p> <p class="MsoNormal"><span style="line-height: 115%;font-family:";font-size:130%;" ><o:p> </o:p></span></p> <p style="text-align: justify;" class="MsoNormal"><span style="font-size:130%;"><b style=""><span style="line-height: 115%;font-family:";" >A. The Ninth Circuit Panel’s Amendment and Reference to <i style="">In re Dyer</i></span></b></span></p><p style="text-align: justify;" class="MsoNormal"><br /><span style="font-size:100%;"><b style=""><span style="line-height: 115%;font-family:";" ><i style=""><o:p></o:p></i></span></b></span></p><div style="text-align: justify;"> </div><p style="text-align: justify;" class="MsoNormal"><span style="line-height: 115%;font-family:";font-size:100%;" >Last October a Ninth Circuit panel upset a series of the circuit’s Bankruptcy Appellate Panel precedents and what had appeared to be the Ninth Circuit’s own precedents by <span style=""> </span>greatly limited the attorney fees which a debtor could receive for a creditor’s “willful violation” of the automatic stay under §362(k). Then on Monday, February 8, in response to petitions for a panel rehearing and for a hearing en banc, the panel issued an order amending its earlier opinion by adding to it one clarifying footnote. It emphasizes that the opinion focuses only on the damages permitted under §362(k), leaving open “the availability of contempt sanctions, including attorney fees, for violation of the automatic stay, where otherwise appropriate.” The footnote points to the 2003 Ninth Circuit opinion, <i style="">In re Dyer</i>, 322 F. 3d 1178 (9th Cir. 2003), for guidance on this civil contempt authority of the bankruptcy court.</span></p><p style="text-align: justify;" class="MsoNormal"><br /><span style="line-height: 115%;font-family:";font-size:100%;" ><o:p></o:p></span></p><div style="text-align: justify;"> </div><p style="text-align: justify;" class="MsoNormal"><span style="font-size:100%;"><b style=""><span style="line-height: 115%;font-family:";" >What do the combination of the <i style="">Sternberg v. Johnston </i>and<i style=""> In re Dyer </i>opinions tell us about the damages that a debtor is entitled to after a creditor violates the automatic stay?</span></b></span></p><p style="text-align: justify;" class="MsoNormal"><br /><span style="font-size:100%;"><b style=""><span style="line-height: 115%;font-family:";" ><o:p></o:p></span></b></span></p><div style="text-align: justify;"> </div><p style="text-align: justify;" class="MsoNormal"><span style="line-height: 115%;font-family:";font-size:100%;" ><o:p> </o:p></span></p><div style="text-align: justify;"> </div><p style="text-align: justify;" class="MsoNormal"><span style="font-size:130%;"><b style=""><span style="line-height: 115%;font-family:";" >B. Actual Damages: Attorney Fees & Emotional Distress under §362(k)</span></b></span></p><p style="text-align: justify;" class="MsoNormal"><br /><span style="font-size:100%;"><b style=""><span style="line-height: 115%;font-family:";" ><o:p></o:p></span></b></span></p><div style="text-align: justify;"> </div><p style="text-align: justify;" class="MsoNormal"><span style="line-height: 115%;font-family:";font-size:100%;" >§362(k) states, in pertinent part, that:<o:p></o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-left: 0.5in; text-align: justify;"><span style=";font-family:";font-size:100%;" >an individual injured by any willful violation of [the automatic] stay . . . shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.</span></p><p class="MsoNormal" style="margin-left: 0.5in; text-align: justify;"><br /><span style=";font-family:";font-size:100%;" ><o:p></o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="font-size:100%;"><b style=""><span style="line-height: 115%;font-family:";" >Attorney Fees<o:p></o:p></span></b></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="font-size:100%;"><i style=""><span style="line-height: 115%;font-family:";" >Sternberg v. Johnston</span></i></span><span style="line-height: 115%;font-family:";font-size:100%;" > dealt almost exclusively with the approximately $70,000 in debtor’s attorney fees that the bankruptcy court had awarded under §362(k). The Ninth Circuit panel held that a creditor is liable only for debtor’s “attorney fees related to enforcing the automatic stay and remedying the stay violation." The debtor could NOT recover his or her attorney fees "incurred in prosecuting the bankruptcy adversary proceeding in which he pursued his claim for those damages."<b style=""> For a summary of the panel’s rationale, as well as the factual background of the case, see my earlier Bulletin on the original <i style="">Sternberg v. Johnston</i> opinion titled </b><a href="http://blsbulletins.blogspot.com/2009/10/creditors-attorney-violated-automatic.html"><span style="">Creditor's Attorney Violated Automatic Stay for Not Acting Affirmatively to Stop Unexpected Domestic Relations Order, However Debtor's Attorney Fees Greatly Limited</span></a><span style="color: rgb(99, 36, 35);">.<br /></span></span></p><p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><br /><span style="line-height: 115%;font-family:";font-size:100%;" ><b style=""><span style="color: rgb(99, 36, 35);"><o:p></o:p></span></b></span></p><div style="text-align: justify;"> </div><p style="text-align: justify;" class="MsoNormal"><span style="font-size:100%;"><o:p> </o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="font-size:100%;"><b style=""><span style="line-height: 115%;font-family:";" >Emotional Distress<o:p></o:p></span></b></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 115%;font-family:";font-size:100%;" >The opinion also briefly addressed and affirmed, in a detailed footnote, a $20,000 award for debtor’s emotional distress. Relying heavily on the 2004 Ninth Circuit opinion, D<i>awson v. Washington Mutual Bank, F.A. </i>(<i>In re Dawson</i>), 390 F.3d 1139 (9th Cir. 2004), the panel made clear that:<o:p></o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin: 0in 0in 0.0001pt 0.5in; text-align: justify;"><span style="line-height: 115%;font-family:";font-size:100%;" >1) damages for emotional distress can be awarded without an egregious violation of the automatic stay by the creditor, and<o:p></o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin: 0in 0in 0.0001pt 0.5in; text-align: justify;"><span style="line-height: 115%;font-family:";font-size:100%;" >2) corroborating evidence of emotional distress is not needed if the bankruptcy court finds that the circumstances of the violation make it “obvious that a reasonable person would suffer significant emotional harm.”</span></p><p class="MsoNormal" style="margin: 0in 0in 0.0001pt 0.5in; text-align: justify;"><br /><span style="line-height: 115%;font-family:";font-size:100%;" ><o:p></o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin: 0in 0in 0.0001pt 0.5in; line-height: normal; text-align: justify;"><span style=";font-family:";font-size:100%;" ><o:p> </o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="line-height: normal; text-align: justify;"><span style="font-size:100%;"><b style=""><span style=";font-family:";" >The cited 2004 Ninth Ciruit <i style=""><a href="http://scholar.google.com/scholar_case?case=11421097793397543959&q=Dawson+v.Washington+Mutual+Bank,+F.A.+%28In+re+Dawson%29,+390+F.3d+1139+%289th+Cir.+2004%29.+&hl=en&as_sdt=400000000003"><span style="">Dawson</span><span style="font-style: normal;"> opinion</span></a></i></span></b><i style=""><span style=";font-family:";" > </span></i></span><span style=";font-family:";font-size:100%;" >(written by former Oregon Supreme Court Associate Justice Susan Graber) <b style="">is necessary reading for anyone considering pursuing an emotional distress claim.</b> This opinion determined that emotional distress damages fit within the “actual damages” referred to in § 362(k) (the former </span><span style=";font-family:";font-size:100%;" >§ 362(</span><span style=";font-family:";font-size:100%;" >h)), joining an “emerging consensus” on this contentious issue. Judge Graber then discussed in detail the delicate balancing act between allowing such claims to make a debtor whole after a creditor’s violation of the stay and avoiding frivolous claims of emotional distress. The court held “that a claim for emotional distress damages is available if the individual provides clear evidence to establish that significant harm occurred as a result of the violation.”</span></p><p class="MsoNormal" style="line-height: normal; text-align: justify;"><br /><span style=";font-family:";font-size:100%;" ><o:p></o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="font-size:100%;"><b style=""><span style="line-height: 115%;font-family:";" >Other Actual Damages, Punitive Damages<o:p></o:p></span></b></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 115%;font-family:";font-size:100%;" >Other than actual damages in the form of attorney fees, which was the focus of <i style="">Sternberg v. Johnston</i>, the opinion mentions that the bankruptcy court had awarded nearly $3,000 in actual damages in that “the stay violation had hindered [debtor’s] ability to work.” <span style=""> </span>This was not an issue on appeal. Nor were punitive damages.</span></p><p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="font-size:130%;"><br /></span><span style="line-height: 115%;font-family:";font-size:130%;" ><o:p></o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 115%;font-family:";font-size:130%;" ><o:p> </o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 115%;font-family:";font-size:130%;" ><o:p> </o:p></span></p><div style="text-align: justify;"> </div><p style="text-align: justify;" class="MsoNormal"><span style="font-size:130%;"><b style=""><span style="line-height: 115%;font-family:";" >C. Permitted Attorney Fees for Automatic Stay Violations Under <i style="">Dyer<o:p></o:p></i></span></b></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="font-size:100%;"><b style=""><span style="line-height: 115%;font-family:";" ><span style="font-size:130%;"><br /></span></span></b></span></p><span style="font-size:100%;"><b style=""><span style="line-height: 115%;font-family:";" >Short Background</span></b></span><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 115%;font-family:";font-size:100%;" >In <i style="">Dyer</i> the court addressed a willful violation of the automatic stay consisting of a creditor recording a deed of trust weeks after the filing of a Chapter 7 case. The bankruptcy trustee sought to avoid the lien on the real estate and to sanction the creditor for violating the stay. The case on appeal focused on the bankruptcy court’s civil contempt authority of 11 U.S.C. § 105(a) and the court's inherent sanction authority, because the more direct damages provision for automatic stay violations of § 362(k) is not available to trustees.<o:p></o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 115%;font-family:";font-size:100%;" ><o:p> </o:p></span></p><div style="text-align: justify;"> </div><p style="text-align: justify;" class="MsoNormal"><span style="line-height: 115%;font-family:";font-size:100%;" >The bankruptcy court awarded the trustee a total of $201,439 for the stay violation, $50,000 of which it called “punitive damages” and the remaining amount was the trustee's documented attorneys' fees and costs.<br /></span></p><p style="text-align: justify;" class="MsoNormal"><br /><span style="line-height: 115%;font-family:";font-size:100%;" ><o:p></o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="font-size:100%;"><b style=""><span style="line-height: 115%;font-family:";" >Issues in <i style="">Dyer</i>: Civil Contempt Sanctions under § 105(a), and Inherent Sanction Authority<o:p></o:p></span></b></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 115%;font-family:";font-size:100%;" >The primary issue in <i style="">Dyer</i> was whether the bankruptcy court’s civil contempt authority granted by § 105(a) permitted <b style="">punitive damages</b>. <span style=""> </span>But the opinion also reviewed the appropriateness of <b style="">compensatory sanctions under § 105(a)</b>, as well as <b style="">both punitive and compensatory sanctions under the bankruptcy court’s separate inherent sanction authority</b>. “The inherent authority derives not from statute but rather from the very creation of the court (unless Congress intentionally restricts those powers).”</span></p><p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><br /><span style="line-height: 115%;font-family:";font-size:100%;" ><o:p></o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 115%;font-family:";font-size:100%;" ><o:p> </o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="font-size:100%;"><b style=""><span style="line-height: 115%;font-family:";" >Sanctions under the Civil Contempt Authority of § 105(a)<o:p></o:p></span></b></span></p><div style="text-align: justify;"> </div><p style="text-align: justify;" class="MsoNormal"><span style="line-height: 115%;font-family:";font-size:100%;" >Unlike § 362(k), which specifically authorizes the recovery of “actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, . . . punitive damages,” § 105(a) does not expressly authorize any specific kind of damages. It states:<o:p></o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-left: 0.5in; text-align: justify;"><span style=";font-family:";font-size:100%;" >The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.</span></p><p class="MsoNormal" style="margin-left: 0.5in; text-align: justify;"><br /><span style=";font-family:";font-size:100%;" ><o:p></o:p></span></p><div style="text-align: justify;"> </div><p style="text-align: justify;" class="MsoNormal"><span style="line-height: 115%;font-family:";font-size:100%;" >The Ninth Circuit cited its own precedents as follows:<o:p></o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-left: 0.5in; text-align: justify;"><span style="line-height: 115%;font-family:";font-size:100%;" >1. Sanctions under § 105(a) require the violation of “a specific and definite order of the court.”<o:p></o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-left: 0.5in; text-align: justify;"><span style="line-height: 115%;font-family:";font-size:100%;" >2. The “automatic stay qualifies as a specific and definite court order.”<o:p></o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-left: 0.5in; text-align: justify;"><span style="line-height: 115%;font-family:";font-size:100%;" >3. “The threshold standard for imposing</span><span style="line-height: 115%;font-family:";font-size:100%;" > </span><span style="line-height: 115%;font-family:";font-size:100%;" >a civil contempt sanction in the context of an automatic stay violation . . . dovetails with the threshold standard for awarding damages under § 362(h)”: both turn not on the creditor’s subjective intent to violate the stay but rather his knowledge of the automatic stay and intent to take the action which violated the stay.<o:p></o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-left: 0.5in; text-align: justify;"><span style="line-height: 115%;font-family:";font-size:100%;" >4. Although in the § 362(h) context the creditor’s mere knowledge of the bankruptcy proceeding is enough to infer knowledge of the automatic stay, in the contempt context the creditor must have knowledge of the automatic stay itself. (This was stated in dicta.)<o:p></o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-left: 0.5in; text-align: justify;"><span style="line-height: 115%;font-family:";font-size:100%;" >5. Creditor has an affirmative duty to remedy his violation of the automatic stay, at least by filing a motion for relief from stay, and his failure to do so constitutes a violation of the automatic stay injunction, permitting civil contempt sanctions.</span></p><p class="MsoNormal" style="margin-left: 0.5in; text-align: justify;"><br /><span style="line-height: 115%;font-family:";font-size:100%;" ><o:p></o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="font-size:100%;"><b style=""><span style="line-height: 115%;font-family:";" >Punitive Damages under the Civil Contempt Authority of § 105(a)<o:p></o:p></span></b></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 115%;font-family:";font-size:100%;" >The court reasoned:<o:p></o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin: 0in 0in 0.0001pt 0.5in; text-align: justify;"><span style="line-height: 115%;font-family:";font-size:100%;" >1. Since “the contempt authority conferred on bankruptcy courts under § 105(a) is a <i style="">civil</i> contempt authority,” “it authorizes only civil sanctions as available remedies.”<o:p></o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin: 0in 0in 0.0001pt 0.5in; text-align: justify;"><span style="line-height: 115%;font-family:";font-size:100%;" >2. Civil remedies “must either be compensatory or designed to coerce compliance.” Here the $151,000 or so in attorney fees “was neither intended to coerce compliance nor intended to compensate the Trustee for actual damages,” so it was a criminal sanction.<o:p></o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin: 0in 0in 0.0001pt 0.5in; text-align: justify;"><span style="line-height: 115%;font-family:";font-size:100%;" >3. Because § 105(a) “contains no explicit grant of authority to award punitive damages,” and “due process requires that an individual accused of criminal contempt receive several procedural protections, including a jury trial, before ‘serious criminal penalties’ can be imposed,” which “the bankruptcy court is ill-equipped to provide,” <b style="">“§ 105(a) does not authorize punitive sanctions for automatic say violations</b>.”</span></p><p class="MsoNormal" style="margin: 0in 0in 0.0001pt 0.5in; text-align: justify;"><br /><span style="line-height: 115%;font-family:";font-size:100%;" ><o:p></o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin: 0in 0in 0.0001pt 0.5in; text-align: justify;"><span style="line-height: 115%;font-family:";font-size:100%;" ><o:p> </o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="font-size:100%;"><b style=""><span style="line-height: 115%;font-family:";" >“Compensatory” Attorney Fees<o:p></o:p></span></b></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 115%;font-family:";font-size:100%;" >After confirming “that attorneys' fees are an appropriate component of a civil contempt award,” the court asserted that in the contempt context the bankruptcy court must make a “determination of the Trustee's actual damages flowing from the automatic stay violation alone.” The Ninth Circuit remanded to the bankruptcy court for that purpose.</span></p><p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><br /><span style="line-height: 115%;font-family:";font-size:100%;" ><o:p></o:p></span></p><div style="text-align: justify;"> </div><p style="text-align: justify;" class="MsoNormal"><span style="font-size:100%;"><o:p> </o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="font-size:100%;"><b style=""><span style="line-height: 115%;font-family:";" >The Non-Statutory Inherent Sanction Authority of the Bankruptcy Court<o:p></o:p></span></b></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 115%;font-family:";font-size:100%;" >The court concluded with this final type of authority, following this rationale:<o:p></o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin: 0in 0in 0.0001pt 0.5in; text-align: justify;"><span style="line-height: 115%;font-family:";font-size:100%;" >1. “Civil contempt authority allows a court to remedy a violation of a specific order (including "automatic" orders, such as the automatic . . . )” while the “inherent sanction authority allows a bankruptcy court to deter and provide compensation for a broad range of improper litigation tactics.”<o:p></o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin: 0in 0in 0.0001pt 0.5in; text-align: justify;"><span style="line-height: 115%;font-family:";font-size:100%;" >2. But “[b]efore imposing sanctions under its inherent sanctioning authority, a court must make an explicit finding of bad faith or willful misconduct,” which carries a different meaning than the meaning . . . under § 362(h)[now (k)] or . . . under § 105(a) for an automatic stay violation. “[S]pecific intent to violate the automatic stay" . . . <span style=""> </span>or other conduct in ‘bad faith or conduct tantamount to bad faith,’ <i>. . .</i> is necessary to impose sanctions under the bankruptcy court's inherent power.”<o:p></o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin: 0in 0in 0.0001pt 0.5in; text-align: justify;"><span style="line-height: 115%;font-family:";font-size:100%;" >3. In a case of first impression for the circuit, the court determined that, for “the same reasons underlying our holding that the bankruptcy court lacks the authority to impose serious punitive sanctions under its contempt authority [under <span style=""> </span>§ 105(a)], . . . ‘when a court uses its inherent powers to impose sanctions that are criminal in nature, it must provide the same due process protections that would be available in a criminal contempt proceeding’.“<o:p></o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin: 0in 0in 0.0001pt 0.5in; text-align: justify;"><span style="line-height: 115%;font-family:";font-size:100%;" >4. Finally, also analogous to the § 105(a) context, the court remanded “to the bankruptcy court <span style=""> </span>to determine the appropriate scope of the compensatory sanction award.”</span><span style="line-height: 115%;font-family:";font-size:100%;" ><o:p></o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin: 0in 0in 0.0001pt 0.5in; text-align: justify;"><span style="line-height: 115%;font-family:";font-size:100%;" ><o:p> </o:p></span></p><div style="text-align: justify;"><br /></div><span style="font-family:arial;"><span style="font-size:100%;"><br /></span><br /></span> <div style="text-align: justify;font-family:arial;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;">New Bulletins on this website will provide summaries of other opinions within the Ninth Circuit shortly after they are published. PLEASE EMAIL ME at </span></span></span></span><span style="color: rgb(204, 0, 0);font-size:85%;" ><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;"> IF YOU WOULD LIKE TO BE EMAILED A LINK TO SUCH FUTURE REPORTS.</span></span></span></span><br /></div> <span style="font-weight: bold;font-family:arial;" ><br /></span><span style="font-family:arial;"><span style="font-size:100%;"><span style="font-family:lucida grande;">by Andrew <span class="blsp-spelling-error" id="SPELLING_ERROR_12"><span class="blsp-spelling-error" id="SPELLING_ERROR_17">Toth</span></span>-<span class="blsp-spelling-error" id="SPELLING_ERROR_13"><span class="blsp-spelling-error" id="SPELLING_ERROR_18">Fejel</span></span><br />Bankruptcy Litigation Support for Attorneys<span style="text-decoration: underline;"><br /></span></span></span></span><span style="font-size:85%;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span style="font-family:arial;"><br /></span> <div style="text-align: justify;"><blockquote style="color: rgb(204, 0, 0);"><span><span><span style="font-style: italic;font-family:arial;" class="Apple-style-span" ><span style="font-style: normal;font-family:Georgia;" class="Apple-style-span" ><span style="font-size:78%;"><span style="font-style: italic;font-size:100%;" ><span style="font-size:130%;"><span style="font-size:85%;">PLEASE NOTE that the writer is not licensed to practice law in any state. This means that he is not legally permitted to give any legal advice or perform any legal services. Any non-attorney reading this must consult an attorney about ANYTHING contained here. Nothing in this website is intended to be nor should be read as being legal advice to anyone. </span></span></span></span></span></span></span></span></blockquote></div> <!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--> <div class="post-body entry-content"><style> <!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman";} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in 1.0in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman";} </style> <![endif]--> <p class="MsoNormal" style="">© 2010 Bankruptcy Litigation Support for Attorneys</p></div>Bankruptcy Litigation Supporthttp://www.blogger.com/profile/03101092341657335203noreply@blogger.com0tag:blogger.com,1999:blog-1561463394548481996.post-55345969030159053982010-02-11T06:00:00.000-08:002011-06-07T14:27:49.865-07:009th Circuit Panel Clarifies Its Holding Restricting Debtors’ Attorney Fees for Creditor Violation of Automatic Stay, En Banc Review Avoided Again<!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:trackmoves/> <w:trackformatting/> <w:punctuationkerning/> <w:validateagainstschemas/> 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Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-qformat:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin-top:0in; mso-para-margin-right:0in; mso-para-margin-bottom:10.0pt; mso-para-margin-left:0in; line-height:115%; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-fareast-font-family:"Times New Roman"; mso-fareast-theme-font:minor-fareast; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin;} </style> <![endif]--><span style="font-size:100%;"><b style=""><span style="line-height: 115%;font-family:";" ></span></b></span><p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><b style=""><i style=""><span style=";font-family:";font-size:12;" ><o:p> </o:p></span></i></b></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size:100%;"><b style=""><i style=""><span style=";font-family:";" ><a href="http://www.ca9.uscourts.gov/datastore/opinions/2010/02/08/07-16870.pdf"><br /></a></span></i></b></span></p><p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style="font-size:100%;"><b style=""><i style=""><span style=";font-family:";" ><a href="http://www.ca9.uscourts.gov/datastore/opinions/2010/02/08/07-16870.pdf">Sternberg v. Johnston (In re Johnston)</a><o:p></o:p></span></i></b></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:100%;" >9th Circuit Court of Appeals Case Nos. 07-16870 & 08-15721<o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:100%;" >Original opinion of October 1, 2009, <b style="">Amended on February 8, 2010.</b></span></p><p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><br /><span style=";font-family:";font-size:100%;" ><o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal;"><span style=";font-family:";font-size:100%;" ><o:p> </o:p></span></p> <p class="MsoNormal"><span style="line-height: 115%;font-family:";font-size:100%;" ><o:p> </o:p></span></p> <p style="text-align: justify;" class="MsoNormal"><span style="font-size:100%;"><b style=""><span style="line-height: 115%;font-family:";" >The Ninth Circuit Panel’s Clarification<o:p></o:p></span></b></span></p><div style="text-align: justify;"> </div><p style="text-align: justify;" class="MsoNormal"><span style="line-height: 115%;font-family:";font-size:100%;" >On Monday, February 8, the Ninth Circuit amended its momentous opinion of last October in which it had greatly limited the attorney fees which a debtor could receive for a creditor’s “willful violation” of the automatic stay under §362(k). See <a href="http://blsbulletins.blogspot.com/2009/10/creditors-attorney-violated-automatic.html">my prior Bulletin on that opinion</a>. Under that earlier opinion a creditor is liable only for debtor’s “attorney fees related to enforcing the automatic stay and remedying the stay violation." The debtor could NOT recover his or her attorney fees "incurred in prosecuting the bankruptcy adversary proceeding in which he pursued his claim for those damages." This holding is contrary to long-standing Ninth Circuit Bankruptcy Appellate Panel precedent, and contrary to the only other Circuit opinion to have ruled on the issue. <o:p></o:p></span></p><div style="text-align: justify;"> </div><p style="text-align: justify;" class="MsoNormal"><span style="line-height: 115%;font-family:";font-size:100%;" >Now the Ninth Circuit panel which wrote last October’s opinion has issued an order amending its opinion, apparently in response to a petition for a panel rehearing. The <b style="">amendment did not change a single word of the body of its opinion, but merely added this clarifying footnote:<o:p></o:p></b></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-left: 0.5in; text-align: justify;"><span style="font-size:100%;"><sup><span style=";font-family:";" >3</span></sup></span><span style=";font-family:";font-size:100%;" >The attorneys fee award against [creditor] Sternberg was based on the authority of this statute [§362(k)(1)]. The bankruptcy court did not find Sternberg or anyone else to be in civil contempt for violating the automatic stay, nor did it impose any sanctions under its inherent civil contempt authority. See <i style="">In re Dyer</i>, 322 F. 2d 1178, 1189 (9th Cir. 2003) [actual citation is to <b style="">F.</b> <b style="">3d</b>]. As this opinion does not consider the civil contempt authority of the court, it does not limit the availability of contempt sanctions, including attorney fees, for violation of the automatic stay, where otherwise appropriate.</span></p><div style="text-align: justify;"> </div><p style="text-align: justify;" class="MsoNormal"><span style="font-size:100%;"><b style=""><span style="line-height: 115%;font-family:";" >So in this amendment the Ninth Circuit panel does NOT change its holding severely limiting the debtor’s attorney fees that a creditor would be required to pay for its “willful violation” of the automatic stay. The panel merely makes explicit that its opinion addresses only §362(k), and does not address a potential alternate basis for a creditor to be sanctioned for violating the automatic stay, the bankruptcy court’s inherent civil contempt authority.</span></b></span><span style="line-height: 115%;font-family:";font-size:100%;" > The footnote points to its own 2003 opinion, <i style="">In re Dyer</i>, for guidance on this alternative basis. Thus the combination of these two cases lays out the current law on this issue in the Ninth Circuit. <span style=""> </span><span style="font-style: italic;">See my next Bulletin (tomorrow) for this summary.</span><o:p></o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: justify;"><span style="line-height: 115%;font-family:";font-size:100%;" ><o:p> </o:p></span></p><div style="text-align: justify;"> </div><p style="text-align: justify;" class="MsoNormal"><span style="font-size:100%;"><b style=""><span style="line-height: 115%;font-family:";" >En Banc Review Denied<o:p></o:p></span></b></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="line-height: normal; text-align: justify;"><span style=";font-family:";font-size:100%;" >It is commonplace for a court of appeals to deny a petition for rehearing en banc (by the entire membership of the court). Under Federal Rule of Appellate Procedure 35(a):<o:p></o:p></span></p><div style="text-align: justify;"> </div><p class="text-level2" style="margin: 0in 0in 0.0001pt 0.5in; text-align: justify;"><span style=";font-family:";font-size:100%;" >An en banc hearing or rehearing is not favored and ordinarily will not be ordered unless:<o:p></o:p></span></p><div style="text-align: justify;"> </div><p class="text-level3" style="margin: 0in 0in 0.0001pt 1in; text-align: justify;"><span style="font-size:100%;"><a name="Rule35_a_1_" id="Rule35_a_1_"></a></span><span style=";font-family:";font-size:100%;" >(1) en banc consideration is necessary to secure or maintain uniformity of the court’s decisions; or<o:p></o:p></span></p><div style="text-align: justify;"> </div><p class="text-level3" style="margin: 0in 0in 0.0001pt 1in; text-align: justify;"><span style="font-size:100%;"><a name="Rule35_a_2_" id="Rule35_a_2_"></a></span><span style=";font-family:";font-size:100%;" >(2) the proceeding involves a question of exceptional importance.</span></p><p class="text-level3" style="margin: 0in 0in 0.0001pt 1in; text-align: justify;"><br /><span style=";font-family:";font-size:100%;" ><o:p></o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal; text-align: justify;"><span style=";font-family:";font-size:100%;" ><o:p> </o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="line-height: normal; text-align: justify;"><span style=";font-family:";font-size:100%;" ><span style=""> </span>But the context here is worthy of note. As the <i style="">Johnston</i> opinion acknowledges, the Ninth Circuit has “affirmed awards under § 362(k)(1) that appear to have contained attorney fees incurred in prosecuting a § 362(k)(1) damages action.” It cited three Ninth Circuit opinions spanning from 1989 to 2004. The three-judge panel explicitly determined that these opinions were not binding on it because<o:p></o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin: 0in 0in 0.0001pt 0.5in; line-height: normal; text-align: justify;"><span style=";font-family:";font-size:100%;" >[i]n these cases our court was not confronted with an argument that § 362(k)(1) does not permit such fees. <span style=""> </span>.<span style=""> </span>.<span style=""> </span>.<span style=""> </span>. Accordingly, we are free to decide the issue without referring it to the court en banc.</span></p><p class="MsoNormal" style="margin: 0in 0in 0.0001pt 0.5in; line-height: normal; text-align: justify;"><br /><span style=";font-family:";font-size:100%;" ><o:p></o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal; text-align: justify;"><span style=";font-family:";font-size:100%;" ><o:p> </o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal; text-align: justify;"><span style=";font-family:";font-size:100%;" >Subsection (f) of the appellate rule cited above states that a vote by the full membership on a petition for hearing en banc need be taken only if a judge asks for a vote. The new amended order states that none of the judges asked for a vote. And so the petition was denied.<o:p></o:p></span></p><div style="text-align: justify;"> </div><p style="text-align: justify;" class="MsoNormal"><span style="font-size:100%;"><b style=""><span style="line-height: 115%;font-family:";" ><o:p> </o:p></span></b></span></p><div style="text-align: justify;"> </div><p style="text-align: justify;" class="MsoNormal"><span style="font-size:100%;"><b style=""><span style="line-height: 115%;font-family:";" >$20,000 Award for Debtor’s Emotional Distress Upheld Again<o:p></o:p></span></b></span></p><div style="text-align: justify;"> </div><p style="text-align: justify;" class="MsoNormal"><span style="line-height: 115%;font-family:";font-size:100%;" >Lastly, the Ninth Circuit upheld the bankruptcy court’s award of $20,000 to debtor for his emotional distress resulting from the stay violation. The facts of the case are somewhat unusual and so deserve a closer look, especially because at least in some respects the stay violator’s actions seemed less than egregious.<o:p></o:p></span></p><div style="text-align: justify;"> </div><p style="text-align: justify;" class="MsoNormal"><span style="line-height: 115%;font-family:";font-size:100%;" >Johnston was the respondent in a motion in state court filed by his ex-wife’s attorney, Sternberg, to hold him in contempt for his failure to pay spousal support. Sternberg proceeded with a hearing on the contempt motion after Johnston, who was representing himself in that matter, told him for the first time, 15 minutes into the hearing, that he had filed a Chapter 11 case three days earlier. Sternberg told the judge that he did not think the automatic stay affected the proceedings because it fell within exceptions of the stay. The state court judge proceeded with the contempt hearing, telling the parties that the issue of appropriate sanctions would be addressed after the parties briefed the issue of whether she still had jurisdiction in light of the bankruptcy filing. Notwithstanding this, the judge subsequently ruled, before the automatic stay issue was briefed, granting judgment against Johnston for nearly $88,000, and gave him only 19 days to pay this or be jailed until he did. Johnston asked Sternberg to remedy this matter since it was in violation of the stay, but Sternberg did not take any action to do so. Johnston filed an appeal of the contempt judgment, which Sternberg’s law firm, in representing the ex-wife, resisted, arguing that the state court acted within exceptions of the automatic stay. Johnston sought emergency relief in the bankruptcy court, which, at a hearing on the day before the contempt order was due to be paid, vacated the state court contempt judgment. It subsequently awarded Johnston the $20,000 award for emotional distress against Sternberg in an adversary proceeding by Johnston against Sternberg for his violations of the stay.<o:p></o:p></span></p><div style="text-align: justify;"> </div><p style="text-align: justify;" class="MsoNormal"><span style="line-height: 115%;font-family:";font-size:100%;" >The Ninth Circuit addressed the emotional distress award, which had been upheld on appeal to the district court, merely in a footnote, the heart of which states:<o:p></o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin: 0in 0in 0.0001pt 0.5in; line-height: normal; text-align: justify;"><span style=";font-family:";font-size:100%;" >Each of Sternberg’s arguments is foreclosed by <i>Dawson v. Washington Mutual Bank, F.A. </i>(<i>In re Dawson</i>), 390 F.3d 1139 (9th Cir. 2004). First, as <i>In re Dawson </i>clearly states, “even if the violation of the automatic stay was not egregious,” Johnston could recover emotional distress damages that arose from a stay violation. <i>Id. </i>at 1149-50. Second, Johnston could establish emotional distress damages without corroborating evidence if the circumstances make it obvious “that a reasonable person would [have] suffer[ed] significant emotional harm,” which the bankruptcy court found was the case here.</span></p><p class="MsoNormal" style="margin: 0in 0in 0.0001pt 0.5in; line-height: normal; text-align: justify;"><br /><span style=";font-family:";font-size:100%;" ><o:p></o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin: 0in 0in 0.0001pt 0.5in; line-height: normal; text-align: justify;"><span style=";font-family:";font-size:100%;" ><o:p> </o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="line-height: normal; text-align: justify;"><span style=";font-family:";font-size:100%;" >The cited <i style=""><a href="http://scholar.google.com/scholar_case?case=11421097793397543959&q=Dawson+v.Washington+Mutual+Bank,+F.A.+%28In+re+Dawson%29,+390+F.3d+1139+%289th+Cir.+2004%29.+&hl=en&as_sdt=400000000003">Dawson<span style="font-style: normal;"> opinion</span></a></i> held that:<o:p></o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-left: 0.5in; line-height: normal; text-align: justify;"><span style=";font-family:";font-size:100%;" >to be entitled to damages for emotional distress under § 362(h), an individual must (1) suffer significant harm, (2) clearly establish the significant harm, and (3) demonstrate a causal connection between that significant harm and the violation of the automatic stay (as distinct, for instance, from the anxiety and pressures inherent in the bankruptcy process).<o:p></o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="line-height: normal; text-align: justify;"><b style=""><span style=";font-family:";font-size:12;" ><span style="font-size:100%;">The opinion then provided many concrete examples and citations to other opinions showing the kinds of evidence required to meet each of these elements. Taken together these confirm that getting an award for a debtor’s emotional distress is difficult and requires appropriate facts substantiated by solid evidence. But at least <i style="">Dawson</i> provides a relatively clear road map in the Ninth Circuit for attempting to do so.</span><o:p></o:p></span></b></p></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:lsdexception></w:latentstyles></xml>Bankruptcy Litigation Supporthttp://www.blogger.com/profile/03101092341657335203noreply@blogger.com0tag:blogger.com,1999:blog-1561463394548481996.post-63913425691029311882009-11-19T06:00:00.000-08:002009-11-19T14:03:50.541-08:00Chapter 13 Debtors Can Pay Their Attorney Fees Directly from Proceeds of Adversary Proceeding, Instead of Paying Those Proceeds Into the Plan<span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-size:78%;"><br />By Andrew <span class="blsp-spelling-error" id="SPELLING_ERROR_0"><span class="blsp-spelling-error" id="SPELLING_ERROR_0">Toth</span></span>-<span class="blsp-spelling-error" id="SPELLING_ERROR_1"><span class="blsp-spelling-error" id="SPELLING_ERROR_1">Fejel</span></span>, Bankruptcy Litigation Support for Attorneys, </span><a href="mailto:Andy@BLSforAttorneys.com"><span style="font-size:78%;">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></span></a><br /><br /><span style="font-family:arial;"><a style="font-weight: bold; font-style: italic;" href="http://www.orb.uscourts.gov/Judges/file_attachment/400402171109151427.pdf">In re McIntyre</a><br />U. S. Bankruptcy Court for the District of Oregon, </span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Case No. 08-34900-<span class="blsp-spelling-error" id="SPELLING_ERROR_2">tmb</span>13</span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">November 13, 2009<br /><br /><br /></span></span></span><div style="text-align: justify;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Last week Judge Trish Brown ruled in this unpublished opinion that <span style="font-weight: bold;">attorney fees paid by a creditor, in settlement of an adversary proceeding brought by Chapter 13 debtors against the creditor for its violations of the automatic stay, could be paid directly to the attorney instead of to the Chapter 13 trustee.</span> Although such fees are property of the estate, they vest in the debtor unless stated otherwise by a modified plan, including one proposed by the trustee. Absent that here, debtors could pay those fees directly to their attorney.</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;font-size:130%;" >Facts</span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">After the confirmation of their Chapter 13 plan Debtors, through their attorney, M. Caroline Cantrell, filed an adversary proceeding against a bank for post-petition violations of the automatic stay. A few months later this matter was settled. The settlement agreement contained a confidentiality clause, but Judge Brown's opinion reveals that the agreement provided for creditor's payment of damages to debtors as well as their attorney fees incurred in the proceeding.</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic; font-weight: bold;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Ms. Cantrell then filed a "Motion to Pay Fees Direct," with a </span></span></span><span class="Apple-style-span" style="font-style: italic; font-weight: bold;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">fee itemization.</span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;"> She argued that because the adversary proceeding dealt with post-petition stay violations, the fees earned need not be paid to the trustee. The trustee, Brian D. Lynch, objected, countering that the fees were property of the estate and should be distributed through the Chapter 13 plan. </span>Very shortly thereafter, Debtors filed an amended plan "which specifically allowed them to keep the settlement proceeds to purchase a car." (The opinion does not state if this plan referred specifically to the attorney fee portion of the settlement.) The trustee did not object to this amended plan.</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-size:130%;"><span style="font-weight: bold;">Rationale</span></span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Judge Brown acknowledged that attorney fees paid by a creditor in such circumstances are property of the estate under § 1306. But such property of the estate vests in the debtors under § 1327(b), which states, in full:</span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"></span></span></span><blockquote><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Except as otherwise provided in the plan or the order confirming the plan, the confirmation</span></span></span> <span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">of a plan vests all of the property of the estate in the debtor.</span></span></span></blockquote><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Although the plan had no language reserving any assets in the estate, the judge referred to a prior reported local opinion which had held that avoided transfers and tax refunds do not <span class="blsp-spelling-error" id="SPELLING_ERROR_3">revest</span> to the debtor. But any other assets, unless referred to in the plan, do <span class="blsp-spelling-error" id="SPELLING_ERROR_4">revest</span> to the debtor.</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">The judge further asserted that the standard plan language requiring debtors to inform the trustee if they receive the right to receive assets worth more than $2,500</span></span></span><br /><blockquote></blockquote><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"></span></span></span><blockquote><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">does not prevent the <span class="blsp-spelling-error" id="SPELLING_ERROR_5">revesting</span> provided for in § 1327(b). It merely requires that debtors report the funds to the trustee and request authorization to use them, either from the trustee or the court. The terms of the <span class="blsp-spelling-error" id="SPELLING_ERROR_6">OCP</span> insure that the trustee has full knowledge of a debtor’s</span></span></span> <span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">post confirmation finances and allows him to seek modification of a debtor’s plan to account for any post confirmation increases in income should he so desire. However, absent such modification, the funds do not become estate property and the debtors need not pay them over to the trustee.</span></span></span></blockquote><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Since here the trustee did not propose</span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><blockquote>his own modified plan or [seek] turnover of a portion of those funds in conjunction with confirmation of Debtors' . . . amended plan . . . the funds at issue are not estate property and need not be paid over to the Trustee for distribution under the plan.</blockquote></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;font-size:130%;" >The Bottom Line</span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Presumably the lesson here is that the trustee will be more aggressive in objecting to a modified plan involving attorney fees awarded for post-petition services, and will not just rely on an objection to the fee application.</span></span></span><br /></div><span style="font-family:arial;"><br /><br /><br /></span> <div style="text-align: justify;font-family:arial;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;">New Bulletins on this website will provide summaries of other opinions within the Ninth Circuit shortly after they are published. PLEASE EMAIL ME at </span></span></span></span><span style="color: rgb(204, 0, 0);font-size:85%;" ><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;"> IF YOU WOULD LIKE TO BE EMAILED A LINK TO SUCH FUTURE REPORTS.</span></span></span></span><br /></div> <span style="font-weight: bold;font-family:arial;" ><br /></span><span style="font-family:arial;"><span style="font-size:100%;"><span style="font-family:lucida grande;">by Andrew <span class="blsp-spelling-error" id="SPELLING_ERROR_12"><span class="blsp-spelling-error" id="SPELLING_ERROR_17"><span class="blsp-spelling-error" id="SPELLING_ERROR_7">Toth</span></span></span>-<span class="blsp-spelling-error" id="SPELLING_ERROR_13"><span class="blsp-spelling-error" id="SPELLING_ERROR_18"><span class="blsp-spelling-error" id="SPELLING_ERROR_8">Fejel</span></span></span><br />Bankruptcy Litigation Support for Attorneys<span style="text-decoration: underline;"><br /></span></span></span></span><span style="font-size:85%;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span style="font-family:arial;"><br /></span> <div style="text-align: justify;"><blockquote style="color: rgb(204, 0, 0);"><span><span><span style="font-style: italic;font-family:arial;" class="Apple-style-span" ><span style="font-style: normal;font-family:Georgia;" class="Apple-style-span" ><span style="font-size:78%;"><span style="font-style: italic;font-size:100%;" ><span style="font-size:130%;"><span style="font-size:85%;">PLEASE NOTE that the writer is not licensed to practice law in any state. This means that he is not legally permitted to give any legal advice or perform any legal services. Any non-attorney reading this must consult an attorney about ANYTHING contained here. Nothing in this website is intended to be nor should be read as being legal advice to anyone. </span></span></span></span></span></span></span></span></blockquote></div> <!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--> <div class="post-body entry-content"><style> <!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman";} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in 1.0in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman";} </style> <![endif]--> <p class="MsoNormal" style="">© 2009 Bankruptcy Litigation Support for Attorneys</p></div>Bankruptcy Litigation Supporthttp://www.blogger.com/profile/03101092341657335203noreply@blogger.com0tag:blogger.com,1999:blog-1561463394548481996.post-79252022841362989912009-11-06T06:00:00.000-08:002009-11-06T07:31:29.493-08:00Prior Judgment is NOT Needed to Exclude Civil Restitution or Damages from Chapter 13 Discharge<span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-size:78%;"><br />By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, </span><a href="mailto:Andy@BLSforAttorneys.com"><span style="font-size:78%;">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></span></a><br /><a href="http://www.orb.uscourts.gov/Judges/file_attachment/BAP%20OR-08-1339-MoJuR_261009_102057.pdf"><br /></a><span style="font-family:arial;"><a style="font-weight: bold;" href="http://www.orb.uscourts.gov/Judges/file_attachment/BAP%20OR-08-1339-MoJuR_261009_102057.pdf">Waag v. Permann</a> [link to Oregon Bankruptcy Court website]<br />Ninth Circuit Bankruptcy Appellate Panel Case No. 08-1339<br />October 14, 2009<br /><br /></span></span></span><div style="text-align: justify;"><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">In this published opinion the BAP addressed a Chapter 13 discharge issue that is not only one of first impression in the Ninth Circuit, but had been addressed in only two published bankruptcy court opinions. These two prior bankruptcy courts had come to opposite conclusions. <span style="font-weight: bold;">This new opinion is valuable for resolving this issue locally, but also in reminding both debtors' and creditors' attorneys about the terms of this less familiar discharge exception introduced by the 2005 BAPCPA amendments. </span></span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic; font-weight: bold;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-size:130%;">The Issue</span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">Does 11 USC §1328(a)(4), a subsection entirely added by BAPCPA, require the pre-petition entry of a civil judgment in order to exclude from Chapter 13 discharge an award of civil restitution or damages which resulted from debtor's "willful or malicious injury . . . that caused personal injury . . . or . . . death"?</span></span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic; font-weight: bold;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-size:130%;">The BAP Holding</span> </span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">No.</span> The court affirmed Judge Elizabeth Perris' ruling that a pre-petition judgment is not needed to exclude such civil restitution or damages from Chapter 13 discharge. </span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic; font-weight: bold;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-size:130%;">The Statute and its Context</span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">BAPCPA added the following exception to discharge in §1328(a):</span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><blockquote>any debt<br />. . .<br />(4) for restitution, or damages, awarded in a civil action against the debtor as a result of willful or malicious injury by the debtor that caused personal injury to an individual or the death of an individual.</blockquote></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">This statutory addition is noteworthy, as the BAP opinion lays out, for the following reasons:</span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><blockquote>1) The much more familiar §523(a)(6)--excluding debts "for willful and malicious injury by the debtor to another entity or to the property of another entity"--is not applicable to Chapter 13; although BAPCPA added a series of § 523(a) exceptions to § 1328(a), § 523(a)(6) was NOT one of them.</blockquote></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><blockquote>2) § 523(a)(6) generally "provides a broader exclusion from discharge than section 1328(a)(4).<br /></blockquote></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><blockquote>3) On the other hand, while § 523(a)(6) uses the familiar "willful and malicious" language, §1328(a)(4) instead uses the more expansive "willful or malicious."<br /></blockquote></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><blockquote>4) §1328(a)(4) is restricted "to personal injuries or death and not to injuries to property."<br /></blockquote></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><blockquote>5) It is also restricted only to those restitution and damages "awarded in a civil action against the debtor."</blockquote><span style="font-weight: bold;font-size:130%;" >Rationale</span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">The issue turned on the interpretation of the word "awarded,"</span> specifically--to the pleasure of grammarians--whether that word should be read as a past tense verb or instead a past participle. That's because if Congress meant to say that the "restitution, or damages" must have been previously awarded (the past tense), then such a debt would only be excluded from a Chapter 13 discharge if there was a prepetition civil judgment so awarding. That is how one bankruptcy court in Illinois, citing Collier on Bankruptcy and another treatise on Chapter 13, read it: </span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><blockquote>the new section 1328(a)(4) is worded in the past tense . . . . Thus, a pre-petition award of restitution or damages for willful or malicious injury is a prerequisite to a finding of non-dischargeability. . . .<br />. . . .<br />[Otherwise, it] is simply a contingent, unliquidated debt that is . . . not subject to exception from discharge.</blockquote></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">But the BAP rejected this "plain meaning" and instead "examined the use of the word 'awarded' both grammatically and in the context of the entire subsection." It adopted the rationale of a bankruptcy court in Pennsylvania which </span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><blockquote>found that 'awarded'--like the 'included' in subsection 1328(a)(3)--was not being used as a past tense verb, but as a past participial phrase as an adjective modifying the nouns 'restitution' and 'damages.' ' A past participle is simply the form of the verb used in the phrase and does not suggest past action.' </blockquote>After citing a grammar threatise in support, the <span style="font-weight: bold;">BAP concluded that "[n]othing in [the] phraseology of section 1328(a)(4) requires, either implicitly or explicitly, entry of a prepetition judgment."</span></span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">The BAP found further support for this conclusion in looking at the parallel phraseology of the subsection immediately before, §1328(a)(3), added by Congress in 1994, which excluded criminal restitution and fines from Chapter 13 discharge. The court noted the lack of any case in the 16 years since then holding that a prepetition conviction was required for this other exception to Chapter 13 discharge. </span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Finally, the court analogized §1328(a)(4) to a prior similar version of § 523(a)(9), the exception for debts arising from "a judgment . . . entered . . . wherein liability was . . . a result of the debtor's operation of a motor vehicle while illegally intoxicated." In this context, the BAP cited a 1988 Ninth Circuit opinion holding that "a creditor's drunk driving claim did not have to be reduced to judgment or consent decree before a debtor filed for bankruptcy in order to have a consequent debt declared nondischargeable." The BAP quoted that Ninth Circuit opinion's public policy argument that a contrary argument</span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><blockquote>would lead to an absurd result: an unjust and unwise race to the courthouse, as race that "would give the debtor a clear advantage since it takes considerably longer to obtain a judgment than it does to file a bankruptcy."</blockquote></span></span></span><br /></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">The BAP concluded that the grammatical structure of the new subsection, its context, and "its policy and object," meant "that it did not differentiate between a judgment entered prepetition and one entered postpetition. Beyond that, it "adhere[d] to the Ninth Circuit's guidance . . . to avoid an absurd result: . . . in which a willful or malicious tortfeasor could eliminate an otherwise nondischargeable debt simply by filing a chapter 13 petition prior to entry of judgment." The BAP affirmed Judge Perris' ruling denying debtor's motion to dismiss the adversary proceeding.</span></span></span></span><br /></div><span style="font-family:arial;"><br /><br /></span> <div style="text-align: justify;font-family:arial;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;">New Bulletins on this website will provide summaries of other opinions within the Ninth Circuit shortly after they are published. PLEASE EMAIL ME at </span></span></span></span><span style="color: rgb(204, 0, 0);font-size:85%;" ><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;"> IF YOU WOULD LIKE TO BE EMAILED A LINK TO SUCH FUTURE REPORTS.</span></span></span></span><br /></div> <span style="font-weight: bold;font-family:arial;" ><br /></span><span style="font-family:arial;"><span style="font-size:100%;"><span style="font-family:lucida grande;">by Andrew Toth-Fejel<br />Bankruptcy Litigation Support for Attorneys<span style="text-decoration: underline;"><br /></span></span></span></span><span style="font-size:85%;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span style="font-family:arial;"><br /></span> <div style="text-align: justify;"><blockquote style="color: rgb(204, 0, 0);"><span><span><span style="font-style: italic;font-family:arial;" class="Apple-style-span" ><span style="font-style: normal;font-family:Georgia;" class="Apple-style-span" ><span style="font-size:78%;"><span style="font-style: italic;font-size:100%;" ><span style="font-size:130%;"><span style="font-size:85%;">PLEASE NOTE that the writer is not licensed to practice law in any state. This means that he is not legally permitted to give any legal advice or perform any legal services. Any non-attorney reading this must consult an attorney about ANYTHING contained here. Nothing in this website is intended to be nor should be read as being legal advice to anyone. </span></span></span></span></span></span></span></span></blockquote></div> <!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--> <div class="post-body entry-content"><style> <!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman";} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in 1.0in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman";} </style> <![endif]--> <p class="MsoNormal" style="">© 2009 Bankruptcy Litigation Support for Attorneys</p></div>Bankruptcy Litigation Supporthttp://www.blogger.com/profile/03101092341657335203noreply@blogger.com0tag:blogger.com,1999:blog-1561463394548481996.post-24716540998123589152009-10-05T06:00:00.000-07:002009-10-05T12:52:29.259-07:00Creditor's Attorney Violated Automatic Stay for Not Acting Affirmatively to Stop Unexpected Dom Rel Order, However Debtor's Atty Fees Greatly Limited<span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-size:78%;"><br />By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, </span><a href="mailto:Andy@BLSforAttorneys.com"><span style="font-size:78%;">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></span></a><br /><span style="font-family:arial;"><br /><br /><a style="font-weight: bold;" href="http://www.ca9.uscourts.gov/datastore/opinions/2009/10/01/07-16870.pdf">Sternberg v. Johnston (In re Johnston)</a><br />9th Circuit Court of Appeals Case Nos. 07-16870 & 08-15721<br />October 1, 2009<br /><br /><br /><span style="font-size:130%;"><span style="font-weight: bold;">The Issues:<br /></span></span><span style="font-weight: bold;">1) What constitutes a creditor attorney's "willful violation" of the automatic stay while collecting on a "domestic support obligation," </span>permitting the debtor to recover against the attorney debtor's "actual damages, including costs and attorney fees," under § 362(k)? <span style="font-weight: bold;">Specifically, after filing a state court motion pre-petition to collect for support arrears, what must a creditor's attorney do post-petition to comply with the stay?<br /><br /></span><span style="font-weight: bold;"> 2) What attorney fees may the debtor recover as "actual damages" in this context? Specifically, can debtor recover "only those attorney fees related to enforcing the automatic stay and remedying the stay violation," or also "the fees incurred in prosecuting the bankruptcy adversary proceeding in which he pursued his claim for those damages"</span><br /><br /><span style="font-size:130%;"><span style="font-weight: bold;">Its Rulings</span></span><br /> 1) Upon the issuance of the domestic relations judge's order in violation of the automatic stay, the <span style="font-weight: bold;">creditor's attorney had an affirmative duty "[w]ithin a reasonable time after that" "to take corrective action." Since he "did not act to try to fix that problem," "he willfully violated the automatic stay."</span><br /> 2) <span style="font-weight: bold;">Debtor may only recover attorney fees "related to enforcing the automatic stay and remedying the stay violation."</span><br /><br />The Court affirmed the judgment that creditor's attorney violated the automatic stay and is liable for debtor's actual damages of almost $3,000, plus for emotional distress of an additional $20,000. It <span style="font-weight: bold;">remanded to the bankruptcy court to determine the amount of "attorney fees incurred [by debtor] in seeking to enforce the automatic stay and to fix the problem caused by the overbroad state court order," but NOT "in prosecuting the adversary proceeding to determine damages."</span><br /><br /><span style="font-weight: bold;font-size:130%;" >Essential Facts</span><br />Johnston, an attorney, fell behind on his spousal support payments. Sternberg, attorney for Johnston's ex-wife, filed a motion in state court to hold Johnston in contempt for this non-payment. The motion also asked for a judgment in the amount of the support arrears, and an order that Johnston be jailed, his drivers' license revoked, a lien put on his vehicle and other assets, and his law license suspended. Johnston filed a Chapter 11 case through his bankruptcy attorney three days before the hearing on Sternberg's motion. Johnston represented himself at that hearing, and informed Sternberg and the court of his Chapter 11 filing. The court decided it would address the contempt issue at that hearing, but that it would take up the issue of the appropriate sanctions after the attorneys had researched whether the court had authority to order sanctions in light of the bankruptcy filing. Two months later, to the surprise of both attorneys, the state court judge issued an order not only finding Johnston in contempt and granting judgment in the amount of about $87,500, but ordered him to pay that amount in full in less than three weeks or else be jailed "until the full amount . . . is paid."<br /><br />Johnston wrote a letter to Sternberg stating that he was in violation of the automatic stay, and asked him to remedy the situation. Johnston also both filed a motion in state court for relief from the order and an appeal with the state court of appeals to stay the order. Sternberg's law firm filed a brief with that court of appeals arguing for the appropriateness of the state court judge's sanction notwithstanding the automatic stay.<br /><br />Johnston also filed a motion in bankruptcy court to set aside the state court order. That court concluded that the automatic stay had been violated and set aside the order. However, after Johnston filed an adversary proceeding asserting Sternberg's willful violation of the automatic stay, the bankruptcy court ruled after trial that the affirmative duty to stop actions which violate the stay did not extend to collection on support arrears. Johnston appealed to the district court, which reversed, extending Sternberg's affirmative duty to stopping collections on support arrears. On remand, the bankruptcy court awarded Johnston nearly $3,000 for loss of employment income, $20,000 for emotional distress, and nearly $70,000 for Johnston's attorney fees and costs, a total of nearly $93,000. Sternberg appealed to the district court, which affirmed; he then appealed to the Ninth Circuit.<br /><br /><span style="font-size:130%;"><span style="font-weight: bold;">The Rationales</span></span><br /><span style="font-weight: bold;">1) Creditor Attorney's Duty</span><br />The Court cited a number of Ninth Circuit opinions on the affirmative duty of a creditor and its counsel to comply with the automatic stay, but focused mostly on the applicability of its 2002 opinion <span style="font-style: italic;">Eskanos & Alder, P.C. v. Leetien (Eskanos)</span>, 309 F.3d 1210. There a law firm representing a debtor's unsecured creditor was held to have willfully violated the stay when it waited 23 days after learning of a bankruptcy filing to dismiss its client's lawsuit against a debtor.<br /><br />The Court here reasoned that even though Sternberg was not responsible for the state court's order,<br /><blockquote>[w]ithin a reasonable time after [learning of the order], however, the law required Sternberg to take corrective action. He did not, and he affirmatively opposed Johnston's effort to obtain relief from the state appellate court.<br />. . .<br />. . . Sternberg offered a complete defense of the order. . . . . He did not try to parse the valid from the invalid, but instead defended the order in its entirety, including the command that Johnston pay the arrears or go to jail, and without limiting the source of payment to non-estate property.<br />. . .<br />To comply with the "affirmative duty" under the automatic stay, Sternberg needed to do what he could to relieve the violation. He could not simply rely on the normal adversarial process.<br /></blockquote>As to Sternberg's willfulness, it is enough that he was aware of the automatic stay and that his actions in violation were intentional. It does not help if he had a good faith belief that he was acting legally, or that debtor did not make a specific request to amend the state court order to comply with the stay.<br /><br /><span style="font-weight: bold;">2) Permitted Attorney Fees</span><br />Unless established otherwise by statute, the "American Rule" says that litigants pay their own attorney fees. § 362(k)(1) of the Bankruptcy Code says that<br /><blockquote>an individual injured by any willful violation of a stay . . .shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.</blockquote>At issue, the Court reasoned, is the interpretation of the ambiguous and statutorily undefined phrase, "actual damages." Using Black's Law Dictionary's definition as it's <span style="font-weight: bold;">sole cited source</span>, the Court determined that the permitted attorney fees are those "resulting from the stay violation itself. Once the violation has ended, any fees the debtor incurs after that point in pursuit of a damage award would not be for 'actual damages' under § 362(k)(1)."<br /><br />Court argued that the "context and goals of the automatic stay support this narrower understanding." The financial goal of the stay is to give the debtor time to put his finances in order, reorganize to maximize satisfying creditors, and prevent creditors from racing to the debtor's assets.<br /><blockquote>We have never said that the stay should aid the debtor in pursuing his creditors, even those creditors who violate the stay. The stay is a shield, not a sword.</blockquote>The non-financial goal is to "create a breathing spell" for the debtor.<br /><blockquote>More litigation is hardly consistent with the concept of a “breathing spell” for the debtor.<br />. . . .<br />[Encouraging] litigation attenuated from the actual bankruptcy, [is] something we do not think Congress intended to promote by allowing him to collect “actual damages” for a violation of the automatic stay. </blockquote>In so holding the Court went against two longstanding Ninth Circuit BAP opinions, one of which explicitly said that "it is well established that the attorneys’ fees and costs incurred in prosecuting an adversary proceeding seeking damages arising from a violation of the automatic stay is recoverable . . . . " The Court even acknowledged in a footnote that the Ninth Circuit Court of Appeals itself had affirmed such attorney fees, no less than three times. But since in none of these appeals was this specific issue "presented for review," the Court here was "free to decide the issue without referring it to the court en banc."<br /><br />Finally, the Court also went against apparently the only other Circuit Court to squarely address the issue, <a style="font-weight: bold; font-style: italic;" href="http://www.ca9.uscourts.gov/datastore/opinions/2009/10/01/07-16870.pdf">Young v. Repine (In re Repine)</a>, 536 F.3d 512, 522 (5th Cir. 2008). In his short paragraph on this, the Ninth Circuit judge said that "we are hard-pressed to find this decision persuasive" because it merely relied on the "lower courts of [that] Circuit . . and adopt[ed] the same reading of section 362(k) . . . ." The judge did not bother to address the reasoning of the lower courts' published opinions listed in and endorsed by the Fifth Circuit opinion.<br /><br /><span style="font-size:130%;"><span style="font-weight: bold;">Note on Emotional Distress</span></span><br />The $20,000 award for emotional distress was resolved in this opinion by a one-paragraph footnote stating that 1) the automatic stay violation need not necessarily be "egregious" to warrant an emotional distress award, and 2) the circumstances need only to "make it obvious 'that a reasonable person would [have] suffer[ed] significant emotional harm.' "<br /></span></span></span><span style="font-family:arial;"><br /><br /><br /></span> <div style="text-align: justify;font-family:arial;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;">New Bulletins on this website will provide summaries of other opinions within the Ninth Circuit shortly after they are published. PLEASE EMAIL ME at </span></span></span></span><span style="color: rgb(204, 0, 0);font-size:85%;" ><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;"> IF YOU WOULD LIKE TO BE EMAILED A LINK TO SUCH FUTURE REPORTS.</span></span></span></span><br /></div> <span style="font-weight: bold;font-family:arial;" ><br /></span><span style="font-family:arial;"><span style="font-size:100%;"><span style="font-family:lucida grande;">by Andrew Toth-Fejel<br />Bankruptcy Litigation Support for Attorneys<span style="text-decoration: underline;"><br /></span></span></span></span><span style="font-size:85%;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span style="font-family:arial;"><br /></span> <div style="text-align: justify;"><blockquote style="color: rgb(204, 0, 0);"><span><span><span style="font-style: italic;font-family:arial;" class="Apple-style-span" ><span style="font-style: normal;font-family:Georgia;" class="Apple-style-span" ><span style="font-size:78%;"><span style="font-style: italic;font-size:100%;" ><span style="font-size:130%;"><span style="font-size:85%;">PLEASE NOTE that the writer is not licensed to practice law in any state. This means that he is not legally permitted to give any legal advice or perform any legal services. Any non-attorney reading this must consult an attorney about ANYTHING contained here. Nothing in this website is intended to be nor should be read as being legal advice to anyone. </span></span></span></span></span></span></span></span></blockquote></div> <!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--> <div class="post-body entry-content"><style> <!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman";} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in 1.0in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman";} </style> <![endif]--> <p class="MsoNormal" style="">© 2009 Bankruptcy Litigation Support for Attorneys</p></div>Bankruptcy Litigation Supporthttp://www.blogger.com/profile/03101092341657335203noreply@blogger.com1tag:blogger.com,1999:blog-1561463394548481996.post-1489369217719516352009-09-17T06:00:00.000-07:002009-10-01T12:25:40.983-07:00BAPCPA Does Away With Chapter 7 Debtor's Option of Retaining Vehicle by Making Monthly Payments Without Reaffirming, Post-Discharge Repo is OK<span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-size:78%;">By Andrew <span class="blsp-spelling-error" id="SPELLING_ERROR_0">Toth</span>-<span class="blsp-spelling-error" id="SPELLING_ERROR_1">Fejel</span>, Bankruptcy Litigation Support for Attorneys, </span><a href="mailto:Andy@BLSforAttorneys.com"><span style="font-size:78%;">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></span></a><br /><span style="font-family:arial;"><a style="font-weight: bold;" href="http://www.ca9.uscourts.gov/datastore/opinions/2009/09/15/08-60002.pdf"><br />Dumont v. Ford Motor Credit Company (In re Dumont)</a><br />9th Circuit Court of Appeals Case No. 08-60002<br />September 15, 2009<br /><br /></span></span></span><div style="text-align: justify;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">One of the most controversial pre-BAPCPA consumer bankruptcy law issues was whether a debtor could keep possession of her vehicle (or other personal property collateral) as long as she kept current on the regular monthly payments, even without reaffirming the debt. The circuit courts were split five to four, with the Ninth Circuit and four others permitting this "ride-through" option, four others not. The rest of the courts and legal commentators reflected similar disagreement.<span style="font-weight: bold;"> "Because of confusing and contradictory statutory text, courts have struggled for decades to discern congressional intent on the answer to that simple question."</span></span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">The post-BAPCPA conundrum, in the eyes of the dissenting opinion here: "When faced with confusing and contradictory amendments to already confusing and contradictory statutory text, what should we do?" <span style="font-weight: bold;">The heart of the dispute between the majority and dissenting opinions here was whether through BAPCPA Congress intended to RESOLVE the judiciary's split on this issue or instead to PERPETUATE it. The majority here went with what appears to becoming the prevailing view, that BAPCPA eliminated the "ride-through" option. The amendments to the Bankruptcy Code language at issue, effectively overturned the Ninth Circuit's contrary precedent, </span><span style="font-style: italic; font-weight: bold;">McClellan Fed. Credit Union v. Parker (In re Parker)</span><span style="font-weight: bold;">, 139 F.3d 668 (9th Cir. 1998).</span></span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;font-size:130%;" >The Essential Facts</span></span></span></span><br /></div><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Ford Motor Credit Company repossessed a Chapter 7 debtor's vehicle, without any warning, about three months after discharge, when she was current on her post-petition monthly payments. (The record is unclear whether she had ever defaulted on payments pre-petition.) The balance on the loan exceeded the value of the vehicle. The contract contained an "ipso facto" clause, stating that debtor's filing of a bankruptcy case would be in itself constitute a default of the contract. Her Statement of Intentions had stated that she would "retain the collateral and continue to make regular payments" The creditor sent a proposed reaffirmation agreement and then its attorney sent an email to debtor's attorney requesting reaffirmation, but debtor's attorney "declined the offer." (The terms of the reaffirmation offer were not clear from the record.) After the repossession, Debtor reopened the case and claimed that Ford Motor Credit had violated the discharge injunction. The bankruptcy court for the Southern District of California denied the motion, and the BAP (with Judge Randall Dunn on the panel but not the author of its opinion)<span style="font-weight: bold;"> </span><a style="font-weight: bold;" href="http://207.41.19.15/web/bap.nsf/4CF52667FFEC0584882573FC006DE22C/$file/Dumont-07-1155.pdf?openelement">affirmed without dissent</a>.</span></span></span><br /><div style="text-align: justify;"><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-size:130%;"><span style="font-weight: bold;">The Majority Opinion</span></span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">In essence, Judge Diarmuid O`Scannlain held that "BAPCPA wrought several changes in the Code" which now undercut and in some respects contradicted the rationale for <span style="font-style: italic;">Parker</span>, the Ninth Circuit's pre-BAPCPA precedent. In an opinion with 28 footnotes, including some on every single page, he laid out a detailed analysis of the relevant statutory changes.</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;font-size:100%;" >Statutory Changes with BAPCPA</span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">First, <span style="font-weight: bold;">§ 521(a)(2)(C) </span>now explicitly says that the debtor's rights about his or her property under the Statement of Intention subsection are not altered, <span style="font-weight: bold;">"except as provided by section 362(h)." </span> The <span style="font-weight: bold;">new subsection referred to there says that the automatic stay is cut off and the property is no longer property of the estate if debtor does not timely file a Statement of Intention or fails to act timely as indicated in the Statement. </span>(Note: all references here to Bankruptcy Code sections are as they were re-numbered after BAPCPA.)</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Second, under the <span style="font-weight: bold;">new § 521(a)(6) </span>a debtor</span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><blockquote><span style="font-weight: bold;">shall . . . not retain possession of personal property</span> as to which a creditor has an allowed claim for the purchase price secured in whole or in part by an interest in such personal property <span style="font-weight: bold;">unless the debtor, not later than 45 days after the first meeting of creditors . . . </span></blockquote></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><blockquote><span style="font-weight: bold;">A) enters into [a reaffirmation] agreement . . .; or</span></blockquote></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><blockquote><span style="font-weight: bold;">B) redeems such property . . . .</span></blockquote></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><blockquote>If the debtor fails to act within the 45-day period . . . <span style="font-weight: bold;">the stay under section 362(a) is terminated with respect to the personal property of the estate or of the debtor which is affected, such property is no longer property of the estate, and the creditor may take whatever action as to such property as is permitted by applicable nonbankruptcy law</span> . . . .</blockquote>Third, under the <span style="font-weight: bold;">new § 521(d)</span>, if a debtor fails to reaffirm or redeem as stated in § 521(a)(6) or to file the Statement of Intent or to act on it timely, then </span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><blockquote><span style="font-weight: bold;">nothing in this title shall prevent or limit the operation of a provision in the underlying lease or agreement that has the effect of placing the debtor in default under such lease or agreement by reason of the occurrence, pendency, or existence of a proceeding under this title </span>or the insolvency of the debtor. Nothing in this subsection shall be deemed to justify limiting such a provision in any other circumstance.</blockquote></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-size:100%;"><span style="font-weight: bold;"><span style="font-style: italic;">In re Parker</span> Effectively Overturned by These Amendments</span></span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Judge O'Scannlain observed that <span style="font-style: italic;">Parker</span> had relied on the lack of any mandatory act for the debtor in § 521(a) beyond filing the Statement of Intention. But now these new provisions mean that the debtor is now not only required to file a Statement of Intention "but also [to] follow through with his expressed intent." <span style="font-style: italic;">Parker</span> had also relied on the lack of ambiguity in § 521(a)(2)(C) in not altering debtor's rights "with regard to such property under this title." But <span style="font-weight: bold;">now the phrase "except as provided in section 362(h)" immediately after makes "this conclusion . . . not only obsolete but actively contradicted."</span></span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">When the debtor failed to reaffirm timely as required under the new provisions, the automatic stay expired and the vehicle was no longer the property of the estate. But, Judge O'Scannlain continued, that did not in itself authorize Ford Motor Credit to repossess, it "merely lifted one obstacle to its doing so." He acknowledged another obstacle: "§ 365(e)(1)(B) generally renders unenforceable any contractual term which purports to create a default solely based on the commencement of a bankruptcy case." The contract here had such a "ipso facto" clause, but § 365(e)(1)(B) seemed to block its use. However, the judge reasoned that § 521(d) provided a new way around that. As a consequence of the debtor not doing what that provision required--reaffirm or redeem, "nothing in [the Code] prevent[ed] or limit[ed] the operation of [the ipso facto] provision in the underlying [contract]." Thus, "our decision in Parker has been superseded by BAPCPA. Accordingly, Ford did not violate the discharge injunction in repossessing Dumont's vehicle."</span></span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-size:130%;"><span style="font-weight: bold;">Dissent</span></span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">In contrast, Judge Susan Graber reasoned that<span style="font-weight: bold;"> BAPCPA's "changes to the [statutory] text indicate an intent to <span style="font-style: italic;">perpetuate</span> the extant circuit split, not <span style="font-style: italic;">resolve</span> it." </span>[Italicized in original.] The heart of the dispute, <span style="font-weight: bold;">§ 521(a)(2)(A), "remains entirely unchanged." The new § 362(h) addition to the automatic stay statute, on which the majority opinion relies so much, "suggests that, if anything, Congress intended no change to the existing circuit split."</span> (Emphasis in original.] She focuses on the concluding phrase in that new subsection, which requires a debtor to follow of one of three options laid out in the Statement of Intention, "as applicable," She equates that to the "if applicable" phrase in § 521(2)(A) upon which <span style="font-style: italic;">Parker </span>had focused in its rationale that reaffirmation was not mandatory in order to retain a vehicle. </span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">The dissent cited this rule of statutory interpretation: " 'Congress is presumed to be aware of an administrative or judicial interpretation of a statute and to adopt that interpretation when it re-enacts a statute without change.' "<span style="font-weight: bold;"> In spite of the notoriety of the circuit split, "Congress did not amend § 521(a)(2)(A) or the critical phrase 'if applicable.' " Indeed, it "carried forward the important qualifier 'applicable'." </span>So, "we should continue to read the statute as we did pre-BAPCPA." <span style="font-weight: bold;">"Congress decided to do nothing--neither increasing nor decreasing access to ride-through," "thus perpetuating the circuit split."</span></span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">After appealing to the "overarching guiding principle of statutory interpretation . . . [that] '[t]he principal purpose of the Bankruptcy Code is to grant a fresh start to the honest but unfortunate debtor'," Judge Graber concluded that "we have already answered the question at hand [in] I<span style="font-style: italic;">n re Parker</span>. . . . <span style="font-weight: bold;">Because the BAPCPA amendments add only confusion, I would not overrule</span><span style="font-style: italic; font-weight: bold;"> In re Parker.</span></span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;font-size:130%;" >Limitations on the Holding</span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">The majority opinion acknowledged some courts have allowed post-BAPCPA ride-through, but asserted that "in each of these cases there was 'substantial compliance with § 521(a)(2), § 521(a)(6), and § 362(h)'."</span> In these cases the bankruptcy courts had not approved the reaffirmation agreements even though the debtors had sought for them to do so. Judge O'Scannlain also acknowledged not ruling on this creates uncertainty, but said the issue was not before the court.</span></span></span><span style="font-family:arial;"></span><br /></div><span style="font-family:arial;"><br />NOTE: </span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Both Judge O'Scannlain and Judge Graber are based out of the Portland branch of the Ninth Circuit Court of Appeals in Pioneer Courthouse, and both formerly practiced law in Portland. Judge Graber also had been on the </span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Oregon Court of Appeals and then the Oregon Supreme Court, before starting at the Ninth Circuit in 1998. Judge O'Scannlain has been at the Ninth Circuit since 1986</span></span></span>.<br /><span style="font-family:arial;"><br /></span> <div style="text-align: justify;font-family:arial;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;">New Bulletins on this website will provide summaries of other opinions within the Ninth Circuit shortly after they are published. PLEASE EMAIL ME at </span></span></span></span><span style="color: rgb(204, 0, 0);font-size:85%;" ><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;"> IF YOU WOULD LIKE TO BE EMAILED A LINK TO SUCH FUTURE REPORTS.</span></span></span></span><br /></div> <span style="font-weight: bold;font-family:arial;" ><br /></span><span style="font-family:arial;"><span style="font-size:100%;"><span style="font-family:lucida grande;">by Andrew <span class="blsp-spelling-error" id="SPELLING_ERROR_12"><span class="blsp-spelling-error" id="SPELLING_ERROR_17">Toth</span></span>-<span class="blsp-spelling-error" id="SPELLING_ERROR_13"><span class="blsp-spelling-error" id="SPELLING_ERROR_18">Fejel</span></span><br />Bankruptcy Litigation Support for Attorneys<span style="text-decoration: underline;"><br /></span></span></span></span><span style="font-size:85%;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span style="font-family:arial;"><br /></span> <div style="text-align: justify;"><blockquote style="color: rgb(204, 0, 0);"><span><span><span style="font-style: italic;font-family:arial;" class="Apple-style-span" ><span style="font-style: normal;font-family:Georgia;" class="Apple-style-span" ><span style="font-size:78%;"><span style="font-style: italic;font-size:100%;" ><span style="font-size:130%;"><span style="font-size:85%;">PLEASE NOTE that the writer is not licensed to practice law in any state. This means that he is not legally permitted to give any legal advice or perform any legal services. Any non-attorney reading this must consult an attorney about ANYTHING contained here. Nothing in this website is intended to be nor should be read as being legal advice to anyone. </span></span></span></span></span></span></span></span></blockquote></div> <!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--> <div class="post-body entry-content"><style> <!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman";} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in 1.0in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman";} </style> <![endif]--> <p class="MsoNormal" style="">© 2009 Bankruptcy Litigation Support for Attorneys</p></div>Bankruptcy Litigation Supporthttp://www.blogger.com/profile/03101092341657335203noreply@blogger.com0tag:blogger.com,1999:blog-1561463394548481996.post-81899664078555821782009-09-10T06:00:00.000-07:002009-09-10T12:56:30.029-07:00Above-Median Income Ch. 13 Debtor Can't Deduct Vehicle "Ownership Cost" on Vehicle Owned Free and Clear: 9th Circuit Affirms Judge Dunn's BAP Opinion<span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-size:78%;"><br />By Andrew <span class="blsp-spelling-error" id="SPELLING_ERROR_0">Toth</span>-<span class="blsp-spelling-error" id="SPELLING_ERROR_1">Fejel</span>, Bankruptcy Litigation Support for Attorneys, </span><a href="mailto:Andy@BLSforAttorneys.com"><span style="font-size:78%;">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></span></a><br /><span style="font-family:arial;"><br /><a style="font-weight: bold;" href="http://www.ca9.uscourts.gov/datastore/opinions/2009/08/14/08-15066.pdf"><br />Ransom v. MBNA America Bank (In re Ransom)</a><br />Ninth Circuit Court of Appeals, Case No. 08-15066<br />August 14, 2009<br /><br /><br /></span></span></span><div style="text-align: justify;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-size:130%;"><span style="font-weight: bold;">The Issue and Decision</span></span></span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">The first two sentences of this opinion state the Issue and decision clearly:</span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><blockquote><span style="font-weight: bold;">Does an above-median income debtor seeking bankruptcy relief under chapter 13 get to deduct from his projected disposable income (that otherwise would be available to unsecured creditors) a vehicle “ownership cost” for a vehicle he owns free and clear? </span>Based upon our interpretation of the controlling statute, 11 U.S.C. § 707(b)(2)(A)(ii)(I), our answer is “<span style="font-weight: bold;">no</span>.”</blockquote></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-size:130%;"><span style="font-weight: bold;">Old News Packaged into an Intriguing Opinion</span></span></span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">This opinion upheld the nearly two-year old <a style="font-weight: bold;" href="http://207.41.19.15/Web/bap.nsf/99D04088B06B4161882573CA005C4307/$file/Ransom-07-1254.pdf?openelement">published decision of the same name</a> of the Ninth Circuit Bankruptcy Appellate Panel,380 B.R. 799 (BAP 9th Cir. 2007). So most practitioners presumably have already been abiding by this holding, and thus in practical terms this Ninth Circuit opinion is old news. Indeed this has been the law in Oregon even longer, since a published decision by Judge Radcliffe in August, 2006, <a style="font-weight: bold;" href="http://www.orb.uscourts.gov/Judges/file_attachment/06-60116-fra13_220408_140018.pdf">In re Carlin</a>, 348 B.R. 795.</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Nevertheless, this new Ninth Circuit opinion is still tantalizing, particularly in Oregon, because:</span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><blockquote>1. Not only was Oregon's Judge Randall Dunn the author of the affirmed BAP opinion, the Ninth Circuit took the somewhat unusual step of <span style="font-weight: bold;">excerpting and adopting more than two full pages</span> of the "cogent reasoning of our BAP."<br /></blockquote></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><blockquote>2. The Ninth Circuit's decision put it "in <span style="font-weight: bold;">the uncomfortable position" of explicitly rejecting the rationale and conclusion of "two of our sister circuits</span>," instead following what it called "roughly half of the courts to address the issue," including one other BAP opinion and Judge Dunn's underlying BAP opinion.<br /></blockquote></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><blockquote>3. In the excerpted portion of his BAP opinion, Judge Dunn relied most heavily on ,and quoted a paragraph from, a Wisconsin district court decision ,which was subsequently overturned by the Seventh Circuit Court of Appeals. This Seventh Circuit opinion was published a full half-year before oral arguments on this Ninth Circuit appeal, and was discussed by the Ninth Circuit in its opinion. The Ninth Circuit not only included this paragraph from the overturned Wisconsin opinion in its excerpt, it even mistakenly attributed it to Judge Dunn's opinion. That <span style="font-weight: bold;">put the Ninth Circuit in the position of quoting an overturned lower court opinion in support of the heart of its own rationale</span><span>, whi</span>le<span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span> inadvertently or possibly intentionally </span></span></span></span>making it look as if that quote was written by its BAP.<br /></blockquote></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><blockquote>4. The case was deemed sufficiently important to merit <span style="font-weight: bold;">two amicus curiae</span>, one from the Executive Office of the U.S. Trustees, and the other from the National Association of Consumer Bankruptcy Attorneys (NACBA).<br /></blockquote></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><blockquote>5. The courts also apparently <span style="font-weight: bold;">agreed that this was an urgent case</span>: the debtor received "leave to appeal the bankruptcy court's interlocutory order to our BAP," which, upon issuing its decision "certified its disposition of the case to this circuit for possible review of the non-final order," and then the Ninth Circuit "authorized this interlocutory appeal to go forward."<br /></blockquote></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><blockquote>6. For those readers easily entertained by <span style="font-weight: bold;">appellate judges' subtle humor</span>, the Ninth Circuit rejected the "plain language approach" of the Fifth and Seventh Circuits and instead embraced what it called the "statutory language, plainly read" approach of Judge Dunn's opinion. Perhaps this is less funny than it is unhelpful.<br /></blockquote></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><blockquote>7.The Ninth Circuit concluded with what it characterized as an "unusual step": after complaining about "the unnecessary cost of thousands of hours of valuable judicial time" spent struggling with this question, the <span style="font-weight: bold;">court explicitly asked Congress to clarify the conundrum through legislation, and did so by "directing the Clerk of the Court to forward a copy of this opinion to the Senate and House Judiciary Committees</span>."<br /></blockquote></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;font-size:130%;" >Statutory Context </span></span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">This interpretation of one ingredient of BAPCPA's means test is one of first impression in this Circuit. To meet the "disposable income" requirement of a Chapter 13 plan under § 1325(b)2)(A)(i), a debtor must pay into the plan all "current monthly income . . . less amounts reasonably necessary to be expended for the maintenance and support of the debtor . . . ." § 1325(b)(3) requires an above-median income debtor to determine the "amounts reasonably necessary to be expended" under the means test of § 707(b)(2). <span style="font-weight: bold;">The sentence at issue is the means test's definition of a debtor's "monthly expenses" at § 707(b)(2)(A)(ii)(I): </span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><blockquote>a debtor’s monthly expenses shall be the debtor’s <span style="font-weight: bold;"><span style="font-style: italic;">applicable</span> monthly expense amounts specified under the National Standards and Local Standards</span>, and the debtor’s actual monthly expenses for the categories specified as Other Necessary Expenses issued by the Internal Revenue Service for the area in which the debtor resides . . . . [Emphasis added.]</blockquote>The IRS's Local Standards' transportation costs include "operating costs" and "ownership costs." <span style="font-weight: bold;">The specific issue of statutory interpretation is whether a debtor may deduct the IRS's Local Standard for "ownership costs" as an "applicable monthly expense" on a vehicle if debtor makes no loan or lease payments on that vehicle. </span></span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">The "ownership cost" for one vehicle under the Local Standards in this case was $471 per month, so in a 60 month plan this<span style="font-weight: bold;"> amounted to a difference of $28,260 </span>paid or not paid into the plan.</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;font-size:130%;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">The Ninth Circuit's Rationale</span></span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">The two circuits which had already addressed this issue--the Fifth and Seventh--both held that a debtor in this situation IS entitled to include the Local Standard "ownership cost" as an expense. They interpreted the word "applicable" in the phrase "applicable monthly expense amounts specified under the National Standards and Local Standards" to mean that specific "ownership cost" in the IRS' Local Standards which applied to the debtor's geographical region and number of vehicles.</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">In contrast the <span style="font-weight: bold;">Ninth Circuit here in <span style="font-style: italic;">Ransom</span> held that " 'applicable' means that a debtor actually is making a loan or lease payment."</span> The court acknowledged but did NOT adopt the "IRM approach" (from the Internal Revenue Manual in which the Standards are located), That approach reasons that Congress must have intended by its use of the IRS' Standards to have courts look at how the IRS interprets the expense categories. The IRM and other IRS publications do not allow the use of the "ownership cost" expense unless a taxpayer is making loan or lease payments on the vehicle.</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Instead of relying on this IRM approach, the court reached the same result but by a different rationale by adopting what it called Judge Dunn's BAP opinion's "statutory language, plainly read" approach. <span style="font-weight: bold;">Under this, according to the Ninth Circuit</span><span style="font-weight: bold;">, "[a]n 'ownership cost" is not an 'expense'--either actual or applicable--if it does not exist, period."</span> The core of this BAP opinion's rationale, excerpted in the Ninth Circult opinion, is that:</span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><blockquote>[a]s set forth in the statute, <span style="font-weight: bold;">the adjective “applicable” modifies the meaning of the noun “monthly expense amounts;” it indicates that the deduction of the monthly expense amount specified under the Local Standard for the expense becomes relevant to the debtor (i.e., appropriate or applicable to the debtor) when he or she in fact has such an expense. </span></blockquote>The adopted BAP excerpt finished with three points:</span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">1) "[t]he <span style="font-weight: bold;">ordinary, common meaning of 'applicable'</span> "--"capable of being applied"--makes no sense if there is no loan or lease payment to which the "ownership cost" could be applied;</span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">2) <span style="font-weight: bold;">there are mechanisms for allowing additional operating expenses for older vehicles or for other special circumstances</span> in § 707(b)(3)(B);</span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">3) the result of this interpretation is<span style="font-weight: bold;"> "consistent with the underlying goals of BAPCPA"</span>: "to ensure that debtors repay as much of their debt as reasonably<span style="font-family:arial;"> possible."</span></span></span></span><br /><br /><span style="font-weight: bold;font-family:arial;font-size:130%;" >Conclusion</span><span style="font-family:arial;"><br /><br />As Judge Dunn said in footnote in his 2007 BAP opinion, already by that time <span style="font-style: italic;">fifty </span>different courts had ruled on this issu<span style="font-family:arial;">e, "</span></span><span style="font-family:arial;">many of which set forth variations on the prevailing rationales." This demonstrates yet again the dreadfully unclear drafting of BAPCPA. In its final paragraph in this <span style="font-style: italic;">Ransom</span> opinion, the Ninth Circuit expressed its frustration with this reference to Greek mythology: "We would hope, in this regard, that we the judiciary would be relieved of this Sisyphean adventure by legislation clearly answering [the] straightforward policy question [at issue in this opinion]."<br /><br />To save you a trip to Wikipedia, Sisyphus was the first king of Corinth who was punished by Zeus--for acting like he was more clever than the gods--by being forced to roll a large boulder up a steep hill only to have it roll all the way down just as he almost got to the top, and then to repeat this forever. Although the Supreme Court may eventually tell us which of the diametrically opposed circuit courts happen to be right on this present issue, an eternity of frustration is ahead of us unless Congress returns to clean up the many confusions of BAPCPA. Until then, keep on rolling.<br /></span><br /><span style="font-family:arial;"><br /></span></div><div style="text-align: justify;font-family:arial;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;">New Bulletins on this website will provide summaries of other opinions within the Ninth Circuit shortly after they are published. PLEASE EMAIL ME at </span></span></span></span><span style="color: rgb(204, 0, 0);font-size:85%;" ><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;"> IF YOU WOULD LIKE TO BE EMAILED A LINK TO SUCH FUTURE REPORTS.</span></span></span></span><br /></div> <span style="font-weight: bold;font-family:arial;" ><br /></span><span style="font-family:arial;"><span style="font-size:100%;"><span style="font-family:lucida grande;">by Andrew <span class="blsp-spelling-error" id="SPELLING_ERROR_12"><span class="blsp-spelling-error" id="SPELLING_ERROR_17">Toth</span></span>-<span class="blsp-spelling-error" id="SPELLING_ERROR_13"><span class="blsp-spelling-error" id="SPELLING_ERROR_18">Fejel</span></span><br />Bankruptcy Litigation Support for Attorneys<span style="text-decoration: underline;"><br /></span></span></span></span><span style="font-size:85%;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span style="font-family:arial;"><br /></span> <div style="text-align: justify;"><blockquote style="color: rgb(204, 0, 0);"><span><span><span style="font-style: italic;font-family:arial;" class="Apple-style-span" ><span style="font-style: normal;font-family:Georgia;" class="Apple-style-span" ><span style="font-size:78%;"><span style="font-style: italic;font-size:100%;" ><span style="font-size:130%;"><span style="font-size:85%;">PLEASE NOTE that the writer is not licensed to practice law in any state. This means that he is not legally permitted to give any legal advice or perform any legal services. Any non-attorney reading this must consult an attorney about ANYTHING contained here. Nothing in this website is intended to be nor should be read as being legal advice to anyone. </span></span></span></span></span></span></span></span></blockquote></div> <!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--> <div class="post-body entry-content"><style> <!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman";} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in 1.0in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman";} </style> <![endif]--> <p class="MsoNormal" style="">© 2009 Bankruptcy Litigation Support for Attorneys</p></div>Bankruptcy Litigation Supporthttp://www.blogger.com/profile/03101092341657335203noreply@blogger.com0tag:blogger.com,1999:blog-1561463394548481996.post-67639438681057759302009-06-22T06:00:00.000-07:002009-06-22T14:38:50.448-07:00B'cy Ct. Can Avoid the 45-Day Automatic Dismissal of Sec. 521(i) with an Order Entered AFTER the 45 Days, to Prevent a Ch. 7 Debtor's Abusive Conduct<span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-size:78%;"><br />By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, </span><a href="mailto:Andy@BLSforAttorneys.com"><span style="font-size:78%;">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></span></a><br /><br /><span style="font-family:arial;"><br /><span style="font-size:130%;"><a href="http://www.ca9.uscourts.gov/datastore/opinions/2009/06/18/07-17226.pdf"><br /><span style="font-style: italic; font-weight: bold;">Wirum v. Warren (In re Warren)</span></a></span><br />Ninth Circuit Court of Appeals, Case No. 07-17226<br />June 18, 2009<br /><br /><br /><span style="font-size:130%;"><span style="font-weight: bold;">The Issue</span></span><br /></span></span></span><div style="text-align: justify;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">BAPCPA more than tripled the verbiage of § 521 of the Bankruptcy Code, the section titled "Debtor's duties." One of the many added provisions, § 521(i)(1), states that if a debtor does not file a specified set of documents within 45 days of filing, "the case shall be automatically dismissed effective on the 46th day after the date of the filing of the petition." Under § 521(a)(1), most of the documents in that set are required to be filed "unless the court orders otherwise." <span style="font-weight: bold;">Here the Ninth Circuit addressed "whether the bankruptcy court has the discretion to 'order[ ] otherwise' and thereby waive the § 521(a)(1) filing requirement by entering an order <span style="font-style: italic;">after</span> the forty-five day filing deadline in § 521(i)(1) has passed."</span></span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-size:130%;"><span style="font-weight: bold;">The Decision</span></span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">This is an issue of first impression in the Circuit, with only the First Circuit Court of Appeals having addressed it before. <span style="font-weight: bold;">The Ninth Circuit here went against the majority of bankruptcy and district courts, but followed the First Circuit, in ruling that the bankruptcy court DOES have discretion to waive the filing deadline even after that deadline had passed. However, the bankruptcy court appears to have this discretion in only very select circumstances, and likely NOT when debtors' attorneys would want.</span></span></span></span><br /><br /><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;font-size:130%;" >The Statute and Automatic Dismissal</span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">§ 521(a)(1) and (i)(1) state in pertinent part:</span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><blockquote>(a) The debtor shall--<br />1) file--<br />A) a list of creditors; and<br />(B) <span style="font-weight: bold;">unless the court orders otherwise</span>--<br />[(i) through (vi): a list including schedules of assets, <span><span><span>liabilities</span></span></span>, income and expenses, statement of financial affairs, 60 days of <span><span><span>pay stubs</span></span></span>]</blockquote></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><blockquote>(i)(1) . . . if an individual debtor in a voluntary case under chapter 7 or 13 fails to file all of the information required under section (a)(1) within 45 days after the date of the filing of the petition,<span style="font-weight: bold;"> the case shall be automatically dismissed effective on the 46th day after the date of the filing of the petition</span>. [Emphasis added.]</blockquote></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">How could the Ninth Circuit, and before it the First Circuit, give the bankruptcy court discretion to address this deadline after the 45-day period in spite of the statute's language expressly mandating dismissal of the case on the 46th day?</span> Indeed, in this case the bankruptcy court did not order waiver of the 45-day deadline until more than six months had passed since the date of filing. How was the case even still active then if the statute clearly seems to provide for automatic dismissal on the 46th day after filing?</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;font-size:130%;" >The Facts</span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">This is not a case where debtor sought to avoid dismissal, but the opposite: <span style="font-weight: bold;">debtor moved to dismiss his Chapter 7 case</span> about five months after its filing, to get out of a case he clearly no longer wanted to be in.</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">The debtor had filed the bankruptcy case apparently in reaction to a state court order to his bank to freeze his bank accounts and turn over $93,000 to satisfy a child support arrearage. When debtor failed to file all the necessary documents at the time of his original bankruptcy case filing, the bankruptcy court issued the usual 15-day order of potential dismissal, and then scheduled a hearing on his failure to file those documents within the 15 days. Before that hearing the <span style="font-weight: bold;">Chapter 7 trustee requested that the case not be dismissed, in order to give her time to determine if there were any assets available for distribution to the creditors.</span> (Although not revealed in the Ninth Circuit opinion, the trustee had learned from debtor's bank that it intended to satisfy the $93,000 obligation from debtor's account, and also that debtor had withdrawn about $90,000 from that bank account.) At the hearing, which occurred 37 days after the date of filing, the court granted this request not to dismiss. Debtor did not appear in spite of an order to do so to face sanctions for failing to file the bankruptcy documents.</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Then months later, in response to debtor's subsequent motion to dismiss the case,<span style="font-weight: bold;"> the bankruptcy court first waived the document filing requirement and then denied debtor's motion to dismiss. </span>Debtor appealed.</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-size:130%;"><span style="font-weight: bold;">Rationale</span></span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Throughout its analysis, the Court relies extensively on the First Circuit opinion referred to above, <a style="font-weight: bold;" href="http://www.ca1.uscourts.gov/"><span style="font-style: italic;">Segarra-Miranda v. Acosta-Rivera (In re Acosta-Rivera)</span></a>, 557 F.3d 8 (1st Cir. 2009), quoting or citing this February 2009 opinion no less than fourteen times.</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">The Ninth Circuit Court's analysis starts with its assertion that the statutes at issue, § 521(a)(1) and § 521(i)(1), are ambiguous as to "whether subsection (i)(1)'s forty-five day filing deadline limits the power of a court to 'order[ ] otherwise' and waive the (a)(1) filing requirement." This purported statutory ambiguity required the Court to look at the possible interpretations of the statute "in light of the purpose of the statute." The Court determined that Congress' core purpose in enacting BAPCPA was to prevent abusive bankruptcy filings. <span style="font-weight: bold;">Abusive filings would be discouraged by allowing the bankruptcy court to "decline to dismiss the debtor's case if it determines the debtor is abusing and manipulating the bankruptcy system</span>."</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Accordingly, the Court found that both this Congressional intent and what it called the "authentic value of automatic dismissal" would be served by determining that the <span style="font-weight: bold;">bankruptcy courts have the discretion not only 1) to dismiss the case, or 2) not to dismiss based on the statutory exceptions, but also 3) to "determine, in its discretion, that the missing information is not required or that denial of dismissal is necessary to prevent a debtor from abusing and manipulating the bankruptcy system."</span></span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">The Court recognized that the majority of bankruptcy and district courts had decided to the contrary, that the automatic dismissal provision does NOT give bankruptcy courts discretion, especially after the 45-day deadline had passed, to avoid dismissing the case. But because "such a reading also would allow abusive and manipulative debtors to gain automatic dismissal and thereby encourage bankruptcy abuse," the Court simply "decline[d] to read § 521 in this manner."</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;font-size:130%;" >The Holding</span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">It held that "<span style="font-weight: bold;">where a bankruptcy court reasonably determines that there is no continuing need for the information or waiver of the filing requirement is necessary 'to prevent automatic dismissal from furthering a debtor’s abusive conduct, the court has discretion to take such an action.</span>' " [Quoting in part from <span style="font-style: italic;">Acosta-Rivera</span>.]</span></span></span><br /><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-size:130%;"><span style="font-weight: bold;">Query #1: Does this Ninth Circuit opinion open the door to giving bankruptcy courts the discretion to extend this 45-day deadline <span style="font-style: italic;">on behalf of debtors</span>, and particularly to do so AFTER that 45-day period has passed?</span></span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">The Court does not address this directly, but its rationale and holding do not apply to debtors' extension requests, so the opinion does not give any support for such requests. The First Circuit in <span style="font-style: italic;">Acosta-Rivera</span> was good enough to state clearly that it did "not decide today whether bankruptcy courts possess unfettered discretion to waive the disclosure requirements ex post." The Ninth Circuit made no such clarification, but its decision was similarly narrowly focused, and thus did not address, favorably or not, even in dicta, the question whether a debtor could avoid the automatic dismissal of § 521 (i)(1).</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-size:130%;"><span style="font-weight: bold;">Query #2: Why did the Ninth Circuit Not Address a Critical Subsection?</span></span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">In its interpretation of § 521(i)(1), the Ninth Circuit does not address the subsections immediately after, that is § 521(i)(2), (3), and (4). These are the statutory conditions and exceptions to the automatic dismissal of § 521(i)(1) so a careful review of them seems essential. § 521(i)(2) especially appears pertinent, stating that:</span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><blockquote>any party in interest may request the court to enter an order dismissing the case. If requested, the court shall enter an order of dismissal not later than 5 days after such request.</blockquote><span style="font-weight: bold;">The debtor is a "party in interest," and so this provision seems to give no discretion to the court in dismissing the case upon debtor's request if the requisite documents are not timely filed.</span></span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">This issue was certainly raised on appeal by debtor: a detailed statutory analysis of these three subsections was at the very heart of the district court opinion on appeal, </span><a style="font-weight: bold; font-style: italic;" href="http://www.websupp.org/data/NDCA/3:07-cv-03244-17-NDCA.pdf">Warren v. Wirum</a><span style="font-weight: bold;">, 378 B.R. 640 (N.D. Cal. 2007). And yet this Ninth Circuit opinion</span></span></span></span><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;"> overturning that district court opinion</span><span style="font-weight: bold;"></span><span style="font-weight: bold;"> oddly </span></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">made absolutely no mention of these clearly pertinent subsections.</span> Even the First Circuit opinion relied on so heavily in this Ninth Circuit opinion addressed these subsections, explaining that these subsections "operate within their own statutory ambit and do not cabin the bankruptcy court's discretion in other areas." The Ninth Circuit opinion simply states in a conclusory footnote that "none of th[e] § 521(i)(1), (3), (4) exceptions apply in this case," without any reference whatsoever to § 521(i)(2) which seems clearly to apply .<span style="font-weight: bold;"> In my view, the Court's failure to address this diminishes its opinion's credibility and likely its longevity . </span></span></span></span><br /></div><span style="font-family:arial;"><br /><br /><br /></span> <div style="text-align: justify;font-family:arial;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;">New Bulletins on this website will provide summaries of other opinions within the Ninth Circuit shortly after they are published. PLEASE EMAIL ME at </span></span></span></span><span style="color: rgb(204, 0, 0);font-size:85%;" ><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;"> IF YOU WOULD LIKE TO BE EMAILED A LINK TO SUCH FUTURE REPORTS.</span></span></span></span><br /></div> <span style="font-weight: bold;font-family:arial;" ><br /></span><span style="font-family:arial;"><span style="font-size:100%;"><span style="font-family:lucida grande;">by Andrew Toth-Fejel<br />Bankruptcy Litigation Support for Attorneys<span style="text-decoration: underline;"><br /></span></span></span></span><span style="font-size:85%;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span style="font-family:arial;"><br /></span> <div style="text-align: justify;"><blockquote style="color: rgb(204, 0, 0);"><span><span><span style="font-style: italic;font-family:arial;" class="Apple-style-span" ><span style="font-style: normal;font-family:Georgia;" class="Apple-style-span" ><span style="font-size:78%;"><span style="font-style: italic;font-size:100%;" ><span style="font-size:130%;"><span style="font-size:85%;">PLEASE NOTE that the writer is not licensed to practice law in any state. This means that he is not legally permitted to give any legal advice or perform any legal services. Any non-attorney reading this must consult an attorney about ANYTHING contained here. Nothing in this website is intended to be nor should be read as being legal advice to anyone. </span></span></span></span></span></span></span></span></blockquote></div> <!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--> <div class="post-body entry-content"><style> <!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman";} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in 1.0in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman";} </style> <![endif]--> <p class="MsoNormal" style="">© 2009 Bankruptcy Litigation Support for Attorneys</p></div>Bankruptcy Litigation Supporthttp://www.blogger.com/profile/03101092341657335203noreply@blogger.com4tag:blogger.com,1999:blog-1561463394548481996.post-7938280675657640192009-06-12T06:00:00.000-07:002009-06-12T08:22:36.429-07:00Judge Trish Brown Rules that $10,000 IRS Debt is Priority Debt Because 3-Year Look-Back Period is Tolled under the BAPCPA-Amended §507(a)(8)<span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-size:78%;"><br />By Andrew <span class="blsp-spelling-error" id="SPELLING_ERROR_0"><span class="blsp-spelling-error" id="SPELLING_ERROR_0">Toth</span></span>-<span class="blsp-spelling-error" id="SPELLING_ERROR_1"><span class="blsp-spelling-error" id="SPELLING_ERROR_1">Fejel</span></span>, Bankruptcy Litigation Support for Attorneys, </span><a href="mailto:Andy@BLSforAttorneys.com"><span style="font-size:78%;">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></span></a><br /></span></span><span style="font-family:arial;"><br /><a style="font-weight: bold;" href="http://www.orb.uscourts.gov/Judges/file_attachment/08-35047-tmb13_010609_092525.pdf"><br />In re <span class="blsp-spelling-error" id="SPELLING_ERROR_2">Steen</span></a><br />Oregon Bankruptcy Court Case No. 08-35047-<span class="blsp-spelling-error" id="SPELLING_ERROR_3">tmb</span>13<br />April 13, 2009<br /><br /><br /></span><div style="text-align: justify;"><span style="font-family:arial;"><span style="font-weight: bold;">§507(a)(8) of the Bankruptcy Code is the provision determining which tax debts are priority and thus must be paid in full in a Chapter 13 case. </span></span><span style="font-family:arial;"><span style="font-weight: bold;"><span class="blsp-spelling-error" id="SPELLING_ERROR_4">BAPCPA</span> added an unnumbered paragraph to this subsection. </span></span><span style="font-family:arial;"><span style="font-weight: bold;">Although this opinion by Judge Trish Brown is unpublished, neither the judge nor either party found any case law interpreting this unnumbered paragraph, so this appears to be a case of first impression and worthy of attention.<br /><br />In her opinion the judge declined to apply equitable principles of tolling urged by the debtors but rather applied "the plain language" of the unnumbered paragraph, ruling that an IRS tax debt was a priority debt because the three-year look-back period was tolled during the 31 days that a prior Chapter 13 case had been pending, plus the 90 additional days referred to in the paragraph, a total of 121 days of tolling. The case at issue had been filed before the passing of this three years plus 121 days. </span></span><span style="font-family:arial;">Had the Chapter 13 case been filed about 75 days later, the debtors would have had about $10,000 less in priority debt to pay in their plan.</span><br /><br /><span style="font-family:arial;"><span style="font-size:130%;"><span style="font-weight: bold;">The <span class="blsp-spelling-error" id="SPELLING_ERROR_5">BAPCPA</span> "Unnumbered Paragraph"</span></span></span><br /><span style="font-family:arial;">That added paragraph in </span><span style="font-family:arial;"><span>§507(a)(8) </span></span><span style="font-family:arial;">stated, as pertinent here: </span><br /><span style="font-family:arial;"><blockquote style="font-weight: bold;">An otherwise applicable time period specified in this paragraph shall be suspended for . . . any time during which the stay of proceedings was in effect in a prior case under this title . . . plus 90 days.</blockquote>The "applicable time period . . . suspended," or tolled, here was the one pertaining to income taxes, "for which a return . . . is last due, including <span class="blsp-spelling-corrected" id="SPELLING_ERROR_6">extensions</span>, after three-years before the date of the filing of the petition."</span><br /><br /><span style="font-family:arial;"><span style="font-size:130%;"><span style="font-weight: bold;">The Critical Facts and the Specific Issue</span></span></span><br /><span style="font-family:arial;">Chapter 13 debtors objected to the IRS' proof of claim, which treated one tax year's liability of about $10,000 as a priority claim. Debtors had filed their Chapter 13 case 46 days plus three years since that liability's tax return had been due after a tax filing extension. But about a year earlier a prior Chapter 13 case had been filed and then dismissed only 31 days later, all well before the three-year look-back period had expired. How should the three-year look-back period and tolling rules be calculated when the prior case occurred entirely within that period?</span><br /><br /><span style="font-family:arial;">The case turned in large part on an interpretation of the Supreme Court's holding in its 2002 unanimous opinion in <a style="font-weight: bold;" href="http://docs.justia.com/cases/supreme/535/43.swf"><span style="font-style: italic;">Young v. U.S</span>.</a>, 535 U.S. 43, which the legislative history clearly indicated was intended to be codified in this addition to §507(a)(8). </span><br /><br /><br /><span style="font-family:arial;"><span style="font-size:130%;"><span style="font-weight: bold;">Debtors' Argument</span></span></span><br /><span style="font-family:arial;"><span style="font-weight: bold;">Debtors looked to the </span><span style="font-style: italic; font-weight: bold;">Young</span><span style="font-weight: bold;"> opinion for authority that the bankruptcy court should look to the traditional equitable tolling principles "to determine the extent, if any, to which the <span class="blsp-spelling-error" id="SPELLING_ERROR_7">lookback</span> period was tolled by their prior bankruptcy filing." Under these equitable principles, the IRS rights would be protected not expanded by the tolling, with the result that, as argued by debtors' counsel: “if the three year time period had not run when a prior bankruptcy case was filed, then such period would run the later of 90 days after the end of the prior bankruptcy case or the full three year period." That is, tolling occurs only if the three year period expires less than 90 days after the prior case was over.</span></span><br /><br /><span style="font-family:arial;"><span style="font-weight: bold;font-size:130%;" >IRS' Argument</span></span><br /><span style="font-family:arial;"><span style="font-weight: bold;">The IRS appeared to interpret <span style="font-style: italic;">Young</span> instead to say that the three-year period was tolled for the length of time the prior case was pending, regardless that this occurred well within the three-year period. </span>Thus, following the statute, the IRS <span class="blsp-spelling-corrected" id="SPELLING_ERROR_8">argued</span> that the <span class="blsp-spelling-error" id="SPELLING_ERROR_9">look-back</span> period is simply extended for the number of days the prior case was pending plus 90 days.</span><br /><br /><span style="font-family:arial;"><span style="font-weight: bold;font-size:130%;" >Judge Brown's Rationale</span></span><br /><span style="font-family:arial;"><span style="font-weight: bold;">While finding that "there is some appeal to the Debtors’ argument," the judge determined that "it runs afoul of the plain language of the statute."</span> She said that the clause stating that the "applicable time period . . . shall be suspended for . . . any time during which the stay of proceeding was in effect in a prior case under this title" "clearly contemplates that the <span class="blsp-spelling-error" id="SPELLING_ERROR_10">lookback</span> period shall cease to run during the time that a debtor is in bankruptcy plus 90 days."</span><br /><br /><span style="font-family:arial;">As additional justification, the judge referred to another statute in the Code, §108(c), in which Congress laid out expressly a time calculation very similar to the one that Debtors sought to apply here, as indication that "had Congress intended such a result it clearly knew how to word the unnumbered paragraph to accomplish that goal. It did not do so."</span><br /><br /><span style="font-family:arial;"><span style="font-size:130%;"><span style="font-weight: bold;">The Bottom Line</span></span></span><br /><span style="font-family:arial;">The Supreme Court's <span style="font-style: italic;">Young</span> opinion stated that "<span style="font-weight: bold;">[i]t is <span class="blsp-spelling-error" id="SPELLING_ERROR_11">hornbook</span> law that limitations periods are 'customarily subject to equitable tolling,' unless tolling would be 'inconsistent with the text of the relevant statute.' </span>" (Citations omitted.) Although Judge Brown did not refer to this in her opinion, she looked to "the text of the relevant statute" to determine, that the principles of equitable tolling were subservient to "the plain language of the statute." <span style="font-weight: bold;">The three-year period of §507(a)(8) is tolled for whatever period of time a prior bankruptcy case is pending, plus 90 days, regardless when that prior case occurred in relation to that three-year period. </span></span><br /><br /><br /><br /></div><div style="text-align: justify;font-family:arial;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;">New Bulletins on this website will provide summaries of other opinions within the Ninth Circuit shortly after they are published. PLEASE EMAIL ME at </span></span></span></span><span style="color: rgb(204, 0, 0);font-size:85%;" ><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;"> IF YOU WOULD LIKE TO BE EMAILED A LINK TO SUCH FUTURE REPORTS.</span></span></span></span><br /></div> <span style="font-weight: bold;font-family:arial;" ><br /></span><span style="font-family:arial;"><span style="font-size:100%;"><span style="font-family:lucida grande;">by Andrew <span class="blsp-spelling-error" id="SPELLING_ERROR_12"><span class="blsp-spelling-error" id="SPELLING_ERROR_17"><span class="blsp-spelling-error" id="SPELLING_ERROR_12">Toth</span></span></span>-<span class="blsp-spelling-error" id="SPELLING_ERROR_13"><span class="blsp-spelling-error" id="SPELLING_ERROR_18"><span class="blsp-spelling-error" id="SPELLING_ERROR_13">Fejel</span></span></span><br />Bankruptcy Litigation Support for Attorneys<span style="text-decoration: underline;"><br /></span></span></span></span><span style="font-size:85%;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span style="font-family:arial;"><br /></span> <div style="text-align: justify;"><blockquote style="color: rgb(204, 0, 0);"><span><span><span style="font-style: italic;font-family:arial;" class="Apple-style-span" ><span style="font-style: normal;font-family:Georgia;" class="Apple-style-span" ><span style="font-size:78%;"><span style="font-style: italic;font-size:100%;" ><span style="font-size:130%;"><span style="font-size:85%;">PLEASE NOTE that the writer is not licensed to practice law in any state. This means that he is not legally permitted to give any legal advice or perform any legal services. Any non-attorney reading this must consult an attorney about ANYTHING contained here. Nothing in this website is intended to be nor should be read as being legal advice to anyone. </span></span></span></span></span></span></span></span></blockquote></div> <!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--> <div class="post-body entry-content"><style> <!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman";} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in 1.0in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman";} </style> <![endif]--> <p class="MsoNormal" style="">© 2009 Bankruptcy Litigation Support for Attorneys</p></div>Bankruptcy Litigation Supporthttp://www.blogger.com/profile/03101092341657335203noreply@blogger.com3tag:blogger.com,1999:blog-1561463394548481996.post-52580575389659872932009-05-25T06:00:00.000-07:002009-06-05T08:02:07.762-07:00Why President Obama Let the Bankruptcy Cramdown Legislation Die of Neglect<span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-size:78%;"><br />By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, </span><a href="mailto:Andy@BLSforAttorneys.com"><span style="font-size:78%;">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></span></a><br /><br /><span style="font-family:arial;"><br /></span></span></span><div style="text-align: justify;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">After the bankruptcy cramdown legislation was voted down on the Senate floor at the end of April, one of the reasons cited for its defeat has continued to confound both its supporters and its opponents:<span style="font-weight: bold;"> why did President Obama not push hard for the legislation that he had consistently supported, just when his help was most needed? </span></span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">This is no mere academic question. The foreclosure crisis continues to show little sign of abating. The Administration's true attitude towards the legislation is a key factor for those supporters in deciding whether and when they should renew their efforts in Congress.</span></span></span><style>family:"Cambria Math"; panose-1:2 4 5 3 5 4 6 3 2 4; mso-font-charset:0; mso-generic-font-family:roman; mso-font-pitch:variable; mso-font-signature:-1610611985 1107304683 0 0 159 0;} @font-face {font-family:Calibri; panose-1:2 15 5 2 2 2 4 3 2 4; mso-font-charset:0; mso-generic-font-family:swiss; mso-font-pitch:variable; mso-font-signature:-1610611985 1073750139 0 0 159 0;} /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-unhide:no; mso-style-qformat:yes; mso-style-parent:""; margin-top:0in; margin-right:0in; margin-bottom:10.0pt; margin-left:0in; line-height:115%; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-fareast-font-family:Calibri; mso-fareast-theme-font:minor-latin; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-bidi-font-family:"Times New Roman"; mso-bidi-theme-font:minor-bidi;} span.apple-style-span {mso-style-name:apple-style-span; mso-style-unhide:no;} .MsoChpDefault {mso-style-type:export-only; mso-default-props:yes; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-fareast-font-family:Calibri; mso-fareast-theme-font:minor-latin; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-bidi-font-family:"Times New Roman"; mso-bidi-theme-font:minor-bidi;} .MsoPapDefault {mso-style-type:export-only; margin-bottom:10.0pt; line-height:115%;} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.0in 1.0in 1.0in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-qformat:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin-top:0in; mso-para-margin-right:0in; mso-para-margin-bottom:10.0pt; mso-para-margin-left:0in; line-height:115%; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-fareast-font-family:"Times New Roman"; mso-fareast-theme-font:minor-fareast; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin;} </style> <![endif]--><span class="apple-style-span"><span style="font-size: 11pt; line-height: 115%; font-family: "Arial","sans-serif";"></span></span><span style="font-size: 11pt; line-height: 115%; font-family: "Calibri","sans-serif";"><br /> <!--[endif]--></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;font-size:130%;" >The Neglect</span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">The White House put virtually no effort into the bankruptcy legislation after the House passed its version in early March. </span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">Contrast what happened on credit card reform</span>, which the President just signed into law on Friday, May 22. He met with credit card lenders at the White House about the legislation in late April right before the House passed its bill. On the morning of that vote, Treasury Secretary Timothy Geithner convened a meeting with the House bill's sponsor and consumer groups, at which he trumpeted the Administration's strong support. The White House publicly got involved in the negotiations, pushing certain provisions, broadcasting again that the Administration was deeply invested in the law's passage. Obama promoted it personally in a prime-time news conference and then again in one of his weekly weekend radio addresses, and then even traveled to Albuquerque, New Mexico for a highly publicized town hall meeting specifically on this issue, putting the full weight of his office behind the bill a few days before the Senate vote. Finally, the President pronounced weeks ago that he wanted to sign a credit card reform bill by the Memorial Day weekend, with the result that the Senate passed its version this last Tuesday, the House passed the compromise version on Wednesday, and, lo and behold, the bill was ready for the Rose Garden signing ceremony just in time for this "deadline."</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">This White House clearly knows how to go on the offensive. In stark contrast, everybody could tell, especially the Senators on the fence, that there was no offensive push whatsoever on the bankruptcy bill. Not a single word of public support from the President between the time of House passage and the Senate vote. Why not?</span></span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">Two possible theories.</span></span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;font-size:130%;" >1) Genuine Ambivalence</span></span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">Is it sensible that, </span><span style="font-weight: bold;">notwithstanding</span><span style="font-weight: bold;"> the Presidential campaign rhetoric and </span><span style="font-weight: bold;">Obama's</span><span style="font-weight: bold;"> inclusion of bankruptcy </span><span style="font-weight: bold;">cramdown</span><span style="font-weight: bold;"> in his Administration's economic battle plan, he or his economic team actually did not believe in it? Or at least not enough?</span></span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">Barack Obama had consistently supported the concept of bankruptcy mortgage </span>cramdown<span style="font-weight: bold;">.</span> He promoted it explicitly during his Presidential campaign, devoting an entire (albeit short) speech to bankruptcy reform, a rather unusual elevation of bankruptcy law to the national stage. His campaign website listed "Reform of Bankruptcy Laws," including mortgage cramdown, as one of his 10 key bullet-points on the Economy (see <a href="http://blsbulletins.blogspot.com/2008/08/prospects-for-amendments-to-bapcpa.html">my Bulletin</a> of August 28, 2008). His support did not end with the election. A month after his inauguration, after he and his staff had had a few months since Election Day to consider the appropriate role of mortgage cramdown in addressing the foreclosure crisis,</span></span></span> <span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">the President included the following paragraph in a major speech on his plan to address the foreclosure crisis:</span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><blockquote>My administration will continue to support reforming our bankruptcy rules so that we allow judges to reduce home mortgages on primary residences to their fair market value – as long as borrowers pay their debts under a court-ordered plan. That's the rule for investors who own two, three, and four homes. It should be the rule for ordinary homeowners too, as an alternative to foreclosure.</blockquote>That sounds like genuine support. Two weeks later the House passed its cramdown bill.</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">But at that point, it's as if the lights went out. Only muted or ambiguous public support followed.</span> The most visible comment from the Administration thereafter came from Treasury Secretary Timothy Geithner on April 21 during questioning before the congressional oversight panel overseeing the financial bailout. The panel's otherwise very able chair, Elizabeth Warren, who had championed bankruptcy cramdown, made the most basic litigator's error: she asked the witness, Geithner, a question she did not know how he would answer. Or perhaps more accurately, Geithner just did not follow the lead of her leading question. Obama had said that cramdown was a vital incentive, the "stick," to encourage mortgage holders to enter into mortgage modifications. With that undoubtedly in mind, Warren asked Geithner if the cramdown bill was essential, to which he replied: “We are supportive of carefully designed changes” to bankruptcy law. "It’s a difficult balance to get right, as you know,” he continued, lamely adding, “But the president is supportive of this.” </span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">This response was universally seen as unenthusiastic and ambivalent just when Senate negotiators </span><span style="font-weight: bold;">desperately</span><span style="font-weight: bold;"> needed a hearty endorsement. Indeed, it gave any wavering Democratic Senators a clear signal that this legislation was not an Administration priority and that there would not be significant consequences if they strayed from the fold on this one.</span></span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">The following week, the Senate voted down the measure.</span></span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Did the Obama economic brain trust, after a few months of grappling with so many angles of the broader economic picture, believe at least on some level the main talking point of the Mortgage Bankers Association, that the mortgage credit markets are in a such a delicate state that inserting a major unknown such as the cramdown law, with its inevitable immediate significant uptick in Chapter 13 bankruptcy filings, was too risky? Or<span style="font-weight: bold;"> did the Administration determine at some point that their beefed up non-bankruptcy mortgage modification programs should be first given an opportunity to work without the incentive of a possible Chapter 13 </span><span style="font-weight: bold;">cramdown</span><span style="font-weight: bold;">? More specifically, did these decision-makers fear that </span><span style="font-weight: bold;">cramdown</span><span style="font-weight: bold;"> would force the nation's financial institutions at all levels to more quickly acknowledge the true value of their mortgage assets, </span><span style="font-weight: bold;">overstressing</span><span style="font-weight: bold;"> the financial system just when it seemed to be starting to regain some traction?</span></span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Rahm Emanuel, Obama's chief of staff and de facto legislative strategist, knows, but he's not talking.</span></span></span><br /><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-size:130%;"><span style="font-weight: bold;">2) Utilitarian Political Calculation</span></span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-size:130%;"><span style="font-weight: bold;"></span></span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">At some point, perhaps even before the House vote in favor of the measure, the White House made a decision that the cost of expending political capital on the cramdown legislation was not worth the anticipated benefit. <span style="font-weight: bold;">An educated guess was made that Senator </span><span style="font-weight: bold;">Durbin</span><span style="font-weight: bold;"> would not be willing to gut the bill by restricting it to </span><span style="font-weight: bold;">subprime</span><span style="font-weight: bold;"> or a similarly restricted set of loans, that the mortgage industry would not bend to accept a broadly applicable bill, with the reliably predictable result that the bill would thus fail to garner every one of the essential Democratic Senate votes much less the necessary few Republican ones to get to the filibuster-proof 60 votes. </span>Knowing the power of the financial services lobby, particularly on many of the crucial swing Senators, and knowing the relative discipline of the Republican Senators, the Administration determined that the legislation would almost certainly not pass in the Senate.</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">The only unknown in that utilitarian calculus was the difference that a full Presidential offensive could make on the outcome. The decision by the White House against mounting this offensive had the following Congressional and public components.</span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;"></span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;"><span style="font-size:130%;">The Congressional Calculus</span></span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">On the Congressional side, the Administration saw that the issue was starkly partisan, exemplified by the House Judiciary Committee vote just one week after the inauguration, in which the bill carried 21-15 but on strictly party lines. <span style="font-weight: bold;">Given the other monumental legislative battles ahead--such as health care and climate change--this particular one was determined to be not worth enough to allow its partisan collateral damage to affect those future battles</span>. Indeed, although there were a few Republican Representatives had voted to help pass the House bill, not a single Republican Senator voted for in favor of the Senate bill. Splitting off some of these disciplined Republican votes would only have been possible with a great deal of bruising arm-twisting.</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">By way of great contrast, the battle </span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">the Administration instead chose to pick </span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">against the financial industry, the credit card reform which became law this last week, was much less partisan. The bipartisan votes reflect this: it passed the House 357-70, the Senate 90-5, and then the House again 361-64. These votes were relatively one-sided partly because of the Administration's multi-faceted aggressive push, but more so because <span style="font-weight: bold;">credit card reform, at least at this political moment, was much less </span><span style="font-weight: bold;">divisive</span><span style="font-weight: bold;"> than bankruptcy </span><span style="font-weight: bold;">cramdown. The Administration needed this infinitely less bloody and less risky victory.</span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;"></span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;"><span style="font-size:130%;">Assessing the Public Mood</span></span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">On the public side as well, the <span style="font-weight: bold;">White House made an assessment of the public mood and concluded that, given the tenor of the moment, it was battling against the tide, and should cut its losses. Had the Administration pushed hard and lost, it would have taken a significant hit to its reputation.</span></span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">The Administration perceived that, first, the pool of people personally affected by credit card interest rates and fees is many times larger than those personally affected by foreclosures.<br /><br />Second, a large percentage of the public is frustrated by their credit card lenders and their seemingly unlimited arbitrary power, this frustration greatly accentuated these last few months as these lenders have tried to reduce their losses by much more aggressively using the discretion that their one-sided contracts have given them. As Senator Charles Schumer, one of the cramdown legislation's chief supporters, expressed:</span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><blockquote>"Bankruptcy reform, important as it was, was sort of esoteric. If you went into O'Halloran's Pub, the fellas aren't saying to you, 'What's going on with bankruptcy reform?' But they might say, 'What are you doing about my credit cards?' The average person feels the second much more than the first . . . ."</blockquote>And third, although there are plenty of credit card abusers, somehow in the general public's eye credit card borrowers were helpless victims while homeowners being foreclosed on were much less so. The picture of millions of innocent homeowners who had been merely counted on what had largely been consistently occurring for two generations--increases in home values--was indelibly sullied with and overwhelmed by images of greedy house-flipping speculators and refinance-addicted spendthrifts. Perversely, and in no small part because of the persistent efforts of the mortgage lobby spanning at least two legislative cycles,<span style="font-weight: bold;"> a substantial portion of taxpayers transferred their outrage about having to shoulder the costs of the financial industry's collapse into an indignant moral superiority</span>: "I've been responsible in buying a house within my means and paying on my mortgage so why should I pay for someone else's irresponsibility and failure to understand their mortgage terms?"</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">The White House realized the limits of its bully pulpit against such visceral attitudes.</span></span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-size:130%;"><span style="font-weight: bold;">Conclusion</span></span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-size:130%;"><span style="font-weight: bold;"></span></span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">The Obama Administration is cautious, rational and realistic. It determined at some point that, in the totality of the present circumstances, bankruptcy mortgage cramdown was not going to make it through the Senate. So, after that point the Administration did not invest hardly any of its political capital on that fight. <span style="font-weight: bold;">The result: with almost no money on this race, it did not lose much. </span>Although the Mortgage Bankers Association and its allies crowed about its success, and news reports labeled this as a defeat for the Administration, that part of the story faded quickly. <span style="font-weight: bold;">The swiftness of the subsequent passage of the credit card reform bill, with its relatively strong bipartisan support, was in part orchestrated by the White House to mute the loss on the bankruptcy bill, to demonstrate its ability to prevail against at least one sector of the financial services industry.<br /><br />Would the Administration's full support, akin to its effort with the credit card reform, have made a difference in the outcome? Take it from one of the chief legistlative opponents, Camden Fine, President and CEO of the Independent Community Bankers of America: "This would have been a much different deal if Obama had pressed it." "The fact that Obama effectively sat it out helped us a great deal."</span></span></span></span> <br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Whether this bankruptcy legislation will return depends on <span style="font-weight: bold;">two primary unknowns: </span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">1) the evolution of <span style="font-weight: bold;">the economy in the coming year or so</span>, particularly how much the Obama Administration's enhanced loan modification programs reduce the millions of anticipated foreclosures and their tremendous strain on the economy; and</span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">2) the <span style="font-weight: bold;">true attitudes among the President's economic team about the benefits and risks of bankruptcy mortgage cramdown</span>, and how those attitudes evolve over the coming months.</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">This Administration has only been in power for one quarter of a year, has had to deal with a tsunami of economic issues, and understandably has had to pick its battles. By all indications, the home foreclosure scene will still be one crying out for further attention for many months to come. We may well still have the opportunity to see what would happen to bankruptcy </span><span style="font-weight: bold;">cramdown</span><span style="font-weight: bold;"> if this Administration gave it its full-</span><span style="font-weight: bold;">throated</span><span style="font-weight: bold;"> support.</span></span></span></span><br /></div><span style="font-family:arial;"><br /><br /><br /></span> <div style="text-align: justify;font-family:arial;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;">New Bulletins on this website will provide articles of interest related to any future bankruptcy mortgage cramdown legislation, non-bankruptcy mortgage modifications, foreclosures and similar subjects. PLEASE EMAIL ME at </span></span></span></span><span style="color: rgb(204, 0, 0);font-size:85%;" ><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;"> IF YOU WOULD LIKE TO BE EMAILED WITH LINKS TO SUCH FUTURE BULLETINS.</span></span></span></span><br /></div> <span style="font-weight: bold;font-family:arial;" ><br /></span><span style="font-family:arial;"><span style="font-size:100%;"><span style="font-family:lucida grande;">by Andrew Toth-Fejel<br />Bankruptcy Litigation Support for Attorneys<span style="text-decoration: underline;"><br /></span></span></span></span><span style="font-size:85%;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span style="font-family:arial;"><br /></span> <div style="text-align: justify;"><blockquote style="color: rgb(204, 0, 0);"><span><span><span style="font-style: italic;font-family:arial;" class="Apple-style-span" ><span style="font-style: normal;font-family:Georgia;" class="Apple-style-span" ><span style="font-size:78%;"><span style="font-style: italic;font-size:100%;" ><span style="font-size:130%;"><span style="font-size:85%;">PLEASE NOTE that the writer is not licensed to practice law in any state. This means that he is not legally permitted to give any legal advice or perform any legal services. Any non-attorney reading this must consult an attorney about ANYTHING contained here. Nothing in this website is intended to be nor should be read as being legal advice to anyone. </span></span></span></span></span></span></span></span></blockquote></div> <!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--> <div class="post-body entry-content"><style> <!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman";} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in 1.0in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman";} </style> <![endif]--> <p class="MsoNormal" style="">© 2009 Bankruptcy Litigation Support for Attorneys</p></div>Bankruptcy Litigation Supporthttp://www.blogger.com/profile/03101092341657335203noreply@blogger.com0tag:blogger.com,1999:blog-1561463394548481996.post-75165628851824078422009-05-18T06:00:00.000-07:002009-06-05T10:29:46.279-07:00New Ninth Circuit Lehtinen Opinion on Bankruptcy Court's Authority to Sanction Attorneys Trumps Part But Not All of Recent Judge Dunn BAP Opinion<span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-size:78%;"><br />By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, </span><a href="mailto:Andy@BLSforAttorneys.com"><span style="font-size:78%;">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></span></a><br /><br /></span></span><a style="font-weight: bold;" href="http://207.41.19.15/Web/bap.nsf/055093139C0B2E7788257554006A4AC4/$file/Brooks-Hamilton-08-1233.pdf?openelement"><span style="text-decoration: underline;"><br /></span></a><span style="font-family:arial;"><span style="font-family:arial;"><span><a style="font-weight: bold;" href="http://207.41.19.15/Web/bap.nsf/055093139C0B2E7788257554006A4AC4/$file/Brooks-Hamilton-08-1233.pdf?openelement">In re Brooks-Hamilton</a><br />Ninth Circuit Bankruptcy Appellate Panel No. NC-08-1233-DJuMk<br />January 21, 2009<br /><br /><br /><br /></span></span></span><div style="text-align: justify;"><span style="font-family:arial;"><span style="font-family:arial;"><span>A couple of weeks ago the Ninth Circuit addressed the bankruptcy court's inherent authority to suspend an attorney from practicing before it, in <a style="font-weight: bold; font-style: italic;" href="http://www.ca9.uscourts.gov/datastore/opinions/2009/04/27/0517421.pdf">Price v. Lehtinen (In re Lehtinen)</a>. (See <a style="font-weight: bold;" href="http://blslitigation.blogspot.com/2009/02/bankruptcy-court-has-inherent-power-to.html">last week's Litigation Report</a> on that opinion.) A few months earlier the <span style="font-weight: bold;">Ninth Circuit BAP had addressed the very same issue, in a published opinion authored by Judge Randall Dunn</span>, the <span style="font-style: italic;">In re Brooks-Hamilton</span> opinion addressed in this Bulletin. <span style="font-weight: bold;">The question is whether this published BAP opinion, or any part of it, is still good law in the Circuit after <span style="font-style: italic;">Lehtinen</span>?</span> This may be of particular importance to attorneys who practice in Judge Dunn's courtroom in Oregon.</span></span></span><br /><br /><span style="font-family:arial;"><span style="font-family:arial;"><span><span style="font-size:130%;"><span style="font-weight: bold;">A Touch of Background</span></span></span></span></span><br /><span style="font-family:arial;"><span style="font-family:arial;"><span>This case has an extended history, certainly for the attorney fighting for six years, so far unsuccessfully, to avoid a six-month suspension. It involved a prior dance up the appellate staircase, resulting in an earlier BAP published opinion, the Ninth Circuit sending the case back to the bankruptcy court on remand, and now the attorney again appealing to the BAP. After a lessening of the monetary sanction, the appeal is now limited to the bankruptcy court's reimposed six-month suspension sanction.</span></span></span><br /><br /><span style="font-family:arial;"><span style="font-family:arial;"><span><span style="font-size:130%;"><span style="font-weight: bold;">The Brooks-Hamilton Holding</span></span></span></span></span><br /><span style="font-family:arial;"><span style="font-family:arial;"><span><span style="font-weight: bold;">The BAP, through Judge Dunn, held that bankruptcy courts derive their authority to suspend attorneys from practicing law in that district's bankruptcy courts from</span></span></span></span><span style="font-family:arial;"><span style="font-family:arial;"><span><span style="font-weight: bold;"> three sources</span></span></span></span><span style="font-family:arial;"><span style="font-family:arial;"><span><span style="font-weight: bold;">: through an "inherent authority" to discipline attorneys before it, through § 105(a) of the Bankruptcy Code, and through Rule 9011 of the Federal Rules of Bankruptcy Procedure. </span>Having established that the court has the authority to suspend, this left the question whether this sanction was appropriate here, particularly whether the bankruptcy court had considered the factors established in a 1996 9th Circuit BAP opinion, <span style="font-style: italic;">Peugeot v. United States Trustee (In re Crayton)</span>, 192 B.R. 970 (and followed in the 2005 Ninth Circuit BAP <span style="font-style: italic;">Lehtinen</span> opinion from which last month's Ninth Circuit <span style="font-style: italic;">Lehtinen</span> opinion referred to above was appealed).</span></span></span><br /><br /><span style="font-family:arial;"><span style="font-family:arial;"><span>In applying the Crayton factors, the BAP determined in <span style="font-style: italic;">Brooks-Hamilton</span> that the disciplinary proceeding was fair in that the attorney received adequate notice and opportunity to be heard, and the evidence supported the bankruptcy court's findings. But the <span style="font-weight: bold;">BAP also held that in determining the reasonableness of the sanction, the court abused its discretion in not expressly considering the American Bar Association standards for sanctioning attorneys, and so remanded to the bankruptcy court for further findings on the application of those ABA standards to the case.</span></span></span></span><br /><br /><span style="font-family:arial;"><span style="font-family:arial;"><span><span style="font-size:130%;"><span style="font-weight: bold;">The Ninth Circuit Silent in <span style="font-style: italic;">Lehtinen</span> on <span style="font-style: italic;">Brooks-Hamilton</span></span></span></span></span></span><br /><span style="font-family:arial;"><span style="font-family:arial;"><span>This analysis of <span style="font-style: italic;">Brooks-Hamilton</span> as compared to the Ninth Circuit's <span style="font-style: italic;">Lehtinen</span> leads to some quixotic and ironic observations. The first curiosity is that <span style="font-weight: bold;">even though Judge Dunn's BAP opinion of January 21, 2009 and the April 28, 2009 </span><span style="font-style: italic; font-weight: bold;">Lehtinen</span><span style="font-weight: bold;"> opinion addressed identical issues, the Ninth Circuit opinion made no mention of the </span><span style="font-style: italic; font-weight: bold;">Brooks-Hamilton</span><span style="font-weight: bold;"> opinion</span>. Given the <span style="font-style: italic;">Brooks-Hamilton</span> case's prior appellate history, it seems like the Ninth Circuit judges and clerks should have had some familiarity with it. And the BAP case could not have been TOO new to fly under their radar--it was published, on an expedited basis, in January of this year while the Ninth Circuit case was not submitted to the Court of Appeals for decision until mid-February </span></span></span><span style="font-family:arial;"><span style="font-family:arial;"><span>(there was no oral argument) </span></span></span><span style="font-family:arial;"><span style="font-family:arial;"><span>and its opinion was filed in late April, 2009, seemingly with plenty of time to notice this BAP opinion published back in January. And although the higher court was under no obligation to name prior BAP cases on point in its opinion, it apparently intended to do so here: it said that "[t]he BAP has "held that the bankruptcy court has the power to disbar or suspend an attorney under its inherent authority power"--the key holding in the <span style="font-style: italic;">Brooks-Hamilton </span><span>of January 2009</span>--but cited instead to the 1996 <span style="font-style: italic;">Crayton</span> BAP opinion cited above. Are the Ninth Circuit's judges or their law clerks not on top of recent case law? Must be--makes no sense that the opinion's author would purposely avoid referring to the most recent BAP opinion squarely on point.</span></span></span><br /><br /><span style="font-family:arial;"><span style="font-family:arial;"><span><span style="font-size:130%;"><span style="font-weight: bold;">The Appropriate Role of the ABA Standards in Attorney Sanctioning</span></span></span></span></span><br /><span style="font-weight: bold;font-family:arial;" ><span style="font-family:arial;"><span>A second curiosity is that the Ninth Circuit in <span style="font-style: italic;">Lehtinen</span> managed to avoid addressing the dispositive holding in all three of the BAP opinions in play--<span style="font-style: italic;">Crayton</span></span></span></span><span style="font-weight: bold;font-family:arial;" ><span style="font-family:arial;"><span> from 1996</span></span></span><span style="font-family:arial;"><span style="font-family:arial;"><span><span style="font-weight: bold;">, this </span><span style="font-style: italic; font-weight: bold;">Brooks-Hamilton</span><span style="font-weight: bold;"> one, and the BAP </span><span style="font-style: italic; font-weight: bold;">Lehtinen</span><span style="font-weight: bold;"> opinion below: the <span style="font-style: italic;">mandatory</span> reference by the bankruptcy court to the ABA Standards to determine the reasonableness of the sanction.</span> On this, Judge Dunn stated in <span style="font-style: italic;">Brooks-Hamiliton</span> that "[t]he Panel has adopted ABA standards as the means for determining reasonable sanctions," and he quoted the BAP's <span style="font-style: italic;">Crayton</span> opinion that the “[f]ailure to consider such factors constitutes an abuse of discretion" by the bankruptcy court. This quote was subsequently repeated and relied upon by the BAP judges in their <span style="font-style: italic;">Lehtinen</span> opinion. And yet when that case came before the Ninth Circuit, after making passing mention of the BAP's reference to the ABA Standards in the introduction, its opinion never refers to the ABA Standards again, neither to embrace nor to reject them.</span></span></span><br /><br /><span style="font-family:arial;"><span style="font-family:arial;"><span><span style="font-weight: bold;">But while the Ninth Circuit in </span><span style="font-style: italic; font-weight: bold;">Lehtinen</span><span style="font-weight: bold;"> did not expressly reject reliance on the ABA Standards, it surely did so by clear implication</span>. In its conventional recitation of the Standard of [Appellate] Review, the Court quoted its own precedents that "[t]his court independently reviews the bankruptcy court's ruling on appeal from the BAP," and "reviews an award of sanctions for an abuse of discretion." In its independent review, the Court could have affirmed the BAP ruling below that the failure to consider the ABA Standards "constitutes an abuse of discretion." Instead the Court addressed whether the bankruptcy court's procedures met the due process standards of notice and opportunity to be heard, and determined that it had met them. <span style="font-weight: bold;">The Court "conclude[d] that because [the attorney] was accorded due process, the bankruptcy court possessed the inherent power to suspend him." The Court never felt a need to ask, as did all three BAP panels, whether the suspension sanction was reasonable in the circumstances. Clearly, the Ninth Circuit ruling is that a bankruptcy court has the power to suspend an attorney as long as she is afforded procedural due process, without any obligation to consult the ABA Standards as to the fairness of the suspension.</span></span></span></span><br /><br /><span style="font-family:arial;"><span style="font-family:arial;"><span><span style="font-size:130%;"><span style="font-weight: bold;">The "Tempest in a Teapot" of </span><span style="font-style: italic; font-weight: bold;">Brooks-Hamilton</span></span></span></span></span><br /><span style="font-family:arial;"><span style="font-family:arial;"><span><span style="font-weight: bold;">One irony in this is that this now discredited reference to the ABA Standards was the entire focus of a multi-page repartee in </span><span style="font-style: italic; font-weight: bold;">Brooks-Hamilton</span><span style="font-weight: bold;"> between Judge Dunn's majority opinion and Judge Bruce Markell's very reluctant concurrence.</span> Judge Markell, a former law professor, railed in his concurrence against the appropriateness of the ABA Standards in this context, and then against the Ninth Circuit BAP's "rigid view that we cannot change or alter our prior precedent, even if we think it dead wrong." "[B]lindly applying<span style="font-style: italic;"> Lehtinen</span> and <span style="font-style: italic;">Crayton</span> to the facts of this case leads, I believe, to a result that should offend those who care about how courts operate, or who wish courts to operate rationally." He cites as authority for not "blindly applying" precedent sources as diverse as Aristotle, the economist John Maynard Keynes, and the British House of Lords of the 19th Century. The Keynesian quote was a particularly nice flourish: against over reliance on precedents: "When the facts change, I change my mind. What do you do, sir?"</span></span></span><br /><br /><span style="font-family:arial;"><span style="font-family:arial;"><span>Nevertheless Judge Markell concurs in Judge Dunn's holding on the mandatory use of the ABA Standards, perhaps mollified by this footnote in the Court's opinion:</span></span></span><br /><span style="font-family:arial;"><span style="font-family:arial;"><span><blockquote>For the reasons stated by Judge Markell in his concurrence, we all have serious questions as to the appropriateness of requiring explicit consideration of the ABA standards in determining the reasonableness of the suspension sanction imposed by the bankruptcy court. However, as further discussed herein, this Panel stated its reasons for requiring consideration of the ABA standards in <span style="font-style: italic;">Crayton</span> and <span style="font-style: italic;">Lehtinen</span>, and this Panel is bound by its prior decisions.</blockquote></span></span></span><span style="font-weight: bold;font-family:arial;" ><span style="font-family:arial;"><span>Perhaps to the relief of both judges, just three months later the Ninth Circuit <span style="font-style: italic;">Lehtinen</span> opinion disregarded the ABA Standards, by its silence dispensing with the need for a bankruptcy court to make "explicit consideration of the ABA standards."</span></span></span><br /><br /><span style="font-family:arial;"><span style="font-family:arial;"><span><span style="font-size:130%;"><span style="font-weight: bold;">The "Standing Committee" Recommendation</span></span></span></span></span><br /><span style="font-family:arial;"><span style="font-family:arial;"><span><span style="font-weight: bold;">Judge Dunn ended the </span><span style="font-style: italic; font-weight: bold;">Brooks-Hamilton</span><span style="font-weight: bold;"> opinion with a somewhat odd twist: a nonbinding "strong recommendation" to the bankruptcy court below.</span> After instructing the bankruptcy court to determine the appropriate sanction under the ABA standards, he stated: "Although the Panel’s prior decisions do not require that the bankruptcy court refer the matter to the Standing Committee [on Professional Conduct of the Northern District of California], we <span style="font-style: italic; font-weight: bold;">strongly</span> urge the bankruptcy court to do so, to spare itself from having to rehash this stale and exhausting matter." (Emphasis in original; citations omitted.) However, lest there be any doubt, the very last words of his opinion was this final footnote: "Despite that strong recommendation, we reiterate that the bankruptcy court has the authority, as discussed supra, to impose a district-wide disbarment or suspension sanction on an attorney for misconduct and/or incompetence in appropriate circumstances."</span></span></span><br /><br /><span style="font-family:arial;"><span style="font-family:arial;"><span>The Ninth Circuit in <span style="font-style: italic;">Lehtinen</span> would definitely have agreed (had it taken to opportunity to acknowledge Judge Dunn's opinion): in the face of an argument by the sanctioned attorney that the bankruptcy case should have referred the matter to the court's Standing Committee on Professional Conduct pursuant to the bankruptcy court's rules, the Court pointed to the bankruptcy court's unfettered discretion within the same rules to "[i]mpose other appropriate sanctions" as an open-ended authority to suspend. <span style="font-weight: bold;">Under this bankruptcy court's rules, whether or not it should refer the matter</span><span style="font-weight: bold;"> to the court's Standing Committee was </span><span style="font-weight: bold;">completely discretionary, and thus it was free to impose the suspension instead.</span></span></span></span><br /><br /><span style="font-family:arial;"><span style="font-family:arial;"><span><span style="font-weight: bold;font-size:130%;" >The Bottom Line</span></span></span></span><br /><span style="font-weight: bold;font-family:arial;" ><span style="font-family:arial;"><span>Without referring by name to the BAP's <span style="font-style: italic;">Brooks-Hamilton</span> opinion, the Ninth Circuit's <span style="font-style: italic;">Lehtinen</span> opinion discarded 1) any reliance on the ABA's Standards for determining whether an attorney sanction is reasonable, and 2) any emphasis on referring attorney discipline issues to the court's Standing Committee on Professional Conduct. But the Court of Appeals followed all three BAP opinions--<span style="font-style: italic;">Brooks-Hamilton</span>, <span style="font-style: italic;">Clayton</span>, and <span style="font-style: italic;">Lehtinen</span>--in approving, </span></span></span><span style="font-weight: bold;font-family:arial;" ><span style="font-family:arial;"><span>for the first time in this Circuit, </span></span></span><span style="font-weight: bold;font-family:arial;" ><span style="font-family:arial;"><span> the inherent authority of bankruptcy courts to suspend attorneys from all of its district's bankruptcy courts, as long as general procedural due process principles of notice and opportunity are followed. Each bankruptcy court must look to its own, and its district's court rules because each "are free to define the rules to be followed and the grounds for punishment.”</span></span></span><br /><br /><span style="font-family:arial;"><span style="font-family:arial;"><span>(Oregon attorneys should review, perhaps among others, LBR 9011-3: Sanctions, Remedies, & Suspension/Disbarment.)</span></span></span><br /></div><span style="font-family:arial;"><br /><br /><br /></span> <div style="text-align: justify;font-family:arial;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;">New Bulletins on this website will provide summaries of other opinions within the Ninth Circuit shortly after they are published. PLEASE EMAIL ME at </span></span></span></span><span style="color: rgb(204, 0, 0);font-size:85%;" ><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;"> IF YOU WOULD LIKE TO BE EMAILED A LINK TO SUCH FUTURE REPORTS.</span></span></span></span><br /></div> <span style="font-weight: bold;font-family:arial;" ><br /><br /></span><span style="font-family:arial;"><span style="font-size:100%;"><span style="font-family:lucida grande;">by Andrew Toth-Fejel<br />Bankruptcy Litigation Support for Attorneys<span style="text-decoration: underline;"><br /></span></span></span></span><span style="font-size:85%;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span style="font-family:arial;"><br /></span> <div style="text-align: justify;"><blockquote style="color: rgb(204, 0, 0);"><span><span><span style="font-style: italic;font-family:arial;" class="Apple-style-span" ><span style="font-style: normal;font-family:Georgia;" class="Apple-style-span" ><span style="font-size:78%;"><span style="font-style: italic;font-size:100%;" ><span style="font-size:130%;"><span style="font-size:85%;">PLEASE NOTE that the writer is not licensed to practice law in any state. This means that he is not legally permitted to give any legal advice or perform any legal services. Any non-attorney reading this must consult an attorney about ANYTHING contained here. Nothing in this website is intended to be nor should be read as being legal advice to anyone. </span></span></span></span></span></span></span></span></blockquote></div> <!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--> <div class="post-body entry-content"><style> <!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman";} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in 1.0in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman";} </style> <![endif]--> <p class="MsoNormal" style="">© 2009 Bankruptcy Litigation Support for Attorneys</p></div>Bankruptcy Litigation Supporthttp://www.blogger.com/profile/03101092341657335203noreply@blogger.com0tag:blogger.com,1999:blog-1561463394548481996.post-17212770792370460412009-05-13T06:00:00.000-07:002009-06-12T23:25:04.631-07:00Post-Petition Marital Dissolution Judgment, Allowed Through Prior Relief from Stay, Creates Valid Secured Claim in Chapter 13 Case<span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-size:78%;"><br />By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, </span><a href="mailto:Andy@BLSforAttorneys.com"><span style="font-size:78%;">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></span></a><br /><br /><a style="font-weight: bold; font-family: arial;" href="http://www.orb.uscourts.gov/Judges/file_attachment/06-31932-rld13_070509_152818.pdf"><br /></a></span></span><!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:trackmoves/> <w:trackformatting/> <w:punctuationkerning/> <w:validateagainstschemas/> <w:saveifxmlinvalid>false</w:SaveIfXMLInvalid> <w:ignoremixedcontent>false</w:IgnoreMixedContent> <w:alwaysshowplaceholdertext>false</w:AlwaysShowPlaceholderText> <w:donotpromoteqf/> <w:lidthemeother>EN-US</w:LidThemeOther> <w:lidthemeasian>X-NONE</w:LidThemeAsian> <w:lidthemecomplexscript>X-NONE</w:LidThemeComplexScript> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> 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font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin;} </style> <![endif]--> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal; font-family: arial;"><span style="font-size:100%;"><a style="font-weight: bold;" href="http://www.orb.uscourts.gov/Judges/file_attachment/06-31932-rld13_070509_152818.pdf"><i><span style="">In re Goss</span></i></a></span><span style=";font-size:100%;" ><o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal; font-family: arial;"><span style=";font-size:100%;" >Oregon Bankruptcy Court, Case No. 06-31932-rld13<o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal; font-family: arial;"><span style=";font-size:100%;" >April 29, 2009</span></p><p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal; font-family: arial;"><br /><span style=";font-size:100%;" ><o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal; font-family: arial;"><span style="font-size:100%;"><i><span style=""><o:p> </o:p></span></i></span></p> <p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal; text-align: justify; font-family: arial;"><span style=";font-size:100%;" ><o:p> </o:p></span></p><div style="text-align: justify; font-family: arial;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal; text-align: justify; font-family: arial;"><span style=";font-size:100%;" >This Memorandum Opinion by Judge Randall Dunn, although unpublished, is worthwhile because 1) it addresses and gives good guidance in two areas which Chapter 13 practitioners deal with constantly--relief from stay and objections to claims, and 2) his Opinion sorts through these issues constructively in the very real world of a tough domestic relations dissolution.</span></p><p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal; text-align: justify; font-family: arial;"><br /><span style=";font-size:100%;" ><o:p></o:p></span></p><div style="text-align: justify; font-family: arial;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal; text-align: justify; font-family: arial;"><span style=";font-size:100%;" ><o:p> </o:p></span></p><div style="text-align: justify; font-family: arial;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal; text-align: justify; font-family: arial;"><span style=";font-size:100%;" >I usually start these opinion summaries by getting right to the point with the legal issues and the court's holding(s), but in this case these do not make much sense without the factual context.</span></p><p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal; text-align: justify; font-family: arial;font-family:arial;"><br /><span style="font-size:100%;"><o:p></o:p></span></p><div face="arial" style="text-align: justify; font-family: arial;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal; font-weight: bold; text-align: justify; font-family: arial;font-family:arial;"><span style="font-size:100%;"><span style=""><o:p> </o:p></span></span></p><div face="arial" style="text-align: justify; font-family: arial;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal; text-align: justify; font-family: arial;font-family:arial;"><span style="font-size:100%;"><span style="font-weight: bold;">The Facts</span><o:p></o:p></span></p><div face="arial" style="text-align: justify; font-family: arial;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal; text-align: justify; font-family: arial;font-family:arial;"><span style="font-size:100%;">About two years after the filing of a marital dissolution case and before it went to trial, the husband, Mr. Goss, filed a Chapter 13 case. Ms. Goss filed a motion for relief from stay to be permitted to continue the dissolution case in state court, and relief was granted "to complete dissolution . . . proceedings . . . on all issues."<span style=""> </span>Mr. Goss' Chapter 13 plan, providing nonpriority unsecured claims to be paid 100% plus 3% interest within 60 months, was subsequently confirmed. Ms. Goss did not appeal the order confirming this plan, and Mr. Goss has not modified the plan since then.</span></p><p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal; text-align: justify; font-family: arial;font-family:arial;"><br /><span style="font-size:100%;"><o:p></o:p></span></p><div face="arial" style="text-align: justify; font-family: arial;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal; text-align: justify; font-family: arial;font-family:arial;"><span style="font-size:100%;"><o:p> </o:p></span></p><div face="arial" style="text-align: justify; font-family: arial;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal; text-align: justify; font-family: arial;font-family:arial;"><span style="font-size:100%;">Two years after the Chapter 13 filing, the marital dissolution case went to trial and a property division judgment was entered against Mr. Goss for about $181,000, to be paid by December 31, 2008, barely a month after the judgment was entered. A supplemental judgment of about $32,000 based on half of Ms. Goss' attorney fees was also entered against him, because of his "conduct in this litigation, causing significant delay and increased attorney fees."<br /></span></p><p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal; text-align: justify; font-family: arial;font-family:arial;"><br /><span style="font-size:100%;"><o:p></o:p></span></p><div face="arial" style="text-align: justify; font-family: arial;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal; text-align: justify; font-family: arial;font-family:arial;"><span style="font-size:100%;"><o:p> </o:p></span></p><div face="arial" style="text-align: justify; font-family: arial;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal; text-align: justify; font-family: arial;font-family:arial;"><span style="font-size:100%;">Ms. Goss filed two proofs of claim, for $181,000 on the property division, secured by debtor’s real property, and for $32,000 on the attorney fees, as a priority unsecured claim in the nature of a domestic support obligation. Mr. Goss objected to the proofs of claim, wanting to have them both treated as nonpriority unsecured claims.</span></p><p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal; text-align: justify; font-family: arial;font-family:arial;"><br /><span style="font-size:100%;"><o:p></o:p></span></p><div face="arial" style="text-align: justify; font-family: arial;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal; text-align: justify; font-family: arial;font-family:arial;"><span style="font-size:100%;"><o:p> </o:p></span></p><div face="arial" style="text-align: justify; font-family: arial;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal; text-align: justify; font-family: arial;font-family:arial;"><span style="font-size:100%;">Ms. Goss also filed a motion for relief from stay to enforce the dissolution judgment. Judge Dunn’s Memorandum Opinion resolves both the relief from stay and claims objection matters.</span></p><p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal; text-align: justify; font-family: arial;font-family:arial;"><br /><span style="font-size:100%;"><o:p></o:p></span></p><div face="arial" style="text-align: justify; font-family: arial;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal; text-align: justify; font-family: arial;font-family:arial;"><span style="font-size:100%;"><o:p> </o:p></span></p><div style="text-align: justify; font-family: arial;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal; text-align: justify; font-family: arial;font-family:arial;"><span style="font-size:100%;"><o:p> </o:p></span></p><div style="text-align: justify; font-family: arial;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal; text-align: justify; font-family: arial;font-family:arial;"><span style="font-size:100%;"><span style="font-weight: bold;">The Issues</span><o:p></o:p></span></p><div style="text-align: justify; font-family: arial;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal; text-align: justify; font-family: arial;font-family:arial;"><span style="font-size:100%;">The judge isolated these issues:<o:p></o:p></span></p><div style="text-align: justify; font-family: arial;"> </div><p class="MsoNormal" style="margin: 0in 0in 0.0001pt 0.5in; line-height: normal; text-align: justify; font-weight: bold; font-family: arial;font-family:arial;"><span style="font-size:100%;">1) Should the Property Division Judgment claim be allowed as a claim secured against Mr. Goss’s real property?<o:p></o:p></span></p><div style="text-align: justify; font-weight: bold; font-family: arial;"> </div><p class="MsoNormal" style="margin: 0in 0in 0.0001pt 0.5in; line-height: normal; text-align: justify; font-weight: bold; font-family: arial;font-family:arial;"><span style="font-size:100%;">2) Should relief from stay be granted to allow Ms. Goss to enforce the Property Division Judgment claim?<o:p></o:p></span></p><div style="text-align: justify; font-weight: bold; font-family: arial;"> </div><p class="MsoNormal" style="margin: 0in 0in 0.0001pt 0.5in; line-height: normal; text-align: justify; font-weight: bold; font-family: arial;font-family:arial;"><span style="font-size:100%;">3) Should the Attorney Fees Judgment be treated as a claim?<o:p></o:p></span></p><div style="text-align: justify; font-weight: bold; font-family: arial;"> </div><p class="MsoNormal" style="margin: 0in 0in 0.0001pt 0.5in; line-height: normal; text-align: justify; font-family: arial;font-family:arial;"><span style="font-size:100%;"><span style="font-weight: bold;">4) Is Mr. Goss’s objection to the Attorney Fees Judgment claim ripe for determination?</span></span></p><p class="MsoNormal" style="margin: 0in 0in 0.0001pt 0.5in; line-height: normal; text-align: justify; font-family: arial;font-family:arial;"><br /><span style="font-size:100%;"><o:p></o:p></span></p><div style="text-align: justify; font-family: arial;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal; text-align: justify; font-family: arial;font-family:arial;"><span style="font-size:100%;"><o:p> </o:p></span></p><div style="text-align: justify; font-family: arial;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal; text-align: justify; font-family: arial;font-family:arial;"><span style="font-size:100%;"><span style="font-weight: bold;">The Holdings</span><o:p></o:p></span></p><div style="text-align: justify; font-family: arial;"> </div><p class="MsoNormal" style="margin: 0in 0in 0.0001pt 0.5in; line-height: normal; text-align: justify; font-family: arial;font-family:arial;"><span style="font-size:100%;">1) Under Oregon law, <span style="font-weight: bold;">a marital dissolution property claim unresolved on the date of bankruptcy filing is a vested, inchoate claim arising out of the spouses’ co-ownership of marital property, which became, through the bankruptcy court-permitted post-petition dissolution judgment, a judgment lien on Mr. Goss’ real property.</span> Because the judgment “created a new property interest in place of the prepetition co-ownership interest,” the underlying debt is neither a dischargeable pre-petition debt nor a preferential transfer of a security interest in the real property. Furthermore, the post-petition judgment’s creation of the lien did not violate the automatic stay since “[t]his result was authorized by [the prior] order granting relief from the automatic stay.”</span></p><p class="MsoNormal" style="margin: 0in 0in 0.0001pt 0.5in; line-height: normal; text-align: justify; font-family: arial;font-family:arial;"><br /><span style="font-size:100%;"><o:p></o:p></span></p><div style="text-align: justify; font-family: arial;"> </div><p class="MsoNormal" style="margin: 0in 0in 0.0001pt 0.5in; line-height: normal; text-align: justify; font-family: arial;font-family:arial;"><span style="font-size:100%;"><o:p> </o:p></span></p><div style="text-align: justify; font-family: arial;"> </div><p class="MsoNormal" style="margin: 0in 0in 0.0001pt 0.5in; line-height: normal; text-align: justify; font-family: arial;font-family:arial;"><span style="font-size:100%;">2) <span style="font-weight: bold;">With debtor current on his support obligations but not having paid anything on the dissolution judgment, which was to have been paid in full shortly after the entry of that judgment, the judge found no “cause” to grant relief from stay to Ms. Goss to execute on her judgment lien. His decision was based largely on “evidence that there is equity in Mr. Goss’s real property adequate to pay the Property Division Judgment</span>, and if some time is allowed for the real estate market to improve, Ms.Goss may continue to receive support payments and Plan payments . . . and, ultimately, receive payment in full of the Property Division Judgment as well.”</span></p><p class="MsoNormal" style="margin: 0in 0in 0.0001pt 0.5in; line-height: normal; text-align: justify; font-family: arial;font-family:arial;"><br /><span style="font-size:100%;"><o:p></o:p></span></p><div style="text-align: justify; font-family: arial;"> </div><p class="MsoNormal" style="margin: 0in 0in 0.0001pt 0.5in; line-height: normal; text-align: justify; font-family: arial;font-family:arial;"><span style="font-size:100%;"><o:p> </o:p></span></p><div style="text-align: justify; font-family: arial;"> </div><p class="MsoNormal" style="margin: 0in 0in 0.0001pt 0.5in; line-height: normal; text-align: justify; font-family: arial;font-family:arial;"><span style="font-size:100%;">3) Under Oregon law, at the time when the dissolution proceeding was filed Ms. Goss had a <span style="font-weight: bold;">potential, inchoate and unliquidated claim for attorney fees in that proceeding, and so this was a valid prepetition claim in Mr. Goss’ Chapter 13 case</span>.<br /></span></p><p class="MsoNormal" style="margin: 0in 0in 0.0001pt 0.5in; line-height: normal; text-align: justify; font-family: arial;font-family:arial;"><br /><span style="font-size:100%;"><o:p></o:p></span></p><div style="text-align: justify; font-family: arial;"> </div><p class="MsoNormal" style="margin: 0in 0in 0.0001pt 0.5in; line-height: normal; text-align: justify; font-family: arial;font-family:arial;"><span style="font-size:100%;"><o:p> </o:p></span></p><div style="text-align: justify; font-family: arial;"> </div><p class="MsoNormal" style="margin: 0in 0in 0.0001pt 0.5in; line-height: normal; text-align: justify; font-family: arial;font-family:arial;"><span style="font-size:12;"><span style="font-size:100%;">4) </span><span style="font-weight: bold;font-size:100%;" >Whether or not this claim for attorney fees should be treated as a priority one is an issue not ripe for determination because under the current 100%-plus-interest plan the claim must be paid in full either way</span><span style="font-size:100%;">. Only if the plan is modified to pay a priority domestic support claim differently than a nonpriority unsecured one would the controversy be ripe for judicial resolution.</span></span></p><p class="MsoNormal" style="margin: 0in 0in 0.0001pt 0.5in; line-height: normal; text-align: justify;font-family:arial;"><span style="font-size:12;"><span style="font-size:100%;"><br /></span></span></p><p class="MsoNormal" style="margin: 0in 0in 0.0001pt 0.5in; line-height: normal; text-align: justify;"><br /><span style=";font-family:";font-size:12;" ><o:p></o:p></span></p><div style="text-align: justify;"> </div><p class="MsoNormal" style="margin-bottom: 0.0001pt; line-height: normal; text-align: justify;"><span style=";font-family:";font-size:12;" ><o:p> </o:p></span></p><div style="text-align: justify;"> <span style="font-family:arial;"></span> </div><div style="text-align: justify; font-family: arial;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;">New Bulletins on this website will provide summaries of other opinions within the Ninth Circuit shortly after they are published. PLEASE EMAIL ME at </span></span></span></span><span style="color: rgb(204, 0, 0);font-size:85%;" ><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;"> IF YOU WOULD LIKE TO BE EMAILED A LINK TO SUCH FUTURE REPORTS.</span></span></span></span></div> <span style="font-weight: bold;font-family:arial;" ><br /></span><span style="font-family:arial;"><span style="font-size:100%;"><span style="font-family:lucida grande;">by Andrew Toth-Fejel<br />Bankruptcy Litigation Support for Attorneys<span style="text-decoration: underline;"><br /></span></span></span></span><span style="font-size:85%;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span style="font-family:arial;"><br /></span> <div style="text-align: justify;"><blockquote style="color: rgb(204, 0, 0);"><span><span><span style="font-style: italic;font-family:arial;" class="Apple-style-span" ><span style="font-style: normal;font-family:Georgia;" class="Apple-style-span" ><span style="font-size:78%;"><span style="font-style: italic;font-size:100%;" ><span style="font-size:130%;"><span style="font-size:85%;">PLEASE NOTE that the writer is not licensed to practice law in any state. This means that he is not legally permitted to give any legal advice or perform any legal services. Any non-attorney reading this must consult an attorney about ANYTHING contained here. Nothing in this website is intended to be nor should be read as being legal advice to anyone. </span></span></span></span></span></span></span></span></blockquote></div> <!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--> <div class="post-body entry-content"><style> <!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman";} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in 1.0in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman";} </style> <![endif]--> <p class="MsoNormal" style="">© 2009 Bankruptcy Litigation Support for Attorneys</p></div>Bankruptcy Litigation Supporthttp://www.blogger.com/profile/03101092341657335203noreply@blogger.com0tag:blogger.com,1999:blog-1561463394548481996.post-42292099783555501972009-05-08T06:00:00.000-07:002009-05-18T15:03:21.719-07:00Are Retirees "Employees" in Determining Priority Claims Under § 507(a)(5)?<span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-size:78%;"><br />By Andrew <span class="blsp-spelling-error" id="SPELLING_ERROR_0">Toth</span>-<span class="blsp-spelling-error" id="SPELLING_ERROR_1">Fejel</span>, Bankruptcy Litigation Support for Attorneys, </span><a href="mailto:Andy@BLSforAttorneys.com"><span style="font-size:78%;">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></span></a><br /><br /><a href="http://www.ca9.uscourts.gov/datastore/opinions/2009/05/05/07-56720.pdf"> </a><span style="font-family:arial;"><a href="http://www.ca9.uscourts.gov/datastore/opinions/2009/05/05/07-56720.pdf"><span style="font-style: italic; font-weight: bold;">Consolidated Freightways v. Aetna (In re Consolidated Freightways)</span></a><br />Ninth Circuit Court of Appeals, Case Nos. 07-56720<br />May 6, 2009<br /><br /><br />On Wednesday, May 6, the <span style="font-weight: bold;">Ninth Court filed its second opinion of the week on a § 507(a) claim priorities issue</span>. On Monday one panel of the Court had addressed whether a debt of an employer for a workers' compensation reimbursement was an "excise tax" and thus a priority claim under § 507(a) a)(8)(E) of the Bankruptcy Code. (<a style="font-weight: bold;" href="http://blsbulletins.blogspot.com/2009/05/debtor-corporations-obligation-to-state.html">Here is my Bulletin</a> on that opinion.) And now two days later<span style="font-weight: bold;"> the question is whether certain a debtor-employer's debts constitute "claims for contributions to an employee benefit plan" under § 507(a)(5)</span>.<br /><span style="font-size:85%;"></span><blockquote><span style="font-size:85%;"><span style="font-style: italic;">Preliminary Note: This is not a well-written opinion. It does not state clearly either the specific issues the panel was addressing or its holdings on those issues. One has to try to read between the lines. Although the judge liked using million dollar words like "</span><a style="font-weight: bold; font-style: italic;" href="http://www.onelook.com/?w=pellucid&ls=a">pellucid</a><span style="font-style: italic;">" and "</span><a style="font-weight: bold; font-style: italic;" href="http://www.onelook.com/?w=hyaline&ls=a">hyaline</a><span style="font-style: italic;">," referring to how clear he believed the law to be, this opinion was one of the least clear ones that I have read in months. I have done my best to try to get at the intended meaning, but feel free to comment if you think I was led astray and you come away with a different understanding. This opinion makes more sense by reading the underlying bankruptcy court opinion at In re Consol. Freightways, Corp. of Del., 363 B.R. 110 (Bankr. C.D. Cal. 2007), but that should not be necessary.</span><br /></span></blockquote><span style="font-size:130%;"><span style="font-weight: bold;">Issues</span></span><br />The Court addressed:<br />1) whether the portion of the claim related to benefits paid to retirees falls within "claims for contributions to an employee benefit plan" under § 507(a) a)(5);<br />2) whether claims related to such retirees who did not render services within the statutory 180-day look-back period are nevertheless entitled to a priority claim;<br />3) whether such retiree-related claims are to be counted in determining the number of employees for purposes of calculating the priority claim; and<br />4) whether the priority recovery cap under this subsection is to be treated as an aggregate cap or one limited per individual employee.<br /><br /><span style="font-weight: bold;font-size:130%;" >Holdings</span><br />1) and 2): The portion of the claim based on retirees' benefits count as priority but only so long as the retirees at the time of the filing of the case had rendered some services to the employer-debtor in the statutory 180-day look-back period.<br />3): The opinion, as far as I could tell, never stated this issue nor discussed it; it merely stated in the first sentence of the "Conclusion": "We disagree with the bankruptcy court’s determination that individuals who did not render services within the 180-day period are to be counted in determining the number of employees . . . under § 507(a)(5)."<br />4): The $4,650 (at that time) statutory recovery cap for the priority debt is an aggregate amount: the calculation of the total priority claim is not based on an individualized recovery limit of $4,650 per any single employee, but rather that $4,650 is multiplied by the total number of employees in that pool, thus allowing for some individual employees in the pool to be paid substantally more than that, assuming that there were others paid much less and the amount paid being capped at $4,650 times the number of employees.<br /><br />The Court remanded to the bankruptcy court to apply these holdings.<br /><br /><span style="font-size:130%;"> <span style="font-weight: bold;">The Essential Facts</span></span><br />Aetna administered Consolidated Freightways Corporation's (CFC) self-funded medical health plans. It paid medical claims for CFC's employees and retirees, which were reimbursed by CFC. When CFC filed its liquidating Chapter 11 case, it owed Aetna for medical claims as well as for costs of administering the plans. The liquidating trustee objected to priority treatment of claims related to retirees. <span style="font-size:130%;"> <span style="font-weight: bold;"><br /><br />The Courts Below</span></span><br />The bankruptcy court determined that Aetna's claim related to the medical claims of retirees qualified as a priority debt The district court affirmed.<br /><br /><span style="font-size:130%;"> <span style="font-weight: bold;">The Statutes</span></span><br />Since § 507(a) a)(5) addressing "contributions to an employee benefit plan" interrelates with § 507(a) a)(4) addressing "wages, salaries, or commissions," here are the pertinent portions of both:<br /><blockquote>(a) The following expenses and claims have priority in the following order: . . .<br /><br />(4) Fourth, allowed unsecured claims, but only to the extent of $4,650 for each individual or corporation, as the case may be, earned within 90 days before the date of the filing of the petition or the date of the cessation of the debtor’s business, whichever occurs first, for —<br />(A) wages, salaries, or commissions, including vacation, severance, and sick<br />leave pay earned by an individual; or<br />(B) sales commissions . . . .<br /><br />(5) Fifth, allowed unsecured claims for <span style="font-weight: bold;">contributions to an employee benefit plan</span>—<br />(A) arising from services rendered within 180 days before the date of the petition or the date of the cessation of the debtor’s business, whichever occurs first; but only<br />(B) for each such plan, to the extent of —<br />(i) the <span style="font-weight: bold;">number of employees covered by each such plan</span> multiplied by $ 4,650;<br /><span style="font-weight: bold;">less</span> (ii)<span style="font-weight: bold;"> the aggregate amount paid to such employees under paragraph (4) </span>of this<br />subsection, plus the aggregate amount paid by the estate on behalf of such<br />employees to any other employee benefit plan.</blockquote>(Note that these subsections were not substantively changed by BAPCPA except that the dollar amounts were greatly increased and the look-back period in § 507(a) a)(4) was doubled from 90 to 180 days, and the subsections were renumbered because of a new subsection § 507(a) a)(1)).<br /><br /><span style="font-size:130%;"> <span style="font-weight: bold;">The Ninth Circuit's Rationale</span></span><br /><span style="font-weight: bold;">Retirees are "Employees":</span><br />On the issues whether retirees are "employees" under § 507(a)(5) and what is meant by "arising from services rendered," the Court reasoned that "[w]hile at first blush there may be some ambiguity . . . , we think that a consideration of [that subsection] in the context of the statute renders the answer quite clear."<br /><br />The Court recalled that § 507(a)(5) did not exist at first, when a priority was granted to employees only for wages and such under the predecessor to § 507(a)(4). After the Supreme Court "had determined that unpaid contributions to welfare plans that “provided life insurance, weekly sick benefits, hospital and surgical benefits” or annuities were not accorded priority. . . Congress then remedied that by adopting § 507(a)(5)."<br /><br />This Ninth Circuit Panel quoted a 2006 Supreme Court opinion asserting that "[t}he current Code’s juxtaposition of the wages and employee benefit plan priorities manifests Congress’ comprehension that fringe benefits generally complement, or 'substitute' for, hourly pay." </span></span></span><span style="font-style: italic;font-family:arial;" >Howard Delivery Serv., Inc. v. Zurich Am. Ins. Co</span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">., 547 U.S. 651, 659 (2006). From this "tight connection" between the two subsections, the Ninth Circuit concluded: <span style="font-weight: bold;">"The operative principle is that the priority is for those who rendered services during the 180-day period, whether they were retired or not at the moment of the filing of the bankruptcy petition."<br /><br /></span><span style="font-size:100%;"> <span style="font-weight: bold;">Calculation of the Claim:</span></span><br />On the issue of the total amount of the claim and the meaning of the term "aggragate amount," the Ninth Circuit again quoted the Supreme Court in <span style="font-style: italic;">Howard Delivery</span>:<br /><blockquote>Congress tightened the linkage of (a)(4) and (a)(5) by imposing a combined cap on the two priorities, currently set at $10,000 per employee [$4,650 in our case here]. Because (a)(4) has a higher priority status, all claims for wages are paid first, up to the $10,000 limit; claims under (a)(5) for contributions to employee benefit plans can be recovered next up to the remainder of the $10,000 ceiling. No other subsections of § 507 are joined together by a common cap in this way.<br /></blockquote>The panel concluded:<br /></span></span></span><blockquote><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">A plain reading of § 507(a)(5) demonstrates that it provides an aggregate limit on recovery under that provision; not an individualized recovery per employee. . . . . The result is, therefore, that an individual employee’s claim under § 507(a)(5) will not be limited by the amount that the employee may have recovered under § 507(a)(4). </span>No doubt the overall fund will be limited by the (a)(4) recovery, but individual claims to benefits will not be.</span></span></span> </blockquote><div style="text-align: justify; font-family: arial;"><br /></div><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;">New Bulletins on this website will provide summaries of other opinions within the Ninth Circuit shortly after they are published. PLEASE EMAIL ME at </span></span></span></span><span style="color: rgb(204, 0, 0);font-size:85%;" ><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;"> IF YOU WOULD LIKE TO BE EMAILED A LINK TO SUCH FUTURE REPORTS.</span></span></span></span><br /><br /><br /><span style="font-family:arial;"><span style="font-size:100%;"><span style="font-family:lucida grande;">by Andrew <span class="blsp-spelling-error" id="SPELLING_ERROR_12"><span class="blsp-spelling-error" id="SPELLING_ERROR_17">Toth</span></span>-<span class="blsp-spelling-error" id="SPELLING_ERROR_13"><span class="blsp-spelling-error" id="SPELLING_ERROR_18">Fejel</span></span><br />Bankruptcy Litigation Support for Attorneys<span style="text-decoration: underline;"><br /></span></span></span></span><span style="font-size:85%;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span style="font-family:arial;"><br /></span> <div style="text-align: justify;"><blockquote style="color: rgb(204, 0, 0);"><span><span><span style="font-style: italic;font-family:arial;" class="Apple-style-span" ><span style="font-style: normal;font-family:Georgia;" class="Apple-style-span" ><span style="font-size:78%;"><span style="font-style: italic;font-size:100%;" ><span style="font-size:130%;"><span style="font-size:85%;">PLEASE NOTE that the writer is not licensed to practice law in any state. This means that he is not legally permitted to give any legal advice or perform any legal services. Any non-attorney reading this must consult an attorney about ANYTHING contained here. Nothing in this website is intended to be nor should be read as being legal advice to anyone. </span></span></span></span></span></span></span></span></blockquote></div> <!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--> <div class="post-body entry-content"><style> <!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman";} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in 1.0in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman";} </style> <![endif]--> <p class="MsoNormal" style="">© 2009 Bankruptcy Litigation Support for Attorneys</p></div>Bankruptcy Litigation Supporthttp://www.blogger.com/profile/03101092341657335203noreply@blogger.com0tag:blogger.com,1999:blog-1561463394548481996.post-68780128821874734622009-05-06T06:00:00.000-07:002009-05-08T06:45:40.031-07:00Debtor Corporation's Obligation to State Worker's Compensation Fund is Not "Excise Tax" and So Not a Priority Claim<span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-size:78%;"><br />By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, </span><a href="mailto:Andy@BLSforAttorneys.com"><span style="font-size:78%;">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></span></a><br /><br /><span style="font-family:arial;"><span style="font-style: italic;"><br /><a href="http://www.ca9.uscourts.gov/datastore/opinions/2009/05/04/07-56227.pdf"> <span style="font-weight: bold;">California Self-Insurers' Security Fund v. Lorber Industries (In re Lorber Industries)</span></a></span><br />Ninth Circuit Court of Appeals, Case Nos. 07-56227 & 07-56309<br />May 4, 2009<br /><br /></span></span></span><div style="text-align: justify;"><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-size:130%;"><span style="font-weight: bold;">Issue</span></span><br /><span style="font-weight: bold;">Does a business debtor's statutory obligation to reimburse a state workers' compensation fund for benefits the fund paid out on the debtor's behalf constitute an "excise tax," and is therefore a priority debt? </span></span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;font-size:130%;" >Holding</span> <span style="font-weight: bold;"><br />This obligation to reimburse the worker's compensation fund, under the state statute at issue here, is not a priority debt under § 507(a)(8)(E)(ii) of the Bankruptcy Code primarily because "if a private creditor similarly situated to the government can be hypothesized under the relevant statute, the claim cannot be considered an excise tax."</span></span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-size:130%;"><span style="font-weight: bold;">Facts</span></span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Debtor corporation self-insured its workers' compensation obligations, as permitted under California state law and, as required under those circumstances, provided the Self-Insurers' Security Fund a security deposit in the form of a letter of credit in case it defaulted on those obligations. After filing a Chapter 11 case, debtor did default, and the Fund took over payments to injured workers, exhausting the letter of credit and then some. The Fund is statutorily entitled to reimbursement for the amount paid beyond the letter of credit. This claim was treated as a general unsecured instead of priority claim in the debtor's reorganization plan, to which the fund objected</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;font-size:130%;" >The Statute</span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Section 507 of the Code states as pertinent here:</span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><blockquote>(a) The following expenses and claims have priority in the following order:<br />(8) Eighth, allowed unsecured claims of governmental units, only to the extent that such claims are for —<br />(E) <span style="font-weight: bold;">an excise tax on</span> —<br />(ii) if a return is not required, a <span style="font-weight: bold;">transaction occurring during the three years immediately preceding the date of the filing of the petition.</span></blockquote></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;font-size:130%;" >The Courts Below</span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">The bankruptcy court held that the claim for reimbursement qualified as an excise tax but was not entitled to priority because the "transaction" being taxed was debtor's application for self-insurance 14 years before the bankruptcy case was filed, well beyond the 3-year priority period. The BAP also held that the claim qualified as an excise tax but decided that the "transaction" at issue was the debtor's post-petition default on its workers' compensation obligations; since that did not occur "during the three years immediately preceding the date of the filing of the petition," the claim was not entitled to priority.</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;font-size:130%;" >The Ninth Circuit's Rationale</span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">The court disagreed with both lower courts by holding that the debt was not an excise tax, and did so by focusing on one relatively new element in making this determination. </span></span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Since 1982 the Ninth Circuit had used the following 4-prong test to determine whether a debt was an excise tax: <blockquote style="font-weight: bold;">(a) an involuntary pecuniary burden, regardless of name, laid upon individual or property; (b) imposed by or under the authority of the legislature; (c) for public purposes, including the purposes of defraying expenses of government or undertakings authorized by it; and (d) under the police or taxing power of the state.</blockquote></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">(Interestingly, the court adopted this test in a case decades earlier but apparently involving the same employer-debtor: <span style="font-style: italic;">County Sanitation District Number 2 v. Lorber Industries (In re Lorber Industries of California)</span> 675 F.2d 1062 (9th Cir. 1982)).</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">But in 2004, because of concerns that the "public purposes" prong was too broad and was thereby overly expanding the definition of "excise taxes" to the detriment of general unsecured creditors, <span style="font-weight: bold;">the Ninth Circuit added a fifth prong: the debt is not an excise tax if a non-governmental creditor "can be hypothesized under the relevant statute."</span> <span style="font-style: italic;">George v. Uninsured Employers Fund (In re George)</span>, 361 F.3d 1157(9th Cir. 2004). <span style="font-weight: bold;">This means that if under the statute "a private creditor . . . can assert a claim against the debtor similar to that of the [governmental entity, the] claim did not qualify as an excise tax." The rationale is that granting priority treatment for the government on a claim that was functionally the same as that of other creditors would unfairly favor the government.</span></span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Under the California workers' compensation self-insurance statute, beyond the Self-Insurers' Security Fund's reimbursement right:</span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><blockquote>private creditors . . . may also have similar reimbursement claims against [the debtor corporation.] For example, the entity that extended the letter of credit . . . has a claim against [the debtor] related to its default on its self-insurance obligations. Additionally, [the statute] recognizes that claimants retain a cause of action against the defaulting self-insurer, and provides that the Fund can recover as a subrogee in any action to collect. </blockquote><span style="font-weight: bold;">So, the Fund’s claim is one that is similar to claims that certain private creditor could raise, and is thus not an excise tax. </span></span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-size:130%;"> <span style="font-weight: bold;">Distinguished Its Own Opinions Based on Another State's Statute</span></span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">The Ninth Circuit panel emphasized that whether a workers' compensation reimbursement is an excise tax and thus a priority debt turns on the details of the statute at issue. It contrasted the California statutory scheme with that of Arizona's, which has "several unique, non-universal characteristics" leading earlier Ninth Circuit opinions to conclude that claims by the Arizona workers' compensation fund are priority excise taxes. Particularly, the Arizona statutes give its fund the exclusive right to pursue uninsured reimbursement claims, and such claims "have the same priority . . . as claims for taxes." See<span style="font-weight: bold;"> </span><span style="font-style: italic;">Indus. Comm’n of Ariz. v. Camilli (In re Camilli)</span>, 94 F.3d 1330 (9th Cir.1996);<span style="font-style: italic;"> DeRoche v. Arizona Industrial Commission (In re DeRoche)</span>, 287 F.3d 751 (9th Cir. 2002).</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-size:130%;"> <span style="font-weight: bold;">The Bottom Line, and in Oregon . . .</span></span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Whether a claim for workers' compensation reimbursement is an excise tax and thus a priority debt under § 507(a)(8)(E)(ii) turns on the state statute upon which the claim is based. Assuming the traditional four prongs of the excise tax test have been met, the matter is determined by whether under the pertinent statute "a private creditor . . . can assert a claim against the debtor similar to that of the [governmental entity]."</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">Oregon's workers' compensation statutes seem to assert that all employer obligations to its fund are "preferred to all general claims in all bankruptcy proceedings," and that all amounts due to the umbrella agency that overseas the workers compensation functions "shall be considered taxes."</span></span></span></span> <span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">ORS 656.562</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">Query:</span> do these assertions serve to turn such obligations by debtors into "excise taxes" and thus priority claims in bankruptcy court, in light of this Ninth Circuit Lorber Industries opinion, which turns so much on the content of the respective state statutes? Or does the question turn on the application of the five prongs discussed in the opinion regardless of the Oregon statute's assertion? Is Oregon's statute more like California's or instead Arizona's, governed by this new </span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-style: italic;">Lorber Industries </span></span></span></span><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">opinion </span></span></span><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">or rather by the Arizona-based opinions distinguished and approved by the Ninth Circuit panel here?</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Please feel free to respond to this question by making a comment below. For your convenience, here is ORS 656.562, quoted from above, in full:</span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-size:85%;"><blockquote>(1) All premiums, fees, assessments, interest charges, penalties or amounts due the Industrial Accident Fund from any employer under this chapter and all judgments recovered by the State Accident Insurance Fund Corporation against any employer under this chapter shall be deemed preferred to all general claims in all bankruptcy proceedings, trustee proceedings, proceedings for the administration of estates and receiverships involving the employer liable therefor or the property of such employer.<br />(2) All assessments, interest charges, penalties or amounts due the Department of Consumer and Business Services shall be considered taxes due the State of Oregon. </blockquote></span></span></span></span></div><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><br /><br /></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;">New Bulletins on this website will provide summaries of other opinions within the Ninth Circuit shortly after they are published. PLEASE EMAIL ME at </span></span></span></span><span style="color: rgb(204, 0, 0);font-size:85%;" ><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;"> IF YOU WOULD LIKE TO RECEIVE AN EMAIL WITH A LINK TO SUCH FUTURE REPORTS WHEN THEY BECOME AVAILABLE.</span></span></span></span><br /><div style="text-align: justify; font-family: arial;"><br /></div> <span style="font-weight: bold;font-family:arial;" ><br /></span><span style="font-family:arial;"><span style="font-size:100%;"><span style="font-family:lucida grande;">by Andrew Toth-Fejel<br />Bankruptcy Litigation Support for Attorneys<span style="text-decoration: underline;"><br /></span></span></span></span><span style="font-size:85%;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span style="font-family:arial;"><br /></span> <div style="text-align: justify;"><blockquote style="color: rgb(204, 0, 0);"><span><span><span style="font-style: italic;font-family:arial;" class="Apple-style-span" ><span style="font-style: normal;font-family:Georgia;" class="Apple-style-span" ><span style="font-size:78%;"><span style="font-style: italic;font-size:100%;" ><span style="font-size:130%;"><span style="font-size:85%;">PLEASE NOTE that the writer is not licensed to practice law in any state. This means that he is not legally permitted to give any legal advice or perform any legal services. Any non-attorney reading this must consult an attorney about ANYTHING contained here. Nothing in this website is intended to be nor should be read as being legal advice to anyone. </span></span></span></span></span></span></span></span></blockquote></div> <!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--> <div class="post-body entry-content"><style> <!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman";} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in 1.0in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman";} </style> <![endif]--> <p class="MsoNormal" style="">© 2009 Bankruptcy Litigation Support for Attorneys</p></div>Bankruptcy Litigation Supporthttp://www.blogger.com/profile/03101092341657335203noreply@blogger.com0tag:blogger.com,1999:blog-1561463394548481996.post-59766399294100952762009-05-05T06:00:00.000-07:002009-05-08T16:11:09.068-07:00May an Assignee of a Debt Base Its "False Financial Statement" Nondischargeability Claim on the Assignor's Reliance on that Statement?<span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-size:78%;"><br />By Andrew <span class="blsp-spelling-error" id="SPELLING_ERROR_0"><span class="blsp-spelling-error" id="SPELLING_ERROR_0">Toth</span></span>-<span class="blsp-spelling-error" id="SPELLING_ERROR_1"><span class="blsp-spelling-error" id="SPELLING_ERROR_1">Fejel</span></span>, Bankruptcy Litigation Support for Attorneys, </span><a href="mailto:Andy@BLSforAttorneys.com"><span style="font-size:78%;">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></span></a><br /><span style="font-family:arial;"><br /><br /><br /><a href="http://www.ca9.uscourts.gov/datastore/opinions/2009/05/01/0755713.pdf"><span style="font-style: italic; font-weight: bold;"><span class="blsp-spelling-error" id="SPELLING_ERROR_2">Boyajian</span> v. New Falls Corp. (In re <span class="blsp-spelling-error" id="SPELLING_ERROR_3">Boyajian</span>)</span></a><br />Ninth Circuit Court of Appeals, Case Nos. 07-55713 & 07-55716<br />May 1, 2009<br /><br /><span style="font-size:130%;"><br /></span></span></span></span><div style="text-align: justify;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-size:130%;"><span style="font-weight: bold;">The Issue</span></span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">May a § 523(a)(2)(B) <span class="blsp-spelling-error" id="SPELLING_ERROR_4">nondischargeability</span> proceeding be brought against debtors not just by the creditor which reasonably relied on debtors' alleged false financial statement, but also by this original creditor's successor-in-interest, which had not itself relied on those financial statements? </span>The opinion turns on the meaning and weight to be given to the word "is" in the <span class="blsp-spelling-error" id="SPELLING_ERROR_5">nondischargeability</span> subsection § 523(a)(2)(B)(iii) and the fact that this verb is in the present tense. </span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;font-size:130%;" >The Courts Below</span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">The bankruptcy court had entered summary judgment for the debtors, holding that the reliance on the false financial statement had to be by the <span class="blsp-spelling-error" id="SPELLING_ERROR_6">assignee</span> bringing the <span class="blsp-spelling-error" id="SPELLING_ERROR_7">nondischargeability</span> proceeding, not just the original creditor. The Bankruptcy Appellate Panel, which included Judge Randall Dunn, reversed, saying that an <span class="blsp-spelling-error" id="SPELLING_ERROR_8">assignee</span> stands in the shoes of the assignor and can base its <span class="blsp-spelling-error" id="SPELLING_ERROR_9">nondischargeability</span> case on the assignor's reliance on the false financial statements. The Ninth Circuit panel's opinion introduced the BAP opinion as a "careful" one, so one can guess which way its opinion went.</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;font-size:130%;" >The Statute</span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Section 523(a)(2)(B) provides that a debt will not be discharged if it was obtained by:</span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><blockquote>use of a statement in writing—</blockquote></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><blockquote>i) that is materially false;</blockquote></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><blockquote>ii) respecting the debtor’s or an insider’s financial condition;</blockquote></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><blockquote>iii)<span style="font-weight: bold;"> on which the creditor to whom the debtor <span style="font-style: italic;">is</span> liable for such money, property, services, or credit reasonably relied</span>; and</blockquote></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><blockquote>iv) that the debtor caused to be made or published with intent to deceive . . . .</blockquote>(Emphasis added.) <span style="font-weight: bold;">The plain meaning of the emphasized subsection, particularly the present tense of "is," seems to require that "there be reliance by the creditor who holds the claim at the time of the bankruptcy, even if there had been reliance in the past by the creditor who originally extended credit." The Ninth Circuit disagreed.</span></span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-size:130%;"><span style="font-weight: bold;">The Ninth Circuit's Statutory Interpretation and Holding</span></span><blockquote>Read as a whole, this language does not provide that a debt is non-<span class="blsp-spelling-error" id="SPELLING_ERROR_10">dischargeable</span> only if the <span class="blsp-spelling-error" id="SPELLING_ERROR_11">assignee</span> creditor reasonably relied on the materially false statement.<br />. . . .<br />The most natural reading of the word “is” in subsection (iii) is simply that the debt is <span class="blsp-spelling-error" id="SPELLING_ERROR_12">nondischargeable</span> if, at the time the money is obtained by the debtor, he or she used a materially false written statement that was intended to deceive.<br />. . . .<br />Therefore, t]he bankruptcy court erred in holding as a matter of law that [the original creditor's <span class="blsp-spelling-error" id="SPELLING_ERROR_13">assignee</span>] could not pursue an action for non-<span class="blsp-spelling-error" id="SPELLING_ERROR_14">dischargeability</span> under § 523(a)(2)(B) because it was not the original creditor whom the [debtors] allegedly deceived in the course of incurring their debt.</blockquote></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-size:130%;"><span style="font-weight: bold;">The Court's Remaining Rationale</span></span></span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">1) Congressional intent</span>: Without clear language to the contrary, "Congress intended that the general law of assignment remain applicable," allowing the holder of a general assignment to stand in the shoes of the assignor for purposes of <span class="blsp-spelling-error" id="SPELLING_ERROR_15">nondischargeability</span> actions.</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">2) Adverse court opinions</span>: The Ninth Circuit rejected the reasoning and result of the local bankruptcy court case relied upon by the debtors, <span style="font-style: italic;">General Electric Capital Corp. v. <span class="blsp-spelling-error" id="SPELLING_ERROR_16">Bui</span> (In re <span class="blsp-spelling-error" id="SPELLING_ERROR_17">Bui</span>)</span>, 188 B.R. 274 (<span class="blsp-spelling-error" id="SPELLING_ERROR_18">Bankr</span>. N.D. Cal. 1995), as well as that of two out-of-circuit bankruptcy courts.</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">3) Sister Circuit court opinion</span>: The Ninth Circuit embraced the result in a Seventh Circuit opinion which did not directly interpret § 523(a)(2)(B)(iii) but relied on general assignment principles to give the <span class="blsp-spelling-error" id="SPELLING_ERROR_19">assignee</span> the right to raise a § 523(a)(2)(B) <span class="blsp-spelling-error" id="SPELLING_ERROR_20">nondischargeability</span> claim: <span style="font-style: italic;">FDIC v. Meyer (In re Meyer)</span>,120 F.3d 66 (7<span class="blsp-spelling-error" id="SPELLING_ERROR_21">th</span> Cir. 1997).</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">4) Public policy</span>: "[I]f assignment of such a debt were to obviate a future non-<span class="blsp-spelling-error" id="SPELLING_ERROR_22">dischargeability</span> action in all cases where the <span class="blsp-spelling-error" id="SPELLING_ERROR_23">assignee</span> did not itself rely on misleading financial statements, the functioning of modern debt markets would be unnecessarily disrupted." Plus it would be perverse to permit "dishonest debtors to receive a discharge through the fortuity that their creditor chose to assign the debt."</span></span></span><br /><span style="font-size:130%;"><br /></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;font-size:130%;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">The Bottom Line</span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">The <span class="blsp-spelling-error" id="SPELLING_ERROR_24">assignee</span> of a debt need not have relied on the debtor's false financial statement but may base its <span class="blsp-spelling-error" id="SPELLING_ERROR_25">nondischargeability</span> claim on the original creditor's reliance on that financial statement.</span></span></span></span><br /><br /><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;">New Bulletins on this website will provide summaries of other opinions within the Ninth Circuit shortly after they are published. PLEASE EMAIL ME at </span></span></span></span><span style="color: rgb(204, 0, 0);font-size:85%;" ><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;"> IF YOU WOULD LIKE TO BE EMAILED A LINK TO SUCH FUTURE REPORTS.</span></span></span></span><br /></div><br /><br /><span style="font-family:arial;"><span style="font-size:100%;"><span style="font-family:lucida grande;">by Andrew <span class="blsp-spelling-error" id="SPELLING_ERROR_12"><span class="blsp-spelling-error" id="SPELLING_ERROR_17"><span class="blsp-spelling-error" id="SPELLING_ERROR_26">Toth</span></span></span>-<span class="blsp-spelling-error" id="SPELLING_ERROR_13"><span class="blsp-spelling-error" id="SPELLING_ERROR_18"><span class="blsp-spelling-error" id="SPELLING_ERROR_27">Fejel</span></span></span><br />Bankruptcy Litigation Support for Attorneys<span style="text-decoration: underline;"><br /></span></span></span></span><span style="font-size:85%;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span style="font-family:arial;"><br /></span> <div style="text-align: justify;"><blockquote style="color: rgb(204, 0, 0);"><span><span><span style="font-style: italic;font-family:arial;" class="Apple-style-span" ><span style="font-style: normal;font-family:Georgia;" class="Apple-style-span" ><span style="font-size:78%;"><span style="font-style: italic;font-size:100%;" ><span style="font-size:130%;"><span style="font-size:85%;">PLEASE NOTE that the writer is not licensed to practice law in any state. This means that he is not legally permitted to give any legal advice or perform any legal services. Any non-attorney reading this must consult an attorney about ANYTHING contained here. Nothing in this website is intended to be nor should be read as being legal advice to anyone. </span></span></span></span></span></span></span></span></blockquote></div> <!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--> <div class="post-body entry-content"><style> <!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman";} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in 1.0in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman";} </style> <![endif]--> <p class="MsoNormal" style="">© 2009 Bankruptcy Litigation Support for Attorneys</p></div>Bankruptcy Litigation Supporthttp://www.blogger.com/profile/03101092341657335203noreply@blogger.com0tag:blogger.com,1999:blog-1561463394548481996.post-88188100180552309272009-05-01T06:00:00.000-07:002009-05-01T10:25:36.824-07:00Mortgage Cramdown Prospects After Its Senate Defeat<span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-size:78%;"><br />By Andrew <span class="blsp-spelling-error" id="SPELLING_ERROR_0">Toth</span>-<span class="blsp-spelling-error" id="SPELLING_ERROR_1">Fejel</span>, Bankruptcy Litigation Support for Attorneys, </span><a href="mailto:Andy@BLSforAttorneys.com"><span style="font-size:78%;">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></span></a><br /></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><br /><br /><br /></span></span></span><div style="text-align: justify;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">Thursday afternoon's defeat of the bankruptcy mortgage cramdown legislation in the Senate very likely means that it will fall into the background in spite of its passage in the House, at least for a number of months and probably for the rest of this year</span>. The defeat was almost universally expected, especially after the top Senate Democratic leadership stripped it off the broader housing bill with its enticements for the banking industry and made it stand alone in the form of an amendment. But <span style="font-weight: bold;">the margin of the loss</span>--45-51, far from the necessary 60 votes, and<span style="font-weight: bold;"> particularly the fact that a full dozen Democrats voted against it when virtually every Democratic vote was needed, makes it very unlikely that any bankruptcy mortgage cramdown bill could make it into law.</span> This is all the more true in light of the Obama administration's negligible public and legislative support for the provision, indicating that it had decided to pick other battles, and presumably could not be counted on for support in at least the near future.</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-size:130%;"><span style="font-weight: bold;">What's Next</span></span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">Senator Dick Durbin immediately vowed to try to hang on to a bankruptcy cram down provision in the anticipated conference committee's housing bill, as the House and Senate's bills are reconciled, but the relatively large margin of the loss in the Senate makes this very likely a futile effort. There is a slight possibility of very limited success if the cramdown which came out of the conference was highly restricted, such as applicable only to subprime mortgages--which a number of Senators who voted against it said they would have supported.</span> Sen. Durbin determined early in the negotiation process that such a major narrowing of the cram down benefits would not achieve the desired objectives, but he now has reason to reconsider that, if it is not too late.</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">In the meantime there will very shortly be, perhaps even by the time this Bulletin is uploaded, a Senate vote on the broader bill, without the bankruptcy provision. It includes two components greatly favored by the financial industry: 1) a huge increase in the FDIC's borrowing authority, which would have the effect of reducing by more than half a proposed special premium that banks would be required to pay the FDIC to help shore it up in the wake of bank failures, saving them $7.7 billion; 2) making permanent the temporary increase in deposits guaranteed by the FDIC., from $100,000 to $250,000. <span style="font-weight: bold;">It will have no trouble passing. Then this bill will be reconciled with the already passed House bill which includes the cramdown provision</span>, with the final opportunity mentioned above.</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-size:130%;"> <span style="font-weight: bold;">If No Cramdown Comes Out of the Conference Committee</span></span></span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Democrat Tom Carper of Delaware, who voted against the cram down, said "My guess is we're not going to see it again [in the Senate]."</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Sen. Durbin was taking the long view after the defeat, clearly trying to be optimistic :</span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><blockquote>I mean, really, to lose 11 Democrats was disappointing, but, you know, I guess I've gained some ground since the issue last came up. Maybe if the mortgage foreclosures go up dramatically and I call it again <span style="font-weight: bold;">next year</span> I can pass it.</blockquote>Going from 36 votes in favor of bankruptcy cram down a year ago to 45 on Thursday may seem like significant progress, except when considering the large increase in Democrats in the chamber, the change in Administrations, and the phenomenal increase in foreclosures in the meantime. And it is no solace for the hundreds of thousands of homeowners who could have been helped.</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Durbin added wryly: "If we fail [at passing cramdown through the conference committee procedure] we’ll wait another year and face a worse crisis and hope that the banks won’t have as much clout.” He concluded: <span style="font-weight: bold;">"I'll be back, I'm not going to give up."</span></span></span></span><br /></div><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><br /><span style="font-size:130%;"> <span style="font-weight: bold;">The Bottom Line<br /></span></span></span></span></span><div style="text-align: justify;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">From a <a style="font-weight: bold;" href="http://www.responsiblelending.org/press/releases/bankers-win-homeowners-lose-in-senate-s-bankruptcy-vote.html">press release</a> from </span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">the President of the Center for Responsible Lending, one of the consumer organizations involved in the weeks of negotiations with Sen. Durbin: </span></span></span><span class="Apple-style-span" style="font-style: italic; font-weight: bold;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">"The mortgage crisis continues to worsen, and the need for this legislation will only grow. Unfortunately, millions of homeowners and all Americans waiting for economic recovery will pay dearly for this delay." </span></span></span><br /></div><br /><br /><br /><div style="text-align: justify;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;">A new Bulletin on this website will provide an update of this legislation and related foreclosure and mortgage modification issues as soon as there is new information to report. PLEASE EMAIL ME at </span></span></span></span><span style="color: rgb(204, 0, 0);font-size:85%;" ><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;"> IF YOU WOULD LIKE TO BE EMAILED A LINK TO IT AS SOON AS IT IS UPLOADED onto this website. </span></span></span></span><br /></div><br /><br /><span style="font-family:arial;"><span style="font-size:100%;"><span style="font-family:lucida grande;">by Andrew Toth-Fejel<br />Bankruptcy Litigation Support for Attorneys<span style="text-decoration: underline;"><br /></span></span></span></span><span style="font-size:85%;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span style="font-family:arial;"><br /></span> <div style="text-align: justify;"><blockquote style="color: rgb(204, 0, 0);"><span><span><span style="font-style: italic;font-family:arial;" class="Apple-style-span" ><span style="font-style: normal;font-family:Georgia;" class="Apple-style-span" ><span style="font-size:78%;"><span style="font-style: italic;font-size:100%;" ><span style="font-size:130%;"><span style="font-size:85%;">PLEASE NOTE that the writer is not licensed to practice law in any state. This means that he is not legally permitted to give any legal advice or perform any legal services. Any non-attorney reading this must consult an attorney about ANYTHING contained here. Nothing in this website is intended to be nor should be read as being legal advice to anyone. </span></span></span></span></span></span></span></span></blockquote></div> <!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--> <div class="post-body entry-content"><style> <!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman";} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in 1.0in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman";} </style> <![endif]--> <p class="MsoNormal" style="">© 2009 Bankruptcy Litigation Support for Attorneys</p></div><span style="font-family:arial;"><span style="font-size:100%;"><span style="font-family:lucida grande;"><br /></span></span></span>Bankruptcy Litigation Supporthttp://www.blogger.com/profile/03101092341657335203noreply@blogger.com1tag:blogger.com,1999:blog-1561463394548481996.post-28673055059404048152009-04-30T18:30:00.000-07:002009-05-01T06:38:23.876-07:00Bankruptcy Mortgage Cramdown Soundly Defeated in Senate Vote<span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-size:78%;"><br />By Andrew <span class="blsp-spelling-error" id="SPELLING_ERROR_0">Toth</span>-<span class="blsp-spelling-error" id="SPELLING_ERROR_1">Fejel</span>, Bankruptcy Litigation Support for Attorneys, </span><a href="mailto:Andy@BLSforAttorneys.com"><span style="font-size:78%;">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></span></a><br /></span></span> <p face="Calibri" size="11pt" style="margin: 0in;"><br /></p><br /><div style="text-align: justify;font-family:arial;"><span style="font-weight: bold;font-size:100%;" ><br /></span><p style="margin: 0in;font-family:arial;font-size:11pt;"><span style="font-size:100%;"><span style="font-weight: bold;">The bankruptcy mortgage cramdown amendment was defeated in the Senate on Thursday afternoon by a margin of 45 - 51 (with three Senators not voting), a wide margin considering the 60 votes needed for cloture.</span> <span style="font-weight: bold;">Every Republican voted against it, not a surprise, but so did 12 Democrats,</span> including Senator Arlen Specter who switched parties just days ago. Although the defeat was almost universally expected, the margin of the loss and the number of Democrats in the "nay" column must be disheartening for Senator Durbin. He admitted: "I had hoped for a better vote." Although he vowed to try to insert the bankruptcy provision in an anticipated conference with the House, such a provision having passed in the House in early March, the relatively large margin of the loss in the Senate makes his success there quite unlikely.</span></p><p style="margin: 0in;font-family:arial;font-size:11pt;"><span style="font-size:100%;"><br /></span></p> <p style="margin: 0in;font-family:arial;font-size:11pt;"><span style="font-size:100%;"> </span></p> <p style="margin: 0in; font-weight: bold;font-family:arial;font-size:11pt;"><span style="font-size:130%;">The Roll Call</span></p> <p style="margin: 0in;font-family:arial;font-size:11pt;"><span style="font-size:100%;">The Democrats who had been on the fence and <span style="font-weight: bold;">voted for</span> the amendment include Sen. Evan Bayh of Indiana, Mark Warner and Jim Webb of Virginia,<span style=""> </span>Claire McCaskill of Missouri, and Ted Kaufman of Delaware.<span style=""> </span><span style="font-weight: bold;">Votes against</span> were cast by Democrats Tom Carper of Delaware, Robert Byrd of West Virginia, Max Baucus<span style=""> </span>and Jon Tester of Montana, Mary Landrieu of Louisiana, Ben Nelson of Nebraska, Blanche Lincoln and Mark Pryor of Arkansas, Michael Bennett of Colorado, Tim Johnson of South Dakota, and Byron Dorgan of North Dakota, as well as Arlen Specter.</span></p><p style="margin: 0in;font-family:arial;font-size:11pt;"><span style="font-size:100%;"><br /></span></p> <p style="margin: 0in;font-family:arial;font-size:11pt;"><span style="font-size:100%;"> </span></p> <p style="margin: 0in; font-weight: bold;font-family:arial;font-size:11pt;"><span style="font-size:130%;">Key Reasons for the Defeat</span></p> <p style="margin: 0in;font-family:arial;font-size:11pt;"><span style="font-size:100%;">From watching the legislative developments closely since <a style="font-weight: bold;" href="http://blsbulletins.blogspot.com/2009/01/news-flash-chapter-13-mortgage-cramdown.html">the House and Senate bills were introduced</a> during the first week of this session of Congress, I believe the bill was <span style="font-weight: bold;">defeated for two fundamental reasons: 1) the opponents largely succeeded in framing the debate on their terms; 2) President Obama and his Administration did not risk virtually any political capital on this fight.</span></span></p><p style="margin: 0in;font-family:arial;font-size:11pt;"><span style="font-size:100%;"><span style="font-weight: bold;"><br /></span></span></p> <p style="margin: 0in;font-family:arial;font-size:11pt;"><span style="font-size:100%;"> </span></p> <p style="margin: 0in; font-weight: bold;font-family:arial;font-size:11pt;"><span style="font-size:130%;">Framing the Debate</span></p> <p style="margin: 0in;font-family:arial;font-size:11pt;"><span style="font-size:100%;">The financial industry succeeded in <span style="font-weight: bold;">convincing enough Senators that preventing hundreds of thousands of foreclosures was not worth risking having mortgage rates go up for everyone</span>.<span style=""> </span>This argument succeeded in spite of the lack of credible evidence of this purported cause and effect, indeed in the face of substantial indications to the contrary. And it succeeded in spite of changes in the original legislation designed to further mitigate any such purported tendency, such as its restriction to mortgages entered into before enactment and adding a sunset clause.<br /></span></p><p style="margin: 0in;font-family:arial;font-size:11pt;"><span style="font-size:100%;"><br /></span></p><p style="margin: 0in;font-family:arial;font-size:11pt;"><span style="font-size:100%;">The argument <span style="font-weight: bold;">played into and arguably even fanned the popular feelings of righteous indignation of "responsible" homeowners against supposedly "irresponsible" ones</span>.<span style=""> </span>Regardless of how convincing this was, it gave political cover to some Senators. For example, Democratic Sen. Ben Nelson justified his "nay" vote with: "Do I want to have my rate go up so that somebody else might be able to cram down" their mortgage payment?<span style=""> </span><br /></span></p><p style="margin: 0in;font-family:arial;font-size:11pt;"><span style="font-size:100%;"><br /></span></p><p style="margin: 0in;font-family:arial;font-size:11pt;"><span style="font-size:100%;">The financial industry's message <span style="font-weight: bold;">resonated</span><span style="font-weight: bold;"> in the media with the general fears about the instability of the economy</span>. This resulted in reputable news organization such as the Associated Press mouthing that message with statements such as: "The forced easing, or 'cram-down,' of a mortgage by a bankruptcy judge would have likely introduced additional uncertainty for investors." Such arguments were found credible in spite of the appropriate current popular and Congressional distrust of this industry.</span></p><p style="margin: 0in;font-family:arial;font-size:11pt;"><span style="font-size:100%;"><br /></span></p> <p style="margin: 0in;font-family:arial;font-size:11pt;"><span style="font-size:100%;"> </span></p> <p style="margin: 0in; font-weight: bold;font-family:arial;font-size:11pt;"><span style="font-size:130%;">White House Missing from the Debate</span></p> <p style="margin: 0in;font-family:arial;font-size:11pt;"><span style="font-size:100%;">For reasons not yet clear, <span style="font-weight: bold;">neither President Obama nor virtually any senior members of his Administration provided strong support in the legislative effort in the Senate, indeed even undercutting that effort when it was most needed.</span><span style=""><span style="font-weight: bold;"> </span> </span>Back in mid-February when Obama proposed his "Homeowner Affordability and Stability Plan with barely a mention of bankruptcy cramdown, I <a style="font-weight: bold;" href="http://blsbulletins.blogspot.com/2009/02/prospects-for-bankruptcy-mortgage.html">speculated</a> that the legislation was "perhaps soft-pedaled because it is controversial."<span style=""> </span>After the <a style="font-weight: bold;" href="http://blsbulletins.blogspot.com/2009/03/chapter-13-mortgage-cramdown-bill.html">House passed its amended bill</a> in early March, in spite of the clear need for help for the tougher Senate battle the Administration issued no statements of support, and seemed to pay no attention as the negotiations kept faltering. And last week, just when an enthusiastic endorsement could well have provided a needed push for the undecided Senators, Treasury Secretary Timothy Geithner instead guardedly said: "We are supportive of carefully designed changes” to bankruptcy law.<span style=""> </span>. . . .“It’s a difficult balance to get right, as you know.” "But the president is supportive of this.”<span style=""> </span>Hardly a ringing endorsement from the Administration's bully pulpit.<span style=""> </span>Even after the vote, there has been no comment from either the Treasury Department or the White House.<span style=""> </span><span style="font-weight: bold;">At some point it seems that a decision was made that in the grand scheme of things, this legislation, at least at this time, was expendable.</span></span></p><p style="margin: 0in;font-family:arial;font-size:11pt;"><span style="font-size:100%;"><span style="font-weight: bold;"><br /></span></span></p> <p style="margin: 0in; font-weight: bold;font-family:arial;font-size:11pt;"><span style="font-size:100%;"> </span></p> <p style="margin: 0in; font-weight: bold;font-family:arial;font-size:11pt;"><span style="font-size:130%;">Financial Influence from the Financial Sector</span></p> <p style="margin: 0in;font-family:arial;font-size:11pt;"><span style="font-size:100%;">And then there is always the issue of campaign money.<span style=""> </span>According to the Center for Responsive Politics, banking and real estate interests have given about $2 million to Sen. Mary Landrieu's campaigns, about $2.6 million to Sen. Ben Nelson's, $1.3 million to Sen. Blanche Lincoln's,<span style=""> </span>$2.5 million to Sen. Johnson's, and $3.5 to Sen. Max Baucus'. Oh, and more than $4.5 million to the new Democrat Sen. Arlen Specter's campaigns. Perhaps the most revealing comment in this respect after the vote was by the Delaware Sen. Ted Kaufman, a state with a very significant financial industry, who is not running for reelection: "I'm liberated from fundraising." He voted for the amendment.</span></p><p style="margin: 0in;font-family:arial;font-size:11pt;"><span style="font-size:100%;"><br /></span></p> <p style="margin: 0in;font-family:arial;font-size:11pt;"><span style="font-size:100%;"> </span></p> <p style="margin: 0in; font-weight: bold;font-family:arial;font-size:11pt;"><span style="font-size:100%;">Please return to <a style="font-weight: bold;" href="http://blsbulletins.blogspot.com/">this website</a> tomorrow morning for a Bulletin on the prospects for this legislation going forward notwithstanding this Senate vote.</span></p><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;">A new Bulletin on this website will provide an update of this legislation as soon as there is new information to report. PLEASE EMAIL ME at </span></span></span></span><span style="color: rgb(204, 0, 0);font-size:85%;" ><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;"> IF YOU WOULD LIKE TO BE EMAILED A LINK TO IT AS SOON AS IT IS UPLOADED onto this website. </span></span></span></span><span style="font-weight: bold;font-family:arial;" ><br /><br /></span><br /></div> <span style="font-family:arial;"><span style="font-size:100%;"><span style="font-family:lucida grande;">by Andrew <span class="blsp-spelling-error" id="SPELLING_ERROR_12"><span class="blsp-spelling-error" id="SPELLING_ERROR_17">Toth</span></span>-<span class="blsp-spelling-error" id="SPELLING_ERROR_13"><span class="blsp-spelling-error" id="SPELLING_ERROR_18">Fejel</span></span><br />Bankruptcy Litigation Support for Attorneys<span style="text-decoration: underline;"><br /></span></span></span></span><span style="font-size:85%;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span style="font-family:arial;"><br /><br /></span> <div style="text-align: justify;"><blockquote style="color: rgb(204, 0, 0);"><span><span><span style="font-style: italic;font-family:arial;" class="Apple-style-span" ><span style="font-style: normal;font-family:Georgia;" class="Apple-style-span" ><span style="font-size:78%;"><span style="font-style: italic;font-size:100%;" ><span style="font-size:130%;"><span style="font-size:85%;">PLEASE NOTE that the writer is not licensed to practice law in any state. This means that he is not legally permitted to give any legal advice or perform any legal services. Any non-attorney reading this must consult an attorney about ANYTHING contained here. Nothing in this website is intended to be nor should be read as being legal advice to anyone. </span></span></span></span></span></span></span></span></blockquote></div> <!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--> <div class="post-body entry-content"><style> <!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman";} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in 1.0in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman";} </style> <![endif]--> <p class="MsoNormal" style="">© 2009 Bankruptcy Litigation Support for Attorneys</p></div>Bankruptcy Litigation Supporthttp://www.blogger.com/profile/03101092341657335203noreply@blogger.com0tag:blogger.com,1999:blog-1561463394548481996.post-23186888503849234472009-04-30T06:00:00.000-07:002009-04-30T09:45:43.158-07:00Will Senator Arlen Specter's Party Switch Affect the Senate Vote on the Bankruptcy Mortgage Cramdown Legislation?<span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-size:78%;"><br />By Andrew <span class="blsp-spelling-error" id="SPELLING_ERROR_0"><span class="blsp-spelling-error" id="SPELLING_ERROR_0">Toth</span></span>-<span class="blsp-spelling-error" id="SPELLING_ERROR_1"><span class="blsp-spelling-error" id="SPELLING_ERROR_1">Fejel</span></span>, Bankruptcy Litigation Support for Attorneys, </span><a href="mailto:Andy@BLSforAttorneys.com"><span style="font-size:78%;">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></span></a><br /><br /><span style="font-family:arial;"><br /><span style="font-weight: bold;">With a Senate floor vote anticipated today on the bankruptcy <span class="blsp-spelling-error" id="SPELLING_ERROR_2">cramdown</span> amendment, and seemingly everything riding on whether it has the support to garner the filibuster-proof 60 votes, does Sen. Arlen Specter's defection from the Republican party improve its chances? There's a small possibility that it does . . . but probably not, at least not today.</span><br /><br /><span style="font-size:130%;"><span style="font-weight: bold;">Arlen Specter's Position</span></span><br />Sen. Specter has long been in the middle of the <span class="blsp-spelling-error" id="SPELLING_ERROR_3">cramdown</span> debate as the potential deal-maker for a long time, as he is now. So there are <span style="font-weight: bold;">many clues about his position</span>.<br /><br />Way back in October 2007, Sen. Specter and Sen. Dick <span class="blsp-spelling-error" id="SPELLING_ERROR_4">Durbin</span>, the sponsor and steadfast advocate of the current Senate bill, introduced separate bankruptcy <span class="blsp-spelling-error" id="SPELLING_ERROR_5">cramdown</span> bills and were in direct talks to try to forge a bi-partisan compromise. <span style="font-weight: bold;">Specter's bill gave mortgage lenders the right to reject any to changes to the loan terms, giving some indication of how relatively modest his own ideas were on <span class="blsp-spelling-error" id="SPELLING_ERROR_6">cramdown</span>, at least at that time. Indeed, he expressly argued against allowing bankruptcy judges to modify mortgages without lender approval, asserting that lenders would not be willing to lend if "we meddle with the principal sums." </span> He clearly indicated that he was at the very least very cautious about the <span class="blsp-spelling-error" id="SPELLING_ERROR_7">cramdown</span> concept.<br /><br />So how much has Specter's perspective shifted as the foreclosure situation has tremendously worsened in the year and a half since then? As reported in a previous Bulletin here, "Republican [Sen.] Arlen Specter of Pennsylvania has long been a potential supporter, but apparently of only a narrower version, so Democratic Sen. Evan <span class="blsp-spelling-error" id="SPELLING_ERROR_8">Bayh</span> of Indiana and he are <span style="font-weight: bold;">working on a proposal limiting <span class="blsp-spelling-error" id="SPELLING_ERROR_9">cramdown</span> only to <span class="blsp-spelling-error" id="SPELLING_ERROR_10">subprime</span> mortgages.</span>" There are no indications that the version to be voted on today will be so limited, and if not this seems to indicate that Specter will not be voting in favor of it.<br /><br /><span style="font-size:130%;"><span style="font-weight: bold;">Specter's Role in the Negotiations</span></span><br />According to a very <a style="font-weight: bold;" href="http://www.businessweek.com/bwdaily/dnflash/content/apr2009/db20090428_141757.htm?chan=top+news_top+news+index+-+temp_top+story">recent story</a><span style="font-weight: bold;"> </span>in <span class="blsp-spelling-error" id="SPELLING_ERROR_11">BusinessWeek</span>.com:<br /><blockquote>Early on in Senate negotiations over the bill, Specter was one of a handful of moderate Republicans taking part. Since then, the talks have shrunk to several key Democrats. But a Senate staffer close to the talks says the Republicans—or former Republican, in Specter's case—remain key to actually getting to the 60 votes supporters will need.</blockquote>This same Senate staffer's comment: ""He's the kind of guy where you never know."<br /><br /><span style="font-size:130%;"><span style="font-weight: bold;">Specter's Change in Party Affecting His Prior Positions</span></span><br />According to the same <span class="blsp-spelling-error" id="SPELLING_ERROR_12">BusinessWeek.com</span> article: " The measure's supporters hope Specter will have to worry less about the GOP base when considering the topic, but that's not a given. "<br /><br />According to Specter himself, as he concluded in <a href="http://www.specter2010.com/news6.html"><span style="font-weight: bold;">his statement</span></a> announcing his party change:<br /><blockquote>My change in party affiliation does not mean that I will be a party-line voter any more for the Democrats that I have been for the Republicans. . . . I will not be an automatic 60<span class="blsp-spelling-error" id="SPELLING_ERROR_13">th</span> vote for cloture.<br />. . . .<br />Whatever my party affiliation, I will continue to be guided by President Kennedy’s statement that sometimes Party asks too much. When it does, I will continue my independent voting and follow my conscience on what I think is best for Pennsylvania and America. </blockquote>Although he was speaking here in platitudes, Specter has a well-deserved reputation as an independent thinker. So <span style="font-weight: bold;">his change in party affiliation does not seem likely to affect his vote on this bill. Indeed, he may well use this early opportunity to assert his independence from his new party.</span><br /><span style="font-weight: bold;font-size:130%;" ><br />Remaining Unknowns</span><br />First, even up to the last hours before today's anticipated vote, there is talk of a <span style="font-weight: bold;">possible new compromise</span>, one which conceivably could entice Specter's vote. How much that talk is mere posturing is difficult to discern. Indications are that any last-moment breakthrough are a very long shot.<br /><br />Second, there has been some indication that if today's floor vote is unsuccessful, the measure will still not be dead. With Specter's party switch, there are 57 Democrats in the Senate, and two independents who caucus with them. With the Minnesota election between Al <span class="blsp-spelling-error" id="SPELLING_ERROR_14">Franken</span> and Norm Coleman still in litigation, the Democrats are now effectively one vote short of the critical 60-vote for cloture. The Minnesota Supreme Court has recently agreed to hear Coleman's election appeal on June 1, meaning that the election there could be decided, according to political observers, as early as mid-June. <span style="font-weight: bold;">This extra margin may become critical if the <span class="blsp-spelling-error" id="SPELLING_ERROR_15">cramdown</span> bill, in whatever amended form, re-emerged after <span class="blsp-spelling-error" id="SPELLING_ERROR_16">Franken's</span> anticipated arrival</span>.<br /><span style="font-weight: bold;">Finally, and perhaps most importantly, if home foreclosures continue at the present pace, stalling the economic recovery and even further devastating major regions of the country, political pressure will continue to build to address this more assertively.</span></span> </span></span> <div style="text-align: justify; font-family: arial;"><br /></div><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;">A new Bulletin on this website will provide an update of this legislation as soon as there is new information to report. PLEASE EMAIL ME at </span></span></span></span><span style="color: rgb(204, 0, 0);font-size:85%;" ><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;"> IF YOU WOULD LIKE TO BE EMAILED A LINK TO IT AS SOON AS IT IS UPLOADED onto this website. </span></span></span></span><span style="font-weight: bold;font-family:arial;" ><br /></span><br /><span style="font-family:arial;"><span style="font-size:100%;"><span style="font-family:lucida grande;">by Andrew <span class="blsp-spelling-error" id="SPELLING_ERROR_12"><span class="blsp-spelling-error" id="SPELLING_ERROR_17"><span class="blsp-spelling-error" id="SPELLING_ERROR_17">Toth</span></span></span>-<span class="blsp-spelling-error" id="SPELLING_ERROR_13"><span class="blsp-spelling-error" id="SPELLING_ERROR_18"><span class="blsp-spelling-error" id="SPELLING_ERROR_18">Fejel</span></span></span><br />Bankruptcy Litigation Support for Attorneys<span style="text-decoration: underline;"><br /></span></span></span></span><span style="font-size:85%;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span style="font-family:arial;"><br /></span> <div style="text-align: justify;"><blockquote style="color: rgb(204, 0, 0);"><span><span><span style="font-style: italic;font-family:arial;" class="Apple-style-span" ><span style="font-style: normal;font-family:Georgia;" class="Apple-style-span" ><span style="font-size:78%;"><span style="font-style: italic;font-size:100%;" ><span style="font-size:130%;"><span style="font-size:85%;">PLEASE NOTE that the writer is not licensed to practice law in any state. This means that he is not legally permitted to give any legal advice or perform any legal services. Any non-attorney reading this must consult an attorney about ANYTHING contained here. Nothing in this website is intended to be nor should be read as being legal advice to anyone. </span></span></span></span></span></span></span></span></blockquote></div> <!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--> <div class="post-body entry-content"><style> <!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman";} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in 1.0in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman";} </style> <![endif]--> <p class="MsoNormal" style="">© 2009 Bankruptcy Litigation Support for Attorneys</p></div>Bankruptcy Litigation Supporthttp://www.blogger.com/profile/03101092341657335203noreply@blogger.com0tag:blogger.com,1999:blog-1561463394548481996.post-61935726242586805342009-04-28T06:00:00.000-07:002009-04-30T09:35:34.562-07:00The Insider's Story on Bankruptcy Cramdown: Senator Durbin's Perspective<span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-size:78%;"><br />By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, </span><a href="mailto:Andy@BLSforAttorneys.com"><span style="font-size:78%;">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></span></a><br /><br /><span style="font-family:arial;"><br /></span> </span></span> <div style="text-align: justify;font-family:arial;"> <p style="margin: 0in;font-family:arial;font-size:11pt;"><span style="font-weight: bold;">Negotiations on the Chapter 13 mortgage cramdown bill are reportedly still continuing, so the terms of the compromise bill have not yet been finalized, even as it poised for a Senate floor likely this Thursday.</span><span style=""> </span>Therefore it is impossible to count votes and attempt to predict the outcome, although virtually all sources are expressing doubt that it will pass. The proponents --primarily Senator Dick Durbin and his aides--continue to say publicly that they still hope to strike a compromise with creditors that will convince a few more key Senators to support the legislation.</p><p style="margin: 0in;font-family:arial;font-size:11pt;"><br /></p> <p style="margin: 0in;font-family:arial;font-size:11pt;"> </p> <p face="arial" size="11pt" style="margin: 0in;"><span style="font-weight: bold;">Although some negotiation apparently continues, the bill's terms directly related to the mortgage cramdown itself may well by now be firm, since the latest indications are that the focus has now turned to other issues within the broader mortgage legislation.</span> Beyond its terms referred to in <a style="font-weight: bold;" href="http://blsbulletins.blogspot.com/2009/04/busy-senate-easter-break-for-bankruptcy.html">my Bulletin of 4/20/09</a>, the bill now requires a homeowner to be two months delinquent. Also, the restriction of the cramdown to loan balances of less than $729,750 (which derives from a FHA conforming loan maximum) continues to be in the bill.<br /></p><p face="arial" size="11pt" style="margin: 0in;"><br /></p> <p face="arial" size="11pt" style="margin: 0in;"> </p> <p face="arial" size="11pt" style="margin: 0in;"><span style="font-weight: bold;">Senator Durbin</span>, the sponsor of the pertinent Senate Bill 61, "The Helping Families Save Their Homes in Bankruptcy Act of 2009," gave a <a href="http://frwebgate.access.gpo.gov/cgi-bin/getpage.cgi?position=all&page=S4741&dbname=2009_record"><span style="font-weight: bold;">detailed speech yesterday on the Senate floor</span></a> in support of the cramdown legislation. Although short on details of the bill that will come up for the floor vote, he shed some light<span style=""> </span>on the issue and on the negotiations, from his perspective.<br /></p><p face="arial" size="11pt" style="margin: 0in;"><br /></p> <p face="arial" size="11pt" style="margin: 0in;"> </p> <p style="margin: 0in; font-weight: bold;font-family:arial;font-size:11pt;"><span style="font-size:130%;">His main themes:</span></p> <p style="margin: 0in; font-weight: bold; font-family: arial; font-size: 11pt;">The beneficiaries of the proposed legislation:</p><blockquote>When we consider amendments to the bill, the key number to remember is 1.7 million families—1.7 million. That is the number of families we will either give a chance to save their homes or allow them to be thrown out in the street, depending on how the vote turns out.</blockquote><p style="margin: 0in; font-weight: bold; font-family: arial; font-size: 11pt;">Refuting the argument that bankruptcy would encourage too many bankruptcies</p><span style="font-weight: bold;"></span><blockquote><p style="margin: 0in; font-weight: bold; font-family: arial; font-size: 11pt;"></p> <p style="margin: 0in; font-weight: bold; font-family: arial; font-size: 11pt;"> </p> <p style="margin: 0in; font-family: arial; font-size: 11pt;">I don’t want to see more people in bankruptcy. That is not a good outcome. But if the lenders of these mortgages know that at the end of the road, after everything else has gone on, there may be a<span style=""> </span>bankruptcy judge who will sit down and look at that mortgage and say to that flight attendant: You know what. You are offering mortgages at this bank for 4 and 5 percent. You offer this woman 4.5 percent. She can make the payments and keep her home and the court is going to order it.</p> </blockquote> <blockquote> <p face="arial" size="11pt" style="margin: 0in;"> </p> <p style="margin: 0in; font-family: arial; font-size: 11pt;">If they knew that could happen at the end of the day, I think those bankers would be in a position where they would want to sit down before it occurs and try to avoid the foreclosure, avoid the terrible outcome for the family and the neighborhood.</p></blockquote><p style="margin: 0in; font-family: arial; font-size: 11pt;"></p> <p style="margin: 0in; font-weight: bold; font-family: arial; font-size: 11pt;">Getting at the heart of the recession: </p> <p style="margin: 0in; font-family: arial; font-size: 11pt;"></p><blockquote><p style="margin: 0in; font-family: arial; font-size: 11pt;">The Mortgage Bankers Association and their cronies scoffed when we told them we were going to have even more foreclosures, but the number continues to grow. This is the cancer at the heart of this recession. This is what we have to address.</p><p style="margin: 0in; font-family: arial; font-size: 11pt;"><br /></p> <p style="margin: 0in; font-family: arial; font-size: 11pt;"> </p> <p style="margin: 0in; font-family: arial; font-size: 11pt;">This President has worked overtime with a Recovery and Reinvestment Act, putting money back into the economy, saving jobs, creating jobs. But we have to get to the heart of this housing crisis. We have to stop what has become a steady decline of neighborhoods and real estate values in America. It affects us all.</p></blockquote><p style="margin: 0in; font-family: arial; font-size: 11pt;"></p> <p style="margin: 0in; font-family: arial; font-size: 11pt;"> </p> <p style="margin: 0in; font-weight: bold; font-family: arial; font-size: 11pt;">Durbin's perspective on the financial institutions' perspective:</p> <p style="margin: 0in; font-family: arial; font-size: 11pt;"></p><blockquote><p style="margin: 0in; font-family: arial; font-size: 11pt;">The banks have said all along we don’t need any change in the law, we will take care of this problem. Look what has happened. As they promised us they would take care of it, they didn’t. More and more homes went into default and face foreclosure because they won’t sit down and make the deal. Why wouldn’t they? If they face $50,000 in losses on these foreclosures, if they have all these new obligations, at the end of the day why wouldn’t they sit down?</p><p style="margin: 0in; font-family: arial; font-size: 11pt;"><br /></p> <p style="margin: 0in; font-family: arial; font-size: 11pt;"> </p> <p style="margin: 0in; font-family: arial; font-size: 11pt;">I will tell you why. For many of them, they don’t want to concede the fact that they created this crisis. Second, many of them believe that at the end of the day Uncle Sam and the taxpayers of America will ride to the rescue, buying these mortgage securities, taking care of these banks, saving them after the bottom falls out of the real estate market and housing market in America. What an awful outcome, that all these families would have to go through all this suffering, that all these neighborhoods would have all</p> <p style="margin: 0in; font-family: arial; font-size: 11pt;">these problems, so at the end of the day the banks that made the original bad mortgages would be rescued. That must be what they are thinking.</p></blockquote><p style="margin: 0in; font-family: arial; font-size: 11pt;"></p> <p style="margin: 0in; font-family: arial; font-size: 11pt;"> </p> <p style="margin: 0in; font-weight: bold; font-family: arial; font-size: 11pt;">Durbin's anger at the big financial institutions:</p> <p style="margin: 0in; font-family: arial; font-size: 11pt;"></p><blockquote><p style="margin: 0in; font-family: arial; font-size: 11pt;">The groups that are leading the charge against me on this are familiar names on Capitol Hill: The Mortgage Bankers Association, the people who brought us this wonderful subprime mortgage crisis, they oppose my bill; the Financial Services Roundtable, the biggest names in financial services in this Nation, the ones who have had their hands out for Federal money, oppose this idea of helping people facing foreclosure; and the American Bankers Association. What a disappointment.</p> <p style="margin: 0in; font-family: arial; font-size: 11pt;">. . .<span style=""> </span>.</p> <p style="margin: 0in; font-family: arial; font-size: 11pt;">They say: Don’t worry about it, Senator, we are experts. We are going to handle it. Don’t tell us what we need to do.</p> <p style="margin: 0in; font-family: arial; font-size: 11pt;">. . .<span style=""> </span>. </p> <p style="margin: 0in; font-family: arial; font-size: 11pt;">In effect, they have said we have created these rotten mortgages in the first place. Then we sliced them up into securities and sold them to investors all over the world as though there were no risks involved, although we knew better. They tell us we made billions of profits on the backs of homeowners, and then we took billions more from the taxpayers when the mortgages went bad, but don’t make us solve the crisis. </p></blockquote><p style="margin: 0in; font-family: arial; font-size: 11pt;"></p> <p style="margin: 0in; font-family: arial; font-size: 11pt;"> </p> <p style="margin: 0in; font-weight: bold; font-family: arial; font-size: 11pt;">Supporters of the legislation:</p> <p style="margin: 0in; font-family: arial; font-size: 11pt;"></p><blockquote> <p style="margin: 0in; font-family: arial; font-size: 11pt;">Not everyone has walked away from this responsible solution. The amendment which we will vote on a little later this week has the support of CitiGroup, the Center for Responsible Lending, and many other leading homeowner advocacy groups such as the AARP, the Leadership Council on Civil Rights, the Consumer Federation of America, and dozens of other groups. They have worked with me to craft a responsible, reasonable proposal to give lenders a clear incentive to work hard to keep families in their homes.</p></blockquote><p style="margin: 0in; font-family: arial; font-size: 11pt;"></p> <p style="margin: 0in; font-family: arial; font-size: 11pt;"> </p> <p style="margin: 0in; font-weight: bold; font-family: arial; font-size: 11pt;">Terms of the compromise:</p> <p style="margin: 0in; font-family: arial; font-size: 11pt;"></p><blockquote> <p style="margin: 0in; font-family: arial; font-size: 11pt;">The amendment I am going to offer will make a modest change in the Bankruptcy Code with a lot of conditions. It will not apply across the board. In the past, some of my colleagues have understood the need for<span style=""> </span>action but have been uncomfortable with some of the original language. So let me be clear. This amendment is very different. This amendment limits the assistance in bankruptcy to situations where lenders are so intransigent that they are unwilling to cooperate with the two primary foreclosure prevention efforts already underway, the Obama administration’s Homeowner Assistance and Stability Plan, and the congressionally created HOPE for Homeowners Refinancing Program, which this bill will greatly improve.</p></blockquote><p style="margin: 0in; font-family: arial; font-size: 11pt;"></p> <p style="margin: 0in; font-family: arial; font-size: 11pt;"> </p><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;">A new Bulletin on this website will provide an update of this legislation as soon as there is new information to report. PLEASE EMAIL ME at </span></span></span></span><span style="color: rgb(204, 0, 0);font-size:85%;" ><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;"> IF YOU WOULD LIKE TO BE EMAILED A LINK TO IT AS SOON AS IT IS UPLOADED onto this website. </span></span></span></span><span style="font-weight: bold;font-family:arial;" ><br /></span><br /></div> <span style="font-weight: bold;font-family:arial;" ><br /></span><span style="font-family:arial;"><span style="font-size:100%;"><span style="font-family:lucida grande;">by Andrew Toth-Fejel<br />Bankruptcy Litigation Support for Attorneys<span style="text-decoration: underline;"><br /></span></span></span></span><span style="font-size:85%;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span style="font-family:arial;"><br /></span> <div style="text-align: justify;"><blockquote style="color: rgb(204, 0, 0);"><span><span><span style="font-style: italic;font-family:arial;" class="Apple-style-span" ><span style="font-style: normal;font-family:Georgia;" class="Apple-style-span" ><span style="font-size:78%;"><span style="font-style: italic;font-size:100%;" ><span style="font-size:130%;"><span style="font-size:85%;">PLEASE NOTE that this Bulletin and the entire contents of this website are NOT designed for the general public but rather only for attorneys. The writer is not licensed to practice law in any state. This means that he is not legally permitted to give any legal advice or perform any legal services. Any non-attorney reading this must consult an attorney about ANYTHING contained here. Nothing in this website is intended to be nor should be read as being legal advice to anyone. </span></span></span></span></span></span></span></span></blockquote></div> <!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--> <div class="post-body entry-content"><style> <!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman";} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in 1.0in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman";} </style> <![endif]--> <p class="MsoNormal" style="">© 2009 Bankruptcy Litigation Support for Attorneys</p></div>Bankruptcy Litigation Supporthttp://www.blogger.com/profile/03101092341657335203noreply@blogger.com0tag:blogger.com,1999:blog-1561463394548481996.post-64389949491499287732009-04-27T12:01:00.000-07:002009-04-27T16:37:21.837-07:00The Latest Clues on Whether the Senate Will Pass the Bankruptcy Mortgage Cramdown<span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-size:78%;"><br />By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, </span><a href="mailto:Andy@BLSforAttorneys.com"><span style="font-size:78%;">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></span></a><br /><br /><br /><span style="font-family:arial;"></span></span></span><div style="text-align: justify;font-family:arial;"><p style="margin: 0in; font-weight: bold;font-family:arial;font-size:11pt;"><span style="font-size:100%;">With the Senate poised for a floor vote this week on the mortgage cramdown legislation, here are the very latest clues as to whether or not it will pass there.<br /></span></p><p style="margin: 0in; font-weight: bold;font-family:arial;font-size:11pt;"><span style="font-size:100%;"><br /></span></p> <p style="margin: 0in;font-family:arial;font-size:11pt;"><span style="font-size:100%;"> </span></p> <p style="margin: 0in; font-weight: bold;font-family:arial;font-size:11pt;"><span style="font-size:130%;">The Most Recent Negotiations & Tactics</span></p> <p style="margin: 0in;font-family:arial;font-size:11pt;"><span style="font-size:100%;">Early in the Congressional Easter Recess which ended a week ago, Senate Majority Leader Harry Reid made a statement that if the cramdown bill did not have the votes for passage, he would be willing to drop it from other housing-related legislation. One intent of this was to put pressure on the negotiators to come up with a compromise during the recess.<span style=""> </span>No deal was reached and negotiations continued last week after Congress returned. No breakthrough was achieved, and instead the news focused on indications of continued dispute--including dueling announcements midweek by the National Association of Federal Credit Unions that it could not support the legislation on the table and by the larger Credit Union National Association arguing that the negotiations were progressing productively.<span style=""> </span>In a news conference on Thursday, April 23, Senator Reid announced that the bill would be brought to the Senate floor for a vote this week.<span style=""> </span>He did not provide details about the cramdown terms or whether it would be packaged with other housing provisions as the successful House bill had been. Negotiations continued over this last weekend.</span></p><p style="margin: 0in;font-family:arial;font-size:11pt;"><span style="font-size:100%;"><br /></span></p> <p style="margin: 0in;font-family:arial;font-size:11pt;"><span style="font-size:100%;"> </span></p> <p style="margin: 0in; font-weight: bold;font-family:arial;font-size:11pt;"><span style="font-size:130%;">Standing on Principle vs. Compromising</span></p> <p style="margin: 0in;font-family:arial;font-size:11pt;"><span style="font-size:100%;">From my review of countless articles over the past few weeks, the dynamic at play appears to be that the key proponents of the legislation ardently believe that restricting mortgage cramdown to a relatively limited pool of loans--such as subprime or Alt-A ones--would limit its impact so severely as to have it fail in its purpose. At the same time the most ardent opponents--the Mortgage Bankers Association, American Bankers Association, the Financial Services Roundtable--appear to be against mortgage cramdown in any form, and have virtually every Republican Senator in that camp. There are very few Republican Senators, and a few more conservative Democrats, who are somewhat more open to the bankruptcy cramdown concept, state that they are very nervous about the economic impact of a broad applied cramdown, and are only willing to sign on to a restricted version.<span style=""> </span><span style="font-weight: bold;">The votes appear to be sufficient for passage if a restricted version would be put to the Senate floor, but there is no present indication that will be happening.</span></span></p><p style="margin: 0in;font-family:arial;font-size:11pt;"><span style="font-size:100%;"><br /></span></p> <p style="margin: 0in;font-family:arial;font-size:11pt;"><span style="font-size:100%;"> </span></p> <p style="margin: 0in; font-weight: bold;font-family:arial;font-size:11pt;"><span style="font-size:130%;">The Legislative Packaging</span></p> <p style="margin: 0in;font-family:arial;font-size:11pt;"><span style="font-size:100%;"><span style="font-weight: bold;">Whether the cramdown bill will be packaged with other provisions the credit industry favors will indicate how aggressively the Senate Democratic leadership is willing to push to have the bill pass, and how likely it would pass. </span><br /></span></p><p style="margin: 0in;font-family:arial;font-size:11pt;"><span style="font-size:100%;"><br /></span></p> <p style="margin: 0in;font-family:arial;font-size:11pt;"><span style="font-size:100%;"> </span></p> <p style="margin: 0in;font-family:arial;font-size:11pt;"><span style="font-size:100%;">Back during the Easter recess, a <a style="font-weight: bold;" href="http://online.wsj.com/article/SB123985022830523861.html">W</a><a style="font-weight: bold;" href="http://online.wsj.com/article/SB123985022830523861.html">all Street Journal editorial</a> referred to a bill that banks are hoping for, a huge temporary increase in the FDIC's borrowing authority from the Treasury, which could mitigate an onerous increase in the FDIC's deposit-insurance fee.<span style=""> </span>The editorial said that "[w]e're told that Senate assistant majority leader Dick Durbin is telling banks that if they want that extra credit-line for the FDIC, they'd best sign on to cramdown. A spokesman for Mr. Durbin denies threatening banks, but we also know he refuses to give the FDIC credit increase a stand-alone vote."</span></p> <p style="margin: 0in; color: rgb(102, 102, 102);font-family:arial;font-size:8pt;"><span style="font-size:100%;"><br /></span></p> <p style="margin: 0in; color: rgb(102, 102, 102);font-family:arial;font-size:8pt;"><span style="font-size:100%;"> </span></p> <p style="margin: 0in;font-family:arial;font-size:11pt;"><span style="font-size:100%;">The question now is whether the cramdown measure will be part of the package including the FDIC borrowing authority increase, or whether it will be offered as a stand-alone amendment, thus much more easily voted against.<span style=""> </span>The latter would also give Democrats both political cover as to their constituents and talking points for future battles, by enabling them to blame Republicans more directly for the legislation's failure to pass. As an indication of this, in a news conference on April 23 the Democratic leadership, including Senators Dick Durbin and Harry Reid, attacked the Republicans for their purported inflexibility.<span style=""> </span>Thus, <span style="font-weight: bold;">more likely the cramdown provisions will not be combined with creditor-attractive legislation but will be voted on directly in a proposed amendment to a broader housing-related bill.</span></span></p><p style="margin: 0in;font-family:arial;font-size:11pt;"><span style="font-size:100%;"><br /></span></p> <p style="margin: 0in;font-family:arial;font-size:11pt;"><span style="font-size:100%;"> </span></p> <p style="margin: 0in; font-weight: bold;font-family:arial;font-size:11pt;"><span style="font-size:130%;">And If It Does Not Pass?</span></p> <p style="margin: 0in;font-family:arial;font-size:11pt;"><span style="font-size:100%;">If the cramdown does not survive the Senate floor vote, Sen. Durbin, who has been pushing similar legislation for years, asserts that he <span style="font-weight: bold;">would continue trying to pass some version</span>. Who knows whether that is a face-saving comment or is true, and even if true whether<span style=""> </span>the best time for potential passage would have come and gone. However, considering that home foreclosures will almost certainly continue at a heart-breaking pace for months if not several years to come, the public <span style="font-weight: bold;">pressure for direct relief through bankruptcy cramdowns will continue.</span></span></p><p style="margin: 0in;font-family:arial;font-size:11pt;"><br /><span style="font-size:100%;"><span style="font-weight: bold;"></span></span></p><p style="margin: 0in;font-family:arial;font-size:11pt;"><span style="font-size:100%;"><span style="font-weight: bold;">NOTE: </span></span> </p><p style="margin: 0in; font-family: arial; font-size: 11pt; font-style: italic;">There have been no committee hearings whatsoever in the Senate, and no formal action on Senate Bill 61 at all since the day <a style="font-weight: bold;" href="http://blsbulletins.blogspot.com/2009/01/news-flash-chapter-13-mortgage-cramdown.html">Sen. Durbin<span style=""> </span>introduced it</a><span style="font-weight: bold;"> </span>on January 6, 2009 at the very beginning of this legislative session.<span style=""> </span>On that same day it was referred to the Judiciary Committee, where nothing further has occurred. Instead the House took the lead,<span style="font-weight: bold;"> </span><a style="font-weight: bold;" href="http://blsbulletins.blogspot.com/2009/02/thursdays-vote-by-full-house-on-chapter.html">debated an identical and then amended bill in committee</a> and an amended one on the House floor, and <a style="font-weight: bold;" href="http://blsbulletins.blogspot.com/2009/03/chapter-13-mortgage-cramdown-bill.html">passed that amended version in early March</a>.</p> <span style="font-size:100%;"><span style="font-weight: bold;"></span><span style="font-weight: bold;"><br /></span></span><p></p><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;">A new Bulletin on this website will provide an update of this legislation as soon as there is new information to report. PLEASE EMAIL ME at </span></span></span></span><span style="color: rgb(204, 0, 0);font-size:85%;" ><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;"> IF YOU WOULD LIKE TO BE EMAILED A LINK TO IT AS SOON AS IT IS UPLOADED onto this website. </span></span></span></span><span style="font-weight: bold;font-family:arial;" ><br /></span><br /></div> <span style="font-weight: bold;font-family:arial;" ><br /></span><span style="font-family:arial;"><span style="font-size:100%;"><span style="font-family:lucida grande;">by Andrew Toth-Fejel<br />Bankruptcy Litigation Support for Attorneys<span style="text-decoration: underline;"><br /></span></span></span></span><span style="font-size:85%;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span style="font-family:arial;"><br /></span> <div style="text-align: justify;"><blockquote style="color: rgb(204, 0, 0);"><span><span><span style="font-style: italic;font-family:arial;" class="Apple-style-span" ><span style="font-style: normal;font-family:Georgia;" class="Apple-style-span" ><span style="font-size:78%;"><span style="font-style: italic;font-size:100%;" ><span style="font-size:130%;"><span style="font-size:85%;">PLEASE NOTE that this Bulletin and the entire contents of this website are NOT designed for the general public but rather only for attorneys. The writer is not licensed to practice law in any state. This means that he is not legally permitted to give any legal advice or perform any legal services. Any non-attorney reading this must consult an attorney about ANYTHING contained here. Nothing in this website is intended to be nor should be read as being legal advice to anyone. </span></span></span></span></span></span></span></span></blockquote></div> <!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--> <div class="post-body entry-content"><style> <!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman";} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in 1.0in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman";} </style> <![endif]--> <p class="MsoNormal" style="">© 2009 Bankruptcy Litigation Support for Attorneys</p></div>Bankruptcy Litigation Supporthttp://www.blogger.com/profile/03101092341657335203noreply@blogger.com0tag:blogger.com,1999:blog-1561463394548481996.post-1290864644010001522009-04-24T16:00:00.000-07:002009-04-26T18:22:53.435-07:00Bankruptcy Cramdown Headed for Senate Vote Next Week, Likely to Defeat?<span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-size:78%;"><br />By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, </span><a href="mailto:Andy@BLSforAttorneys.com"><span style="font-size:78%;">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></span></a><br /><br /><span style="font-family:arial;"><br /></span> </span></span> <div style="text-align: justify; font-family: arial;">The Associated Press and Reuters are both reporting as of late afternoon today that Senate Majority Leader Harry Reid has announced that the bankruptcy mortgage cramdown bill is heading for a vote on the Senate floor likely either Wednesday or Thursday of this coming week. The <a style="font-weight: bold;" href="http://hosted.ap.org/dynamic/stories/U/US_MORTGAGES_BANKRUPTCY?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2009-04-22-21-16-39">Associated Press story</a> is further stating that <span style="font-weight: bold;">the bill is "headed for defeat."</span> The AP story does not state specifically the basis for this prediction, except to cite the statements of two Democratic Senators who are saying they intend to vote against the legislation, Jon Tester of Montana and Ben Nelson of Nebraska.<br /><br />Throughout this week there have been indications of the <span style="font-weight: bold;">intense ongoing negotiations </span>coordinated mostly through Senator Dick Durbin's office, in which he sought creditor industry support primarily from some of the largest banks and from credit union organizations. The goal had been to have a deal in place as a way of persuading all or virtually all Democratic Senators to get behind the bill, along with a handful of Republicans, to reach the filibuster-proof 60 votes. There has <span style="font-weight: bold;">been no announcement of such a deal.</span><br /><br /><span style="font-weight: bold;">Instead the consistent story of the week has been the lack of progress in the negotiations</span>, punctuated by a midweek story that received a great deal of publicity, a statement by the National Association of Federal Credit Unions that it could not support the legislation in the form being negotiated. This produced a public retort by the much larger Credit Union National Association, with its president chiding the rival trade group for no longer participating in the negotiations.<br /><br />Treasury Secretary Timothy <span style="font-weight: bold;">Geithner did not help the cause earlier in the week with his less than enthusiastic endorsement of the legislation</span>: "We are supportive of carefully designed changes” to bankruptcy law, Geithner said. “It’s a difficult balance to get right, as you know,” he continued. “But the president is supportive of this.” He was responding to a question from Elizabeth Warren, chairwoman of the congressional oversight panel on the financial bailout, a friendly audience since she has been a long-time supporter of the bankruptcy mortgage cramdown option.<br /><br /><span style="font-weight: bold;">Please return to this website for developments throughout this upcoming week as the anticipated Senate floor vote approaches.</span><br /><br /></div><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;">A new Bulletin on this website will provide an update of this legislation as soon as there is new information to report. PLEASE EMAIL ME at </span></span></span></span><span style="color: rgb(204, 0, 0);font-size:85%;" ><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;"> IF YOU WOULD LIKE TO BE EMAILED A LINK TO IT AS SOON AS IT IS UPLOADED onto this website. </span></span></span></span><span style="font-weight: bold;font-family:arial;" ><br /><br /></span><br /><span style="font-family:arial;"><span style="font-size:100%;"><span style="font-family:lucida grande;">by Andrew Toth-Fejel<br />Bankruptcy Litigation Support for Attorneys<span style="text-decoration: underline;"><br /></span></span></span></span><span style="font-size:85%;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span style="font-family:arial;"><br /></span> <div style="text-align: justify;"><blockquote style="color: rgb(204, 0, 0);"><span><span><span style="font-style: italic;font-family:arial;" class="Apple-style-span" ><span style="font-style: normal;font-family:Georgia;" class="Apple-style-span" ><span style="font-size:78%;"><span style="font-style: italic;font-size:100%;" ><span style="font-size:130%;"><span style="font-size:85%;">PLEASE NOTE that this Bulletin and the entire contents of this website are NOT designed for the general public but rather only for attorneys. The writer is not licensed to practice law in any state. This means that he is not legally permitted to give any legal advice or perform any legal services. Any non-attorney reading this must consult an attorney about ANYTHING contained here. Nothing in this website is intended to be nor should be read as being legal advice to anyone. </span></span></span></span></span></span></span></span></blockquote></div> <!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--> <div class="post-body entry-content"><style> <!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman";} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in 1.0in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman";} </style> <![endif]--> <p class="MsoNormal" style="">© 2009 Bankruptcy Litigation Support for Attorneys</p></div>Bankruptcy Litigation Supporthttp://www.blogger.com/profile/03101092341657335203noreply@blogger.com0tag:blogger.com,1999:blog-1561463394548481996.post-91151410924443212152009-04-20T06:00:00.000-07:002009-04-22T07:09:00.604-07:00A Busy Senate Easter Break for the Bankruptcy Mortgage Cramdown Legislation<span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-size:78%;"><br />By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, </span><a href="mailto:Andy@BLSforAttorneys.com"><span style="font-size:78%;">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></span></a><br /><br /><br /></span></span> <p style="margin: 0in; text-align: justify;font-family:arial;font-size:11pt;"><span style="font-size:100%;">After a few days of quiet early in the Congressional two-week Easter break which ended this last weekend, reliable details are now emerging about the intense negotiations on the bankruptcy mortgage cramdown legislation among Senators and their staff<span style=""> </span>during the break. After the Senate leadership decided in mid-March not to bring a bill to the floor for a vote before the break (see my <a style="font-weight: bold;" href="http://blsbulletins.blogspot.com/2009/03/mortgage-cramdown-legislation-stalled.html">earlier Bulletin</a><span style="font-weight: bold;"> </span>on this), <span style="font-weight: bold;">rumors arose that the legislation was in serious trouble.</span> Indeed there is <span style="font-weight: bold;">more doubt now that a bill will pass Congress than at any time since the beginning of the session</span>. All indications are that at the least the bill that passed the House of Representatives on March 5 will not pass the Senate without significant changes.<span style=""> </span>However,<span style=""> </span>the vigorous horse-trading of the last week or two which has now come to light--occurring even while Congress was not in session--shows that <span style="font-weight: bold;">the legislation is very much alive</span>.<span style=""> </span>But whether any bill will pass in the Senate, and then survive in a conference committee to resolve the almost certain differences from the House bill, is still impossible to predict.<br /></span></p><p style="margin: 0in; text-align: justify;font-family:arial;font-size:11pt;"><span style="font-size:100%;"><br /></span></p><div face="arial" style="text-align: justify; font-family: arial;"> </div><p style="margin: 0in; text-align: justify;font-family:arial;font-size:11pt;"><span style="font-size:100%;"> </span></p><div style="text-align: justify; font-family: arial; font-weight: bold;"> </div><p style="margin: 0in; text-align: justify; font-weight: bold;font-family:arial;font-size:11pt;"><span style="font-size:100%;">If a bill does emerge into law, some of its most important provisions will be shaped by how Congress resolves the issues which were the subject of the last few days of negotiation, as follows:</span></p><p style="margin: 0in; text-align: justify; font-weight: bold;font-family:arial;font-size:11pt;"><span style="font-size:100%;"><br /></span></p><div style="text-align: justify; font-family: arial; font-weight: bold;"> </div><p style="margin: 0in; text-align: justify; font-weight: bold;font-family:arial;font-size:11pt;"><span style="font-size:100%;"> </span></p><div face="arial" style="text-align: justify; font-family: arial;"> </div><p style="margin: 0in; font-weight: bold; text-align: justify;font-family:arial;font-size:11pt;"><span style="font-size:130%;">1) Potential Restriction to Subprime Mortgages</span></p><div face="arial" style="text-align: justify; font-family: arial;"> </div><p style="margin: 0in; text-align: justify;font-family:arial;font-size:11pt;"><span style="font-size:100%;">On April 16, a spokesperson for Senator Richard Durbin, sponsor of the Senate bill and the Senate Majority Whip, said that one of the main points of contention is whether to limit bankruptcy cramdowns to certain kinds of mortgages, at the extreme end only to subprime mortgages. Indications are that such a severe restriction is unacceptable to Sen. Durbin.<span style=""> </span>In contrast, the bill passed by the House has no such restriction, in that it is applicable to any mortgage "secured by a security interest in the debtor’s principal residence that is the subject of a notice that a foreclosure may be commenced with respect to such loan."<span style=""> </span>(See my <a style="font-weight: bold;" href="http://blsbulletins.blogspot.com/2009/02/erms-of-bankruptcy-mortgage-cramdown.html">prior Bulletin</a> on the key terms of the bill passed by the House.)</span></p><p style="margin: 0in; text-align: justify;font-family:arial;font-size:11pt;"><span style="font-size:100%;"><br /></span></p><div face="arial" style="text-align: justify; font-family: arial;"> </div><p style="margin: 0in; text-align: justify;font-family:arial;font-size:11pt;"><span style="font-size:100%;"> </span></p><div style="text-align: justify; font-family: arial; font-weight: bold;"> </div><p style="margin: 0in; text-align: justify; font-weight: bold;font-family:arial;font-size:11pt;"><span style="font-size:130%;">2) Potential Restriction to Mortgages of Limited Time Periods, Limited in Amount<br /></span></p><div face="arial" style="text-align: justify; font-family: arial;"> </div><p style="margin: 0in; text-align: justify;font-family:arial;font-size:11pt;"><span style="font-size:100%;">Bankruptcy mortgage modifications<span style=""> </span>are limited in one compromised version to<span style=""> </span>loans<span style=""> </span>originated before 2009, and with a balance of less than $729,750. The modification provisions would expire in 2014. In contrast the House-passed version would include loans "originated before the effective date" of the law, thus including those entered into so far this year. And importantly there is no explicit maximum loan balance in the House bill, and no sunset clause.</span></p><p style="margin: 0in; text-align: justify;font-family:arial;font-size:11pt;"><span style="font-size:100%;"><br /></span></p><div face="arial" style="text-align: justify; font-family: arial;"> </div><p style="margin: 0in; text-align: justify;font-family:arial;font-size:11pt;"><span style="font-size:100%;"> </span></p><div face="arial" style="text-align: justify;"> </div><p style="margin: 0in; font-weight: bold; text-align: justify;font-family:arial;font-size:11pt;"><span style="font-size:130%;">3) Restrictions Related to Non-Bankruptcy Mortgage Modifications</span></p><div face="arial" style="text-align: justify;"> </div><p style="margin: 0in; text-align: justify;font-family:arial;font-size:11pt;"><span style="font-size:100%;">Before its early March passage, the House bill had been delayed by and then amended at the behest of a group of self-styled "moderate" Democratic Representatives. This amendment required bankruptcy judges in certain circumstances to consider whether a non-bankruptcy loan modification consistent with President Obama’s Homeowner Affordability & Stability Plan had been offered to the homeowners before their Chapter 13 case was filed. For more details on this provision, see my earlier Bulletin titled<span style=""> <a href="http://blsbulletins.blogspot.com/2009/02/erms-of-bankruptcy-mortgage-cramdown.html"> </a></span><a style="font-weight: bold;" href="http://blsbulletins.blogspot.com/2009/02/erms-of-bankruptcy-mortgage-cramdown.html">The Terms of the Bankruptcy Mortgage Cramdown Bill Passed by the House of Representatives--The Cramdown Itself</a>.<span style=""> </span>A potential Senate compromise would convert this limited and at least somewhat discretionary standard and turn it into a explicit restriction: <span style="font-weight: bold;">i</span><span style="font-weight: bold;">f a lender offered a modification through the Obama plan or last year's Hope for Homeowners Act program called the Hope for Homeowners Act, the homeowner would be ineligible to modify their loan through bankruptcy</span>.<span style=""><br /></span></span></p><p style="margin: 0in; text-align: justify;font-family:arial;font-size:11pt;"><span style="font-size:100%;"><span style=""><br /></span></span></p><p style="margin: 0in; text-align: justify;font-family:arial;font-size:11pt;"><span style="font-size:100%;"><span style=""> </span>Another related potential compromise:<span style=""> </span>if a homeowner ended up paying a quarter of income or less for the mortgage under a non-bankruptcy modification under the Obama plan, he or she would not be eligible for a bankruptcy modification.</span></p><p style="margin: 0in; text-align: justify;font-family:arial;font-size:11pt;"><span style="font-size:100%;"><br /></span></p><div face="arial" style="text-align: justify;"> </div><p style="margin: 0in; text-align: justify;font-family:arial;font-size:11pt;"><span style="font-size:100%;"> </span></p><div face="arial" style="text-align: justify;"> </div><p style="margin: 0in; font-weight: bold; text-align: justify;font-family:arial;font-size:11pt;"><span style="font-size:130%;">4) Limits on Principal Reduction</span></p><div style="text-align: justify; font-family: arial;"> </div><p style="margin: 0in; text-align: justify;font-family:arial;font-size:11pt;"><span style="font-size:100%;">Mortgage holders have been highly resistant to lowering principal balances, in large part because they<span style=""> </span>do not want to lose any more discretion on how to value such assets. This issue is one that is near the heart of the mortgage crisis. A potential compromise in discussion among Senate negotiators would <span style="font-weight: bold;">not allow mortgage principal reductions for certain low-income borrowers who pay less than 31 percent of their income for their mortgage payments. Instead they could only have their interest rates reduced or their loans amortized over a longer time.<br /></span></span></p><p style="margin: 0in; text-align: justify;font-family:arial;font-size:11pt;"><span style="font-size:100%;"><span style="font-weight: bold;"><br /></span></span></p><div style="text-align: justify; font-family: arial;"> </div><p style="margin: 0in; text-align: justify;font-family:arial;font-size:11pt;"><span style="font-size:100%;"> </span></p><div style="text-align: justify; font-family: arial;"> </div><p style="margin: 0in; font-weight: bold; text-align: justify;font-family:arial;font-size:11pt;"><span style="font-size:130%;">5) 50-50% Split of Residential Sale Proceeds</span></p><div style="text-align: justify; font-family: arial;"> </div><p style="margin: 0in; text-align: justify;font-family:arial;font-size:11pt;"><span style="font-size:100%;">In mortgages where the principal is reduced by a bankruptcy judge and the residence is then sold during the Chapter 13 case for more than the court-determined value, one possible Senate compromise would have the mortgage holder and homeowner evenly split any such profit. This is actually less generous to mortgage holders in some respects than the House bill. The House version's annually graduated schedule pays to the mortgage holder 90% of such potential profit during the 1st year of the Chapter<span style=""> </span>13 plan, 70% the 2nd year, 50% the 3rd year, 30% the 4th year, and 10% the 5th year.<br /></span></p><p style="margin: 0in; text-align: justify;font-family:arial;font-size:11pt;"><span style="font-size:100%;"><br /></span></p><div style="text-align: justify; font-family: arial;"> </div><p style="margin: 0in; text-align: justify;font-family:arial;font-size:11pt;"><span style="font-size:100%;"> </span></p><div style="text-align: justify; font-family: arial;"> </div><p style="margin: 0in; font-weight: bold; text-align: justify;font-family:arial;font-size:11pt;"><span style="font-size:130%;">Current Prospects in the Senate</span></p><div style="text-align: justify; font-family: arial;"> </div><p style="margin: 0in; text-align: justify;font-family:arial;font-size:11pt;"><span style="font-size:100%;"><span style=""> </span>Max Gleischman, Senator Durbin's spokesperson, said on April 8 that <span style="font-weight: bold;">the bill in the form that passed the House bill in March “doesn’t have the votes to pass the Senate.”</span><span style=""> </span>So the pressing question is what compromises will be struck in the next few days to come up with a bill which the leadership believes will pass. According to an April 16 CongressDaily / NationalJournal.com article, <span style="font-weight: bold;">"Democrats hope to move the measure this month with a deal in place."<br /></span></span></p><p style="margin: 0in; text-align: justify;font-family:arial;font-size:11pt;"><span style="font-size:100%;"><span style="font-weight: bold;"><br /></span></span></p><div style="text-align: justify; font-family: arial;"> </div><p style="margin: 0in; text-align: justify;font-family:arial;font-size:11pt;"><span style="font-size:100%;"> </span></p><div style="text-align: justify; font-family: arial;"> </div><p style="margin: 0in; text-align: justify;font-family:arial;font-size:11pt;"><span style="font-size:100%;">Congress is scheduled to reconvene on Monday, April 20.<span style=""> </span>Prospects are that the negotiations will only intensify.</span></p><p style="margin: 0in; text-align: justify; font-weight: bold;font-family:arial;font-size:11pt;"><span style="font-size:130%;"><br /></span></p><p face="arial" size="11pt" style="margin: 0in; text-align: justify; font-weight: bold;"><br /></p><p style="margin: 0in; text-align: justify; font-weight: bold; font-family: arial; font-size: 11pt;"><span style="font-size:130%;"><br /></span></p><div style="text-align: justify; font-family: arial; font-weight: bold;"> </div><p style="margin: 0in; text-align: justify; font-weight: bold; font-style: italic;font-family:arial;font-size:11pt;"><span style="font-size:130%;">Addendum: Potentially Influential Report for the Senate Debate </span></p><div style="text-align: justify; font-family: arial; font-style: italic;"> </div><div style="text-align: justify; font-family: arial; font-style: italic;"> </div><p style="margin: 0in; text-align: justify; font-style: italic;font-family:arial;font-size:11pt;"><span style="font-size:100%;"><span style="font-family:arial;">Mr. Gleischman says that Senator Durbin sought independent analysis of the controversial issues behind his mortgage cramdown proposal from, among other sources, </span><a style="font-family: arial;" href="http://www.uploadftw.com/200812/credit_suisse_bankruptcy_law_reform.pdf"><span style="font-weight: bold;">a </span><span style="font-weight: bold;">Credit Suisse/Fixed Income Research report</span></a><span style="font-family:arial;"> of late January 2009. It is titled "Bankruptcy Law Reform – A new tool for foreclosure avoidance." Given how extensively this respected research organization's earlier study on the projected number of upcoming foreclosures was cited by the press and by many governmental decision makers, I anticipated this new report's similar impact. See my prior Bulletin titled </span><a style="font-weight: bold; font-family: arial;" href="http://blsbulletins.blogspot.com/2009/02/new-report-by-influential-credit-suisse.html">New Report by Influential Credit Suisse Cautiously Supportive of Chapter 13 Mortgage Cramdown Legislation</a><span style="font-family:arial;">. This study goes to the heart of the issue: the potential effectiveness of Chapter 13 residential mortgage cramdowns and their potential effect on future mortgage credit markets. It is highly worthwhile reading.</span><span style=""> </span></span></p> <p style="margin: 0in; font-family: arial; font-size: 11pt;"> </p> <p style="margin: 0in; font-family: arial; font-size: 11pt;"><br /></p> <div style="text-align: justify; font-family: arial;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;"><br /></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;"><span style="color: rgb(204, 0, 0); font-style: italic;">A new Bulletin on this website will provide an update of this legislation as soon as there is new information to report. PLEASE EMAIL ME at </span></span></span><span style="color: rgb(204, 0, 0);font-family:arial;font-size:85%;" ><span class="Apple-style-span" style="font-style: italic;"><span class="Apple-style-span" style="font-style: normal;"><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;"><span style="color: rgb(204, 0, 0); font-style: italic;"> IF YOU WOULD LIKE TO BE EMAILED A LINK TO IT AS SOON AS IT IS UPLOADED onto this website. </span></span></span><span style="font-weight: bold;font-family:arial;" ><br /></span><br /></div> <span style="font-weight: bold;font-family:arial;" ><br /></span><span style="font-family:arial;"><span style="font-size:100%;"><span style="font-family:lucida grande;">by Andrew Toth-Fejel<br />Bankruptcy Litigation Support for Attorneys<span style="text-decoration: underline;"><br /></span></span></span></span><span style="font-size:85%;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span style="font-family:arial;"><br /></span> <div style="text-align: justify;"><blockquote style="color: rgb(204, 0, 0);"><span><span><span style="font-style: italic;font-family:arial;" class="Apple-style-span" ><span style="font-style: normal;font-family:Georgia;" class="Apple-style-span" ><span style="font-size:78%;"><span style="font-style: italic;font-size:100%;" ><span style="font-size:130%;"><span style="font-size:85%;">PLEASE NOTE that this Bulletin and the entire contents of this website are NOT designed for the general public but rather only for attorneys. The writer is not licensed to practice law in any state. This means that he is not legally permitted to give any legal advice or perform any legal services. Any non-attorney reading this must consult an attorney about ANYTHING contained here. Nothing in this website is intended to be nor should be read as being legal advice to anyone. </span></span></span></span></span></span></span></span></blockquote></div> <!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--> <div class="post-body entry-content"><style> <!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman";} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in 1.0in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman";} </style> <![endif]--> <p class="MsoNormal" style="">© 2009 Bankruptcy Litigation Support for Attorneys</p></div>Bankruptcy Litigation Supporthttp://www.blogger.com/profile/03101092341657335203noreply@blogger.com3tag:blogger.com,1999:blog-1561463394548481996.post-29758081920670332982009-03-24T06:00:00.000-07:002009-03-24T13:49:13.138-07:00Mortgage Cramdown Legislation Stalled in the Senate, Not Likely Seeing Action Until Late-April, After Easter Break<span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-size:78%;"><br />By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, </span><a href="mailto:Andy@BLSforAttorneys.com"><span style="font-size:78%;">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></span></a><br /><span style="font-family:arial;"><br /><br /></span></span></span><div style="text-align: justify;"><span class="Apple-style-span" style="font-style: italic; font-weight: bold;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Although there had been some indications that the Senate would quickly take up the Chapter 13 mortgage cramdown legislation after the House of </span></span></span><span class="Apple-style-span" style="font-style: italic; font-weight: bold;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Representatives passed its bill on March 5, because of political distractions and fierce negotiations this will not happen until late April or even later.</span></span></span><br /><span style="font-weight: bold;font-size:130%;" ><br /></span><span class="Apple-style-span" style="font-style: italic; font-weight: bold;font-family:arial;font-size:130%;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Hurry Up and Wait</span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">When the House passed HR 1106, the "Helping Families Save Their Homes Act of 2009" on March 5, the Democratic Senate leadership signaled that </span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">it would attempt to bring the matter to a vote within the following week or two. That same day <a style="font-weight: bold;" href="http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a1Sk4ikpjYTE">Bloomberg.com reported</a></span></span></span> <span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">that the senior communication advisor to Senate Majority Leader Harry Reid, <a style="font-weight: bold;" href="http://www.whorunsgov.com/Profiles/James_P._Manley">Jim Manley</a>,</span></span></span> <span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">one of the most powerful Senate staffers, said the Senate could vote on its bill as early as the following week.<br /><br />But with more than two weeks having </span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">passed and the start of the two week Easter recess a little more than a week away--it starts Friday, April 3--it appears highly unlikely that the Senate </span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">will take any action on its bill, S. 61, until after this recess. Indeed, according to <a style="font-weight: bold;" href="http://www.wtop.com/?sid=1610936&nid=116">a recent Associated Press story</a></span></span></span>, <span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">the bill did not make it onto Senator Reid's list of priorities to accomplish before the Easter recess.</span></span></span><br /><span style="font-weight: bold;font-size:130%;" ><br /></span><span class="Apple-style-span" style="font-style: italic; font-weight: bold;font-family:arial;font-size:130%;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">The Behind-the-Scenes Negotiations</span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">The Senate situation echos what occurred in the House. There the House Judiciary Committee passed H.R. 200 with amendments on January 27, and the full House was scheduled to vote on it on February 26, but was delayed a week while additional amendments were hammered out and the necessary votes rounded up. (See <a style="font-weight: bold;" href="http://blsbulletins.blogspot.com/2009/02/thursdays-vote-by-full-house-on-chapter.html">my earlier Bulletin</a></span></span></span> <span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">on this delay in the House.) </span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><br /><br />The wrangling in the Senate continues the House battles on how much to narrow the types of mortgage eligible for Chapter 13 cramdown. The horsetrading is closely tied to the <span style="font-weight: bold;">need to attract virtually every one of the 58 Democratic votes (with the potentially 59th Minnesota vote still tied up in litigation) and a few Republican votes to reach the 60 needed to break filibuster</span>. Republican Arlen Spector of Pennsylvania has long been a potential supporter, but apparently only a narrower version, so Democratic Sen. Evan Bayh of Indiana and he are working on a proposal limiting cramdown only to subprime mortgages. There are also discussions among the Democratic leadership and various creditor organizations, such as the Credit Union National Association, to include provisions favorable to them, in an effort to win their support and that of on-the-fence Senators.</span></span></span><br /><span style="font-weight: bold;font-size:130%;" ><br /></span><span class="Apple-style-span" style="font-style: italic; font-weight: bold;font-family:arial;font-size:130%;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">The Personal Politics</span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">While Sen. Dick Durbin of Michigan is the sponsor of S. 61, the "Helping Families Save Their Homes in Bankruptcy Act of 2009," Sen. Christopher </span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Dodd of Connecticut has been an influential and vocal supporter. He is the Chair of the Senate Banking, Housing, and Urban Affairs Committee to </span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">which the House bill was referred after it passed. He spoke at the press conference along with Sen. Durbin in early January when the "deal" with Citigroup was announced. (See <a style="font-weight: bold;" href="http://blsbulletins.blogspot.com/2009/01/news-flash-chapter-13-mortgage-cramdown.html">my Bulletin</a></span></span></span> <span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">about that.) In <a style="font-weight: bold;" href="http://dodd.senate.gov/?q=node/4843">his speech on March 12</a></span></span></span> <span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">to the Consumer Federation of America, he emphasized the importance of and his support for the bankruptcy legislation.<br /><br />But Sen. Dodd has been buffeted by a number of controversies involving personal financial matters--he is under Senate ethics investigation for a couple of Countrywide mortgages he received, and in the last two weeks has been soundly criticized in the AIG executive bonuses brouhaha. AIG's notorious Financial Products division is based in Connecticut, and <span style="font-weight: bold;">Sen. Dodd was the largest recipient of AIG executives' political contributions in the US Senate</span>, according to the Center for Responsive Politics. He vacillated about his role in the stimulus bill which allowed those AIG bonuses, first denying involvement and then trying to pin the blame on the Treasury Department, until Secretary Geithner accepted responsibility. Dodd is up for election in 2010, and in spite of being the longest-serving Senator in his state's history, in a state that has recently tended to vote Democratic, is in a close race with his anticipated Republican challenger. </span></span></span><span style="font-weight: bold;font-family:arial;" class="Apple-style-span" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">It is hard to say what effect his political vulnerabilities will have on the controversial bankruptcy legislation, but these circumstances do not seem conducive to risk-taking. </span></span></span><br /><span style="font-size:130%;"><br /></span><span class="Apple-style-span" style="font-style: italic; font-weight: bold;font-family:arial;font-size:130%;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">The Latest on the Prospects</span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">A month of delay, including a two week recess, is a very long time in this economic and political environment, making </span></span></span><span style="font-weight: bold;font-family:arial;" class="Apple-style-span" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">assessing the legislation's prospects impossible</span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">. This delay gives opportunity for Senators to be influenced by all the interest groups, especially those who can most afford to pay for that influence. But it also perhaps gives them the opportunity to see the detrimental impact of home foreclosures upon their voting constituents and neighborhoods.<br /><br />The House vote earlier this month had to some degree been slowed down by the controversies of the prior few weeks surrounding the huge stimulus bill, and now Congress is digging into controversial budgetary issues with the same potential effect on the Senate side. And for the first time there are serious hints of the possibility that no version of the legislation will pass, or only a highly restrictive one, given the skepticism expressed by a number of "centrist" Democratic Senators, and by Republican Senators who had appeared more amenable earlier. The fate of the legislation will depend on the direction of the economic and political winds of the next several weeks.<br /><br /></span></span></span></div><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;">A new Bulletin on this website will provide an update of this legislation as soon as there is new information to report. PLEASE EMAIL ME at </span></span></span></span><span style="color: rgb(204, 0, 0);font-size:85%;" ><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;"> IF YOU WOULD LIKE TO BE EMAILED A LINK TO IT AS SOON AS IT IS UPLOADED onto this website. </span></span></span></span><span style="font-weight: bold;font-family:arial;" ><br /><br /></span><span style="font-family:arial;"><span style="font-size:100%;"><span style="font-family:lucida grande;">by Andrew Toth-Fejel<br />Bankruptcy Litigation Support for Attorneys<span style="text-decoration: underline;"><br /></span></span></span></span><span style="font-size:85%;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span style="font-family:arial;"><br /></span> <div style="text-align: justify;"><blockquote style="color: rgb(204, 0, 0);"><span><span><span style="font-style: italic;font-family:arial;" class="Apple-style-span" ><span style="font-style: normal;font-family:Georgia;" class="Apple-style-span" ><span style="font-size:78%;"><span style="font-style: italic;font-size:100%;" ><span style="font-size:130%;"><span style="font-size:85%;">PLEASE NOTE that this Bulletin and the entire contents of this website are NOT designed for the general public but rather only for attorneys. The writer is not licensed to practice law in any state. This means that he is not legally permitted to give any legal advice or perform any legal services. Any non-attorney reading this must consult an attorney about ANYTHING contained here. Nothing in this website is intended to be nor should be read as being legal advice to anyone. </span></span></span></span></span></span></span></span></blockquote></div> <!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--> <div class="post-body entry-content"><style> <!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman";} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in 1.0in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman";} </style> <![endif]--> <p class="MsoNormal" style="">© 2009 Bankruptcy Litigation Support for Attorneys</p></div>Bankruptcy Litigation Supporthttp://www.blogger.com/profile/03101092341657335203noreply@blogger.com1tag:blogger.com,1999:blog-1561463394548481996.post-19797733685936893512009-03-11T06:00:00.000-07:002009-04-17T14:57:20.517-07:00The Terms of the Bankruptcy Mortgage Cramdown Bill Passed by the House of Representatives--The Cramdown Itself<span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-size:78%;"><br />By Andrew <span class="blsp-spelling-error" id="SPELLING_ERROR_0"><span class="blsp-spelling-error" id="SPELLING_ERROR_0">Toth</span></span>-<span class="blsp-spelling-error" id="SPELLING_ERROR_1"><span class="blsp-spelling-error" id="SPELLING_ERROR_1">Fejel</span></span>, Bankruptcy Litigation Support for Attorneys, </span><a href="mailto:Andy@BLSforAttorneys.com"><span style="font-size:78%;">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></span></a><br /><br /><span style="font-family:arial;"><br /></span></span></span><div style="text-align: justify;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">This Bankruptcy Bulletin presents <span style="font-weight: bold;">the core <span class="blsp-spelling-error" id="SPELLING_ERROR_2">cramdown</span> provisions of the bankruptcy bill which was passed by the House of Representatives</span> last Thursday, H.R. 1106. Each part of the bill outline below refers both to its pertinent Section number in the bill and to the Bankruptcy Code Section it proposes to amend. The full text of the engrossed bill is as passed by the House is at either of these two website: one by <a style="font-weight: bold;" href="http://www.govtrack.us/congress/billtext.xpd?bill=h111-1106"><span class="blsp-spelling-error" id="SPELLING_ERROR_3">govtrack</span>.us</a> and the other by the <a style="font-weight: bold;" href="http://thomas.loc.gov/cgi-bin/query/D?c111:2:./temp/%7Ec111iso4Zh::">Library of Congress' THOMAS</a>.</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-size:85%;">(See <a style="font-weight: bold;" href="http://blsbulletins.blogspot.com/2009/03/chapter-13-mortgage-cramdown-bill.html">my Bulletin of last Friday</a>, March 6, on the passage of this bill in the House, the amendments offered on the floor, and the legislation's prospects in the Senate. An upcoming Bulletin addresses other aspects of the bill affecting Chapter 13, including a major but selective expansion in the jurisdictional debt limits, new rules governing post-petition fees of mortgage creditors, and the bill's applicability to previously filed cases.)</span></span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">Mortgages eligible for Chapter 13 <span class="blsp-spelling-error" id="SPELLING_ERROR_4">cramdown</span></span> <span style="font-style: italic;">(H.R. 1106 Section 103; Bankruptcy Code Section 1322(b)(11))</span>:</span></span></span><br /></div><ul style="text-align: justify;"><li><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">All mortgages secured by "principal residence" after receiving notice of potential foreclosure.</span></span></span></li><li><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Not restricted to sub-prime or any other category of mortgages.</span></span></span></li><li><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Does NOT include mortgages entered into after the law goes into effect.</span></span></span></li></ul><div style="text-align: justify;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">Mortgage modifications permitted</span> <span style="font-style: italic;">(Bill Section 103; Code Section 1322(b)(11))</span>:</span></span></span><br /></div><ul style="text-align: justify;"><li><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Reducing principal to the value of the residence.</span></span></span></li><li><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Stopping <span class="blsp-spelling-error" id="SPELLING_ERROR_5">postpetition</span> interest rate adjustments.</span></span></span></li><li><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Extending the term of payment to as long as a total of 40 years.</span></span></span></li><li><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Adjusting interest to the rate as published by the Federal Financial Institutions Examination Council, "plus a reasonable premium for risk."</span></span></span></li></ul><div style="text-align: justify;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">Payments on modified mortgages may be paid</span> <span style="font-style: italic;">(Bill Section 103; Code Section 1322(b)(11))</span>:</span></span></span><br /><ul><li><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">"[D]<span class="blsp-spelling-error" id="SPELLING_ERROR_6">irectly</span> to the holder of the claim."</span></span></span></li><li><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">"[T]<span class="blsp-spelling-error" id="SPELLING_ERROR_7">hrough</span> the trustee during the term of the plan," "at the discretion of the court."</span></span></span></li></ul><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">The court may <span class="blsp-spelling-corrected" id="SPELLING_ERROR_8">confirm</span> a plan with a mortgage modification that reduces the interest rate but not the principle, if</span> <span style="font-style: italic;">(Bill Section 105; Code Section 1325(d))</span>:</span></span></span><br /></div><ul style="text-align: justify;"><li><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">The "total monthly mortgage payment is reduced to a percentage of the debtor's income in accordance with the guidelines of the . . . Homeowner Affordability and Stability Plan as implemented March 4, 2009."</span></span></span></li><li><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Allowing for expenses permitted under section 707(b)(2).</span></span></span></li><li><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">The debtor could prevent foreclosure and pay a 30-year fully amortizing loan at the reduced interest rate without reducing principle, after allowing for "additional debts and fees that are to be paid in this chapter and thereafter."</span></span></span></li></ul><div style="text-align: justify;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">Valuation of principal residence for <span class="blsp-spelling-error" id="SPELLING_ERROR_9">cramdown</span></span> <span style="font-style: italic;">(Bill Section 103; Code Section 1322(i))</span>:</span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">"Allowed secured claim" is the fair market value of the residence.</span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">If there is a dispute about value, the court determines the value through the appraisal rules of the Federal Housing Administration.</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">Distribution of post-petition sale proceeds of principal residence</span> </span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-style: italic;">(Bill Section 103; Code Section 1322(g))</span></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">:</span></span></span><br /></div><ul style="text-align: justify;"><li><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">For sales during 1st year of the Chapter 13 plan, 90% of net proceeds would go to the mortgage holder</span></span></span></li><li><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">During the 2<span class="blsp-spelling-error" id="SPELLING_ERROR_10">nd</span> year, 70%.</span></span></span></li><li><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">During the 3rd year, 50%.</span></span></span></li><li><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">During the 4<span class="blsp-spelling-error" id="SPELLING_ERROR_11">th</span> year, 30%.</span></span></span></li><li><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">During the 5<span class="blsp-spelling-error" id="SPELLING_ERROR_12">th</span> year, 10%.</span></span></span></li></ul><div style="text-align: justify;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">Debtor's <span class="blsp-spelling-error" id="SPELLING_ERROR_13">prepetition</span> effort to modify mortgage</span> <span style="font-style: italic;">(Bill Section 103; Code Section 1322(b))</span>:</span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">For Chapter 13 cases filed <span style="font-style: italic;">after</span> 30 days after the law's effective date--</span></span></span></span><br /></div><ul style="text-align: justify;"><li><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Timing: Debtor must contact lender or <span class="blsp-spelling-error" id="SPELLING_ERROR_14">servicer</span> at least 30 before filing the case about modifying the mortgage.</span></span></span></li><li><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Must provide lender or <span class="blsp-spelling-error" id="SPELLING_ERROR_15">servicer</span> with information about income, expenses, and debt, in a format like the bankruptcy schedules.</span></span></span></li><li><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Must consider any "qualified loan modification"--a newly defined term--presented by the lender or <span class="blsp-spelling-error" id="SPELLING_ERROR_16">servicer</span>.</span></span></span></li><li><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">These requirements are waived if a foreclosure is scheduled within 30 days after filing the Chapter 13 case.</span></span></span></li></ul><div style="text-align: justify;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">For cases filed <span style="font-style: italic;">before</span> 30 days after the law's effective date--</span></span></span></span><br /></div><ul style="text-align: justify;"><li><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Timing: Must attempt to contact lender or <span class="blsp-spelling-error" id="SPELLING_ERROR_17">servicer</span> about mortgage modification before filing an initial Chapter 13 plan, or a <span class="blsp-spelling-error" id="SPELLING_ERROR_18">pre</span>-confirmation or post-confirmation plan (no stated length of time).</span></span></span></li></ul><div style="text-align: justify;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">Definition of "qualified loan modification"</span><span style="font-style: italic;"> (Bill Section 100; Code Section 101(43A))</span>:</span></span></span><br /></div><ul style="text-align: justify;"><li><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Mortgage modification agreement made under the guidelines of the Homeowner Affordability & Stability Plan.</span></span></span></li><li><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Debtor's aggregate housing payment does not exceed a percentage of income consistent with those guidelines.</span></span></span></li><li><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Scheduled payments fully amortize the outstanding loan principal without any periods of negative amortization.</span></span></span></li><li><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">May not require debtor to pay any fees to participate.</span></span></span></li><li><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Can't be affected by debtor's filing of a bankruptcy.</span></span></span></li></ul><div style="text-align: justify;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">Mortgage modification requires court's finding of debtors' good faith </span></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">(</span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;"></span></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-style: italic;">Bill Section 105; Code Section 1325(a))</span>:</span></span></span><br /></div><ul style="text-align: justify;"><li><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;">No good faith if debtor "can pay all of his or her debts. . . without difficulty for the foreseeable future." </span></span></li><li><span style="font-family:arial;">These debts include "any future payment increases on such debts.</span></li><li><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;">These payments include "the positive amortization of mortgage debt.</span></span></li><li><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;">"</span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;"><span style="font-family:arial;">No </span>good faith if court finds that debtor was "convicted of obtaining by actual fraud the extension, renewal, or refinancing of credit" at issue.</span></span></li></ul><div style="text-align: justify;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">A reduction in mortgage principal requires a court determination of good faith</span> <span style="font-style: italic;">(Bill Section 105; Code Section 1325(a))</span>:</span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Court must consider whether the mortgage holder had offered an affordable "qualified loan modification" without principal reduction.</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">Modified mortgage holder retains lien on residence</span> <span style="font-style: italic;">(Bill Section 105; Code Section 1325(a))</span>:</span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Until the later of a) the payoff of the secured claim, or b) completion of all plan payments (or hardship discharge)</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">Exclusion of modified mortgage balance from discharge</span> <span style="font-style: italic;">(Bill Section 106; Code section 1328(a))</span>:</span></span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Discharge at end of Chapter 13 case excludes the unpaid portion of the "allowed secured claim."</span></span></span><br /><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" > </span></span> </div><div style="text-align: justify;font-family:arial;"><div style="text-align: justify;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;">A new Bulletin on this website will provide an update of this legislation as soon as there is new information to report. PLEASE EMAIL ME at </span></span></span></span><span style="color: rgb(204, 0, 0);font-size:85%;" ><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;"> IF YOU WOULD LIKE TO BE EMAILED A LINK TO IT AS SOON AS IT IS UPLOADED onto this website. </span></span></span></span><br /></div><br /></div> <span style="font-weight: bold;font-family:arial;" ><br /></span><span style="font-family:arial;"><span style="font-size:100%;"><span style="font-family:lucida grande;">by Andrew <span class="blsp-spelling-error" id="SPELLING_ERROR_12"><span class="blsp-spelling-error" id="SPELLING_ERROR_17">Toth</span></span>-<span class="blsp-spelling-error" id="SPELLING_ERROR_13"><span class="blsp-spelling-error" id="SPELLING_ERROR_18">Fejel</span></span><br />Bankruptcy Litigation Support for Attorneys<span style="text-decoration: underline;"><br /></span></span></span></span><span style="font-size:85%;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span style="font-family:arial;"><br /></span> <div style="text-align: justify;"><blockquote style="color: rgb(204, 0, 0);"><span><span><span style="font-style: italic;font-family:arial;" class="Apple-style-span" ><span style="font-style: normal;font-family:Georgia;" class="Apple-style-span" ><span style="font-size:78%;"><span style="font-style: italic;font-size:100%;" ><span style="font-size:130%;"><span style="font-size:85%;">PLEASE NOTE that this Bulletin and the entire contents of this website are NOT designed for the general public but rather only for attorneys. The writer is not licensed to practice law in any state. This means that he is not legally permitted to give any legal advice or perform any legal services. Any non-attorney reading this must consult an attorney about ANYTHING contained here. Nothing in this website is intended to be nor should be read as being legal advice to anyone. </span></span></span></span></span></span></span></span></blockquote></div> <!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--> <div class="post-body entry-content"><style> <!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman";} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in 1.0in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman";} </style> <![endif]--> <p class="MsoNormal" style="">© 2009 Bankruptcy Litigation Support for Attorneys</p></div>Bankruptcy Litigation Supporthttp://www.blogger.com/profile/03101092341657335203noreply@blogger.com1tag:blogger.com,1999:blog-1561463394548481996.post-19367281795923693652009-03-06T06:00:00.000-08:002009-03-10T12:58:02.264-07:00Chapter 13 Mortgage Cramdown Bill Passes House of Representatives, Moves to Senate For New Battle About Amendments<span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-size:78%;">By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, </span><a href="mailto:Andy@BLSforAttorneys.com"><span style="font-size:78%;">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></span></a><br /><br /></span></span><br /><div style="text-align: justify;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">Yesterday evening (March 5) the House passed H.R. 1106, the Helping Families Save Their Homes Act of 2009, by a largely party-line </span><a style="font-weight: bold;" href="http://clerk.house.gov/evs/2009/roll104.xml">vote of 234 to 191</a>. Seven Republicans voted for it, 24 Democrats against. None of the Oregon and Washington Representatives broke party ranks. The vote came a week after debate on the bill began on the floor a week before, and after <a style="font-weight: bold;" href="http://frwebgate.access.gpo.gov/cgi-bin/getpage.cgi?position=all&page=D216&dbname=2009_record">votes on three substantive amendments</a>, two of which passed and one failed, all again mostly decided on party-line votes. <span style="font-weight: bold;">The issue now goes to the Senate, as early as next week </span>according to a spokesman for Senate Majority Leader Harry Reid, as reported by <a style="font-weight: bold;" href="http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a1Sk4ikpjYTE">Bloomberg.com</a>.</span></span></span><br /><span style="font-weight: bold;font-size:130%;" ><br /><span style="font-family:arial;">Senate Prospects</span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">The Senate's bill, <a style="font-weight: bold;" href="http://thomas.loc.gov/cgi-bin/query/z?c111:S.61.IS:">S. 61</a>, is identical to the House's original bill, H.R. 200, when both were introduced on January 6, 2009, but has not yet seen any committee action. <span style="font-weight: bold;">The consensus appears to be that passage in the Senate of a bankruptcy mortgage modification bill will be more difficult than in the House, if for no other reason than the Senate's rule requiring 60 votes to force a vote, effectively meaning that the bill must have the support of every Democratic Senator and also a couple Republicans. The additional time also gives the lobbying power of the mortgage industry opportunity to further limit the amendment's scope and to continue to try to kill it. However, the continuing downward spiral both in foreclosures and in the general economy may well encourage Senate passage</span>. Of the House Republicans who crossed party lines to vote for H.R. 1106, most were from states with the worst foreclosure situations.</span></span></span><br /><span style="font-weight: bold;font-family:arial;font-size:130%;" ><br />Amendments Made on the House Floor</span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Of the three amendments debated on the House floor yesterday, the one that was the closest vote, 211-218 (with all Republicans and 37 Democrats voting for in favor) did not pass. It sought to provide that if a residence with a mortgage modified through Chapter 13 is sold after "the effective date of the [Chapter 13 plan," at a net profit beyond the modified principal amount, the mortgage holder would recapture ALL of this profit (instead a portion as provided by another amendment).</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="font-weight: bold;">The significant substantive amendment which did pass by 263-164, with all Democrats and 10 Republican votes, requires courts to use FHA appraisal guidelines in cases of dispute about a residence's fair market value, prevents Chapter 13 modifications for homeowners deemed to be able to pay their mortgage, extends the negotiation period before filing from 15 to 30 days, and requires the debtor to certify that he or she contacted the lender and provided it with income, expense and debt statements.</span></span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">The other substantive amendment which passed, near unanimously, 423-2, provides that for debtors with their residence in foreclosure, their pre-filing credit counseling requirement can be met not just before filing but up to 30 days thereafter.</span></span></span><br /><span style="font-family:arial;"><br />The precise language of these amendments is found in House Report <a style="font-weight: bold;" href="http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_reports&docid=f:hr021.pdf">111-21</a></span><span style="font-family:arial;"> and <a href="http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_reports&docid=f:hr023.pdf"><span style="font-weight: bold;">111-23</span></a>. In an upcoming Bulletin on this website I will provide a more detailed analysis of the entire bill in its final version.<br /><br /><span style="font-weight: bold;font-size:130%;" >Party Unity</span></span><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">In the final 234-191 vote on the bill, the seven Republicans voting in favor are from Florida, Ohio, Delaware, New York and North Carolina, and the 24 Democrats voting against are from the South and Border States, and the greater Midwest.</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;">Interestingly, the Republicans tended to vote more as a block with the exception of the key 1st amendment and the final vote. The opposition seems to be somewhat more united than the proponents. We shall see if that carries through to the Senate.</span></span></span><br /><br /><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><span style="font-family:arial;"><span style="color: rgb(204, 0, 0); font-style: italic;">A new Bulletin on this website will provide an update of this legislation as soon as there is new information to report, certainly by the end of next week (March 13). PLEASE EMAIL ME at the address below IF YOU WOULD LIKE TO BE EMAILED A LINK TO IT AS SOON AS IT IS UPLOADED. </span></span></span></span><br /><br /></div> <span style="font-weight: bold;font-family:arial;" ><br /></span><span style="font-family:arial;"><span style="font-size:100%;"><span style="font-family:lucida grande;">by Andrew Toth-Fejel<br />Bankruptcy Litigation Support for Attorneys<span style="text-decoration: underline;"><br /></span></span></span></span><span style="font-size:85%;"><span class="Apple-style-span" style="font-style: italic;font-family:arial;" ><span class="Apple-style-span" style="font-style: normal;font-family:Georgia;" ><a href="mailto:Andy@BLSforAttorneys.com">Andy@BLSforAttorneys.co<span style="font-style: italic;">m</span></a></span></span></span><span style="font-family:arial;"><br /></span> <div style="text-align: justify;"><blockquote style="color: rgb(204, 0, 0);"><span><span><span style="font-style: italic;font-family:arial;" class="Apple-style-span" ><span style="font-style: normal;font-family:Georgia;" class="Apple-style-span" ><span style="font-size:78%;"><span style="font-style: italic;font-size:100%;" ><span style="font-size:130%;"><span style="font-size:85%;">PLEASE NOTE that this Bulletin and the entire contents of this website are NOT designed for the general public but rather only for attorneys. The writer is not licensed to practice law in any state. This means that he is not legally permitted to give any legal advice or perform any legal services. Any non-attorney reading this must consult an attorney about ANYTHING contained here. Nothing in this website is intended to be nor should be read as being legal advice to anyone. </span></span></span></span></span></span></span></span></blockquote></div> <!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--> <div class="post-body entry-content"><style> <!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman";} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in 1.0in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman";} </style> <![endif]--> <p class="MsoNormal" style="">© 2009 Bankruptcy Litigation Support for Attorneys</p></div>Bankruptcy Litigation Supporthttp://www.blogger.com/profile/03101092341657335203noreply@blogger.com1