BAPCPA's Increase in Debtors' Attorney Fees and Costs

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

This summer the U.S. Government Accountability Office (GAO), on request of a number of members of Congress, released a report entitled Dollar Costs Associated with the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. In it the GAO presents its conclusions about post-BAPCPA increases in the cost of filing bankruptcy for consumer debtors .

(The report also analyzes the financial effect of BAPCPA on the U.S. Trustee Program, on trustees, and on the federal judiciary, but those will be the subject of another Bulletin.)

"This report did not seek to assess the benefits of the Bankruptcy Reform Act and is therefore not an evaluation of the merits of the act."

The conclusions of the report include the following:

• Chapter 7 Attorney Fees:

1. Increased from an average of $712 in February-March 2005 to an average of $1,078 in February-March 2007, a 51% increase.
2. Breaking this down into different fee ranges (comparing the same pre- and post-BAPCPA periods as above) the frequency with which the attorney fees were less than $750 went from 59% of cases way down to 20%, the frequency with which the fees were from $750 to $999 went from 27% of cases to about the same at 28%, and the frequency with which the fees were $1,000 or more went from only 14% of cases to more than 52% of them.
3. Also, cases in which Chapter 7 attorney fees exceeded $1,499 went from only 3 percent to 18 percent during the same 2-year period.

• Chapter 13 Attorney Fees:

1. Chapter 13 "presumptively reasonable" court pre-approved attorney fees in October 2005 just before BAPCPA's effective date ranged from $1,500 to $3,000, with a median of $2,000, but by February 2008 the fees increased to range from $1,800 to $4,000, with a median of $3,000.
2. Some local rules and administrative orders that increased these Chapter 13 attorney fees expressly referred to the additional services required by BAPCPA as the reason for the increase.
3. "[I]n some cases creditors rather than debtors bear the true financial costs of the fee increase," such as "in a Chapter 13 bankruptcy with a partial repayment plan, it may be the unsecured creditors rather than the debtor who absorb the cost of higher attorney fees."

• Filing Fees:

1. Two laws have affected filing fees: BAPCPA increased Chapter 7 fees from $209 to $274, and the Deficit Reduction Act signed into law in February 2006 increased it to $299; BAPCPA decreased Chapter 13 fees from $194 to $189, and the Deficit Reduction Act increased it to $274.
2. Before BAPCPA bankruptcy courts did not have authority to waive the filing fee, authority which that law provided as to Chapter 7 debtors who had income of less than 150% of the official poverty line and were not able to pay in installments.

• Credit Counseling and Debtor Education Costs:

1. The report estimated that the combined cost of these two BAPCPA requirements was an average of about $100.
2. The GAO noted that BAPCPA requires providers of credit counseling and debtor education services do so "without regard to the client's ability to pay," and during 2006 about 11% had their fees waived, in 2007 about 13% did, with an additional 28% in 2006 and 19% in 2007 who had their fees reduced.

• Pro Se Filings:

1. The report cited anecdotal evidence from varied sources that the post-BAPCPA increased attorney fees had increased the proportion of pro se filings, but the best statistical evidence (from GAO's own sampling and data from the Administrative Offices of the U.S. Courts) showed a decrease in at least Chapter 7 filings from about 11 percent in February-March 2005 to 5.9 percent in the 2007 calendar year.

• Pro Bono Services:
  

1. Fewer attorneys have been willing to volunteer to provide pro bono services, "largely due to the increased time and responsibiities required to handle a bankruptcy case," resulting in longer waits and possibly a reduction in the number of clients served.

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

© 2008 Bankruptcy Litigation Support for Attorneys

9th Cir BAP Says BAPCPA Takes Away Ch.7 Vehicle Ride-Through Option: If Debtor Doesn't Reaffirm Timely, Creditor Can Repossess During Bankruptcy Case

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


In re Dumont v. Ford Motor Credit Co., 383 BR 481 (9th Cir. BAP 2008)
February 6, 2008

The 9th Circuit BAP earlier this year joined more than 15 bankruptcy courts across the country which had unanimously held that BAPCPA eliminated the "ride-through" option for debtors with secured debt,: if a debtor wants to keep collateral, such as a vehicle, the debtor must timely either reaffirm or redeem the debt, or else risk repossession even if current on the debt. But this BAP opinion comes with two important caveats. The Court makes clear that the creditor's right to repossess is still subject to 1) the debtor's failure to comply with deadlines to file and act on the statement of intent, and 2) the creditor's compliance with state law, which may well independently bar repossession when payments are current.

(Note that one of the bankruptcy court opinions referred to by the BAP is one from our own court in Oregon--In re Bower, Case No. 07-60126-fra7, 2007 WL 2163472 (Bankr. D. Or. July 26, 2007)--but this opinion is not on the bankruptcy court's website and so presumably was not published.)

In coming to its holding the BAP directly addressed the 9th Circuit opinion which had cemented the ride-through option under pre-BAPCPA law, McClellan Fed. Credit Union v. Parker (In re Parker),139 F.3d 668 (9th Cir. 1998). The BAP somewhat unusually "overturned" this 9th Circuit opinion by showing how McClellan's rationale had been completely undermined by the statutory changes of BAPCPA. The details of that statutory construction are beyond the scope of this Bulletin, but it primarily focused on a new section 362(h) , which terminated the automatic stay as to personal property securing a claim if the debtor either 1) failed to file timely a statement of intent indicating whether the property would be surrendered or retained, and if retained whether reaffirmed or redeemed; or 2) failed to perform its stated intent timely. The BAP also referred to the new section 521(d) which allows ipso facto default default clauses--those ubiquitous contractual clauses that make the filing of bankruptcy in and of itself one of the occasions of contractual default--contrary to prior Code restrictions of them. Indeed section 521(d) expressly incorporates section 362(h) making it clear that a debtor who fails to timely file or perform on a notice of intent is subject to the ipso facto default clause and to repossession the minute those deadlines pass.

The BAP made clear that debtors who comply with the statement of intent deadlines will not lose the automatic stay under section 362(h) nor will their ipso facto default clauses be enforceable under section 521(a). The Court also emphasized that repossession may well not be permitted to occur EVEN IF the debtor's failure to comply with the statement of intent requirements results in loss of the automatic stay and re-imposition of the ipso facto default clause, BECAUSE the creditor must still comply with state law. "Some state consumer protection statutes prevent a creditor from repossessing when there is no payment default. These statutes have the potential to make the aforementioned BAPCPA provisions meaningless if repossession is barred by state law when a debtor's payments are current."

Under the facts of this case the BAP agreed with the bankruptcy court that it did not have jurisdiction to address the appropriateness of the repossession under state law, but had to leave that to the state court. The standard is whether the state law dispute was "related to" the bankruptcy case, meaning whether its outcome "could conceivably have any effect on the estate being administered in bankruptcy." With the repossession having occurred after the discharge, the Court said that no claim arising from it would benefit the estate.

FINAL CAVEAT: This BAP opinion has been appealed to the 9th Circuit (Appeal No. 06-00980-JM7), although one wonders about how likely it is that the 9th Circuit would reverse this BAP opinion and the underlying bankruptcy court's opinion in light of the unanimous opinion of 15 or so other earlier bankruptcy courts.

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

© 2008 Bankruptcy Litigation Support for Attorneys

Oregon Chapter 13 Distributions to General Unsecured Creditors: How Different from the Rest of the Country? Differences Btw. Trustees Long and Lynch?

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

OREGON V. U.S.?

Comparing the Oregon Chapter 13 cases administered by the trustees Fred Long and Brian Lynch against the national averages, for the Chapter 13 cases which were successfully completed during Fiscal Year 2007 (Oct. '06 - Sept. '07), 1) there is a substantially larger portion of 0% plans in the Oregon cases than the national average; 2) the portion that had paid 70% or more to general unsecured creditors is about the same as the national average; and 3) the portion that paid between 1% and 69% is somewhat lower than the national average.

(NOTE: during this fiscal year, these two trustees administered 98.9% of the cases successfully completed in Oregon. See below for information on the cases administered by the 3rd standing trustee, Robert Ridgway.)

1) 0% Plans:
Nationally, 6.5% of the cases completed successfully had 0% plans, compared to 23.0% for cases administered by Mr. Long and 30.0% for cases administered by Mr. Lynch. Thus the proportion of 0% plan cases in Oregon were about three & a half to four & a half TIMES greater than the national average.

2) 70+% Plans:
Nationally, 29.4% of the cases completed successfully had 70% or higher plans, compared to slightly lower, 27.0%, for cases administered by Mr. Long and slightly higher, 31.2%, for cases administered by Mr. Lynch.

3) 1% - 69% Plans:
Nationally, 61.9% of the cases completed successfully had plans from 1% through 69%, compared to somewhat lower, 50.0%, for cases administered by Mr. Long and much lower, 36.4%, for cases administered by Mr. Lynch. The subset of this group with plans from 40% through 69% had very similar proportions among the national averages and Mr. Long & Mr. Lynch, 11.1%, 8.2% & 8.5% respectively, meaning that most of the differences in the 1% through 69% set was in the other subset, from 1% through 39%, with proportions of 50.8%, 41.8% and 27.9%, respectively. One statistical corollary of this is that it seems clear that nationally a large majority of Chapter 13 plans that could not be 0% plans for some reason--such as trustees' or courts' reluctance to approve them--nevertheless ended up as still relatively low percentage plans, 39% or lower. In other words, the combination of the 0% category--much higher than average in Oregon, and the 1% through 39% category--lower than average in Oregon, resulted in similar proportions of 0% through 39% plans nationally and Long and Lynch, all within 5 percentage points of 60% of all completed cases.


TRUSTEES LONG v. LYNCH?

1) Where similar:
Repeating some of the information above for convenience, there is very little percentage difference between trustees Long and Lynch within successfully completed Ch. 13 cases in the 70+% and 40%-69% categories, with the Lynch cases slightly higher in these two categories, 31.2% and 8.5%, compared to Long's at 27.0% and 8.2%.

2) Where different:
Lynch has meaningfully more 0% cases, 30.0%, than Long, with 23.0%, but Long more than makes up for that in the 1% through 39% category, with 41.8%, and Lynch with 27.9%.

(Also, somewhat oddly Long indicated no cases whatsoever where there were no unsecured creditors, although Lynch had 24. One wonders whether this is a data-gathering/reporting error. In all three tables--for converted and dismissed cases, not just successfully completed ones, Long shows no cases whatsoever whereas the other two do on each table, even Ridgway with his very small total number of cases.)


HOW ABOUT TRUSTEE RIDGWAY?
Robert Ridgway had only 20 completed cases during this period and, with such a small sample size, comparisons to the other two trustees are not very meaningful. However it is worth noting that of those 20 cases 65% were 70+% distributions, much higher than the national average and the other two trustees. And there were no 0% cases, in contrast to a 6.5% national average and 23.0% and 30.0%, significant portions of the total, for Long & Lynch, respectively. As time goes on we will see whether these are just statistical aberrations or instead reflect meaningful differences.

CASES CONVERTED TO CHAPTER 7 AND CASES DISMISSED
The Trustee's Annual Reports provide the statistics for distributions to unsecured creditors in not just successfully completed cases but also converted cases and dismissed ones. See the last two tables below. There are no meaningful distinctions here between trustees Long and Lynch (other than the "No Unsec'd Claims" reference above). Nor for that matter does there seem to be much meaning to be gleaned from this information beyond the commonsensical observations that the vast majority of dismissed cases paid out very little to unsecured creditors and among converted cases even less was paid out to these creditors.

	DISTRIBUTIONS TO NONPRIORITY UNSECURED CLAIMS- COMPLETED CASES
	70% or MORE	40%-69%	1-39%	0%	NO UN- SEC'D CLAIMS
Long	201	61	311	171	0
Lynch	314	85	281	301	24
Ridgway	13	2	3	0	2
National Totals	40,676	15,333	70,165	8,941	3,105
National Average Per Trustee	212	80	365	47	16

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DISTRIBUTIONS TO NONPRIORITY UNSECURED CLAIMS- CONVERTED CASES 70% or MORE 40%-69% 1-39% 0% NO UN- SEC'D CLAIMS Long 0 2 12 64 0 Lynch 0 1 10 61 10 Ridgway 0 0 0 0 3 National Totals 811 793 6,992 12,656 1,314 National Average Per Trustee 4 4 36 67 7

___________________________________________________________ DISTRIBUTIONS TO NONPRIORITY UNSECURED CLAIMS- DISMISSED CASES 70% or MORE 40%-69% 1-39% 0% NO UN- SEC'D CLAIMS Long 1 7 32 229 0 Lynch 7 6 20 217 44 Ridgway 0 0 3 2 3 National Totals 4,157 2,672 19,544 53,197 4,183 National Average Per Trustee 22 14 102 277 22 _____________________________________________________________ NOTE: Author's note: I am not a practicing attorney, and in this Bulletin have not attempted to give reasons for the differences between the national and Oregon data, or among the Oregon trustees. I have not addressed the question "why"? But I would welcome hearing from attorneys who believe they know some of the reasons behind these differences. Please click on my email address below to contact me. Underlying data from Chapter 13 Standing Trustee FY07 Audited Annual Reports, calculations by: Andrew Toth-Fejel Bankruptcy Litigation Support for Attorneys Andy@BLSforAttorneys.com © 2008 Bankruptcy Litigation Support for Attorneys

Reminder about U.S. Supreme Ct's Reversal of 9th Circuit's Fobian Rule on Creditors' Atty Fees: Fees Recoverable Even on Issues Peculiar to B'cy Law

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


Travelers Casualty & Surety Co. of America v. Pacific Gas & Electric Co.
549 U.S. 443, 127 S.Ct. 1199, 167 L.Ed.2d 178 (2007)
U.S. Supreme Court, on Writ of Certiorari to 9th Circuit
Argued January 16, 2007—Decided March 20, 2007

It's a year and a half year old opinion and this Bulletin usually presents opinions only days or weeks old, but . . . THIS ONE is a U. S. Supreme Court bankruptcy opinion, which is of itself rare enough, it has to do with that favorite subject of attorney fees, AND reverses our 9th Circuit and its attorney fee rule that has been binding since 1991, so this opinion deserves another look. It affects virtually every bankruptcy case, and many attorneys may not be aware of its implications.


The essential background: Since the 1991 9th Circuit decision of In re Fobian, 951 F.2d 1149, the law in this Circuit (and in a number of other Circuits which adopted Fobian), was that attorneys' fees incurred by an unsecured creditor in postpetition litigation of issues "governed entirely by federal bankruptcy law" could not be recovered, even when otherwise contractually authorized. So in the interim lots of effort has gone into distinguishing between attorney fees based on litigating bankruptcy law issues, which are disallowed, and those based on litigating other issues, which are allowed.

In Travelers the Supreme Court rejected this Fobian bifurcation in a unanimous decision, stating that "we generally presume that claims enforceable under applicable state law will be allowed in bankruptcy unless they are expressly disallowed." The Court focused on §502 of the Code on the allowance of claims, and found nothing in the enumerated exceptions to disallow contractually enforceable attorney fees. Besides relying on this "plain statutory text" the Court put a lot of weight on the principle "that state law governs the substance of claims," and that substance should not be analyzed differently simply because that the obligor on a claim is in bankruptcy.

The Court denigrated the Fobian Rule, saying that it "finds no support in the Bankruptcy Code, either in §502 or elsewhere," that indeed in its decision the 9th Circuit hadn't even tried to base the rule on the Code but rather on its own prior opinions, which the Supreme Court dismissed summarily as not providing "any basis for disallowing a contractual claim for attorney's fees incurred litigating issues of federal bankruptcy law."


So What? The implication are huge, on a system-wide level and on a case-by-case one. For example, if undersecured mortgage holders, as a general set of creditors, can add their attorney fees to their claims for objecting to Chapter 13 plans or for filing motions for relief from stay at the very earliest opportunity, that gives them some more incentive to do so, and in many cases much less incentive for debtors to put up much of a fight. That can lead to, and to some extent perhaps already has led to, increased aggressiveness in creditor practices for entire industries. And any particularly disgruntled creditor--such as a former employer pursuing a breach of a non-compete agreement, a former business partner, or even an ex-spouse with a prenuptial agreement--anywhere there is an attorney fee provision in an applicable contract--can now make defending a nondischargeability complaint much riskier for Chapter 7 debtors. And in Chapter 13 cases such creditors, whether institutional or individual, can significantly dissipate funds available for distribution to other creditors.

In the real world the "tail" of attorney fees has more often than not wagged the "dog" of substantive legal rights and principles, and in Travelers the Supreme Court has added, in the bankruptcy world, a chunk more heft to that tail.



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

© 2008 Bankruptcy Litigation Support for Attorneys

A Catalog of Bankruptcy Bulletins: A Handy Guide to the Hot Court Opinions and Stories We've Been Following

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

The last three weeks of these Bulletins have included a combination of 1) articles presenting the Oregon angle on national bankruptcy stories, and 2) summaries of recent important 9th Circuit and BAP opinions. As a courtesy to the readers, here is a catalog of these last three weeks of Bulletins, presented in a much more accessible form than in the Archives section. Note that for the sake of completeness I have also included the 4 weekly Litigation Reports. All have links to the full articles. (This catalog does not include the Oregon Bankruptcy Court's opinion summaries, which are all found in chronological order--covering all of 2008--in the Oregon Opinions section (at bottom of right column.) Please look this catalog over and maybe save it for when you have more time to review the Bulletins that are interesting to you. And always feel free to respond with constructive criticism, or otherwise--my email link is at the top and bottom of this page.

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ARTICLES (in reverse chronological order of their appearance on this website):

September 10, 2008
Title & Link: Oregon Chapter 13 Cases Under Trustees Long, Lynch & Ridgway, By the Numbers
Key sentences from this Bulletin: This information provides a closer look at both the national and local Chapter 13 world than the much publicized numbers available from the Administrative Office of the U. S. Courts. It provides a window into what trustees & attorneys in other parts of Oregon & the nation may be doing differently. If you are in that Chapter 13 world, here's some help looking at those important numbers.

September 5, 2008
Title & Link: Oregon's Slice of the Bankruptcy Pie
Key sentences from this Bulletin: Yesterday's Bulletin addressed the most recent quarterly national bankruptcy filing numbers, and how both the number and the rate of increase compare to pre-BAPCPA years. Today, the Oregon story.


September 4, 2008
Title & Link: The National Bankruptcy Statistics Demystified
Key sentences from this Bulletin: What WOULD be enlightening would be the answers to the following questions:
1) How do the present filing numbers compare to the filings before BAPCPA?
2) How do the current percentage increases compare to previous periods of increase?

September 2, 2008
Title & Link: Intriguing Oregon & National Chapter 13 Trustee Statistics
Key sentences from this Bulletin: The US Trustee's office generates a highly detailed spreadsheet entitled Chapter 13 Standing Trustee FY07 Audited Annual Reports, containing about 60 statistical facts on each of the nearly 200 standing Chapter 13 trustees. Here are some definitely interesting, and in some cases perhaps useful, bits of information gleaned from that spreadsheet.


August 28, 2008
Title & Link: Prospects for Amendments to BAPCPA Under an Obama-Biden Administration
Key sentences from this Bulletin: Bankruptcy legislation is not usually fodder for Presidential campaigns. But this has been in so many respects an unusual campaign, and so proposed amendments to bankruptcy law have made it to the campaign trail.


August 26, 2008
Title & Link: Foreclosures: The Oregon Face of the National Story
Key sentences from this Bulletin: The national news has for a long time been full of stories about huge increases in the national mortgage default and foreclosure rates, and about particular areas of the country that have been hardest hit, such as California, Nevada, Florida, Michigan and Ohio. But what is the Oregon side of this story?


August 22, 2008
Title & Link: The Impact of the Major New Federal Housing Law on Your Bankruptcy Practice
Key sentences from this Bulletin: One of the biggest stories from Congress late last month was its passage, and President Bush’s signing (contrary to his earlier veto threats), of the Housing and Economic Recovery Act of 2008. The Act includes no changes to the Bankruptcy Code, in case you haven’t already assured yourself of this. But this Act still has potentially significant, albeit speculative, consequences for the bankruptcy and debtor/creditor world.

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OPINIONS (in reverse chronological order of publication by courts):


Sept. 9, 2008
Connecticut Bar Assn. v U.S.
U. S. District Court of Connecticut, Civil Action No. 3:06-CV-729 (CFD)
Key sentence in this Bulletin: The Connecticut District Court agreed to the unconstitutionality of the advising-clients provision but also held that the advertising disclosures ARE ALSO unconstitutional as to "attorneys representing clients other than consumer debtors filing for bankruptcy."
Title & Link: Connecticut Bar Association v. U. S. : Another U. S. District Court Agrees with Oregon's Olsen v. Gonzales about BAPCPA's Unconstitutionality

Sept. 4, 2008
Burkart v. Coleman (In re Tippett)
9th Circuit Case No 6.15411
Key sentence in this Bulletin: In this Opinion published last week the Ninth Circuit addressed one point of conflict between two very basic principles: the automatic stay and the bona fide purchaser, specifically the automatic stay's voiding of "any act to . . . exercise control over property of the estate" (§ 362(a)(3)), and the rights of a bona fide purchaser of such property of the estate. . . . In last Thursday's opinion the 9th Circuit said . . . a BFP prevails against a trustee.
Title & Link: New 9th Circuit Opinion Adjusts the Line Between Void & Voidable Transfers in Violation of the Automatic Stay: Bona Fide Purchaser Defeats Trustee


Sept. 4, 2008
Milavetz, Gallop & Milavetz v. United States
U. S. Circuit Court for the Eighth Circuit, Case No. 07-2405
Key sentence in this Bulletin: For the first time, just last week, a Circuit Court has addressed whether bankruptcy attorneys are "debt relief agencies" under BAPCPA, and, if they are, whether specific controversial prohibitions or requirements of debt relief agencies are unconstitutional as applied to attorneys. Although of course not binding on Oregon attorneys, this case is of local interest because of important clues it may give about the long-term viability of our earlier Oregon U. S. District Court opinion covering much of the same ground, Olsen v. Gonzales, 350 B. R. 906 (D. Or. 2006).
Title & Link: BAPCPA's § 526(a)(4) Is Unconstitutional, Says 8th Circuit: Attorneys ARE "Debt Relief Agencies" But MAY Advise Clients to Incur Additional Debt


August 22, 2008
McDonald v. Checks-N-Advance, Inc. (In re Ferrell)
9th Circuit, Case No. 06-17243
Key sentence in this Bulletin: In this per curiam decision published on August 22, 2008, the Ninth Circuit Court of Appeals held that certain specific violations of the federal Truth in Lending Act (TILA) do not result in the award of actual damages, statutory damages, or attorney fees and costs for the consumer, or specifically in this case for the Chapter 13 trustee acting on behalf of the consumer.
Title & Link: 9th Circuit 8/22/08 Opinion: Ch. 13 Trustee NOT Entitled to Actual or Statutory Damages, Atty. Fees or Costs Under Portions of Truth in Lending Act


August 22, 2008
Educational Credit Management Corp. v. Coleman
9th Circuit, Case # 06-16477
Key sentence in this Bulletin: The 9th Circuit Court of Appeals ruled that a Chapter 13 debtor could get a judicial determination whether her student loans constituted an “undue hardship” and were thus dischargeable without waiting until close to or after the discharge at the end of the case. BUT CAUTION: This opinion was vacated by the Court because of an appellate procedural error, as explained here.
Title & Link: 9th Circuit Holds that Ch. 13 "Undue Hardship" Student Loan Determinations Need NOT Wait Until End-of-Case Discharge


August 4, 2008
FDIC v. Kipperman (In re Commercial Money Center, Inc)
9th Circuit BAP No. SC-07-1298-DCMo
Key sentence in this Bulletin: For the law of the case doctrine to bar a court from considering an issue, that issue must have already been decided, either expressly or by necessary implication, in the same court or in a higher court on the same case. It is not enough, as here, for both adversaries and the court to have earlier ASSUMED that a particular issue was resolved a particular way without such a decision having been either expressly made necessarily made by implication.
Title & Link (note-find in Archives if not on 1st page of link): The "Law of the Case" Doctrine Applied in the Most Recent 9th Circuit BAP Opinion, Written by Judge Dunn


July 28, 2008
In re Penrod (revisited)
BAP Nos. NC-07-1360-MkKJu & NC-07-1368-MkKJu
Key sentence in this Bulletin: All three opinions--one last December by Judge Dunn, In re Johnson, and another in February by Judge Albert Radcliffe, In re Riach [unpublished letter opinion], . . . and the third just a few weeks old from the 9th Circuit BAP (Northern District of California), In re Penrod--deal with the same issue: "whether a creditor holds a purchase money security interest for purposes of the Hanging Paragraph, where a portion of its debt represents financing of negative equity in a vehicle traded in by the debtors at the time the debtors purchased their new car" . . . . Luckily for practitioners, these three opinions all arrived at virtually the same conclusion . . . with two differences worth noting, one in rationale and the other in practical effect.
Title & Link: Negative Equity in Vehicle Loans under Chapter 13: Harmonizing New 9th Circuit BAP Opinion With Recent Oregon Bankruptcy Court Opinions


June 28, 2008
In re Penrod
BAP Nos. NC-07-1360-MkKJu & NC-07-1368-MkKJu
Key sentence in this Bulletin: In a published opinion dated 7/28/08 but released for publication only last week, In re Marlene Penrod, the 9th Circuit Bankruptcy Appellate Panel held that under BAPCPA that portion of a 910-day or less vehicle loan which was used to pay off a prior trade-in loan is secured by a Purchase Money Security Interest, and so must be subtracted from the loan balance to determine the amount of the secured claim.
Title & Link: New 9th Circuit BAP Opinion Weighs in Where Oregon Court Have Recently Been: BAPCPA's "hanging paragraph" & Trade-in Negative Equity in Vehicle Loans


June 23 , 2008
Maney v. Kagenveama
527 F.3d 990 (2008); LW 2278681
Key sentence in this Bulletin: The Ninth Circuit has applied a strict reading to BAPCPA's new terms, "projected disposable income" and "applicable commitment period," with the result that an above-median income debtor who had a negative income on Form B22C, and thus no "projected disposable income," had no requirement to pay unsecured creditors and no requirement to pay into the Chapter 13 plan for 5 years, or for any other particular period of time. However, under-median income debtors do not benefit from this ruling. How could all this be?
Title & Link: The Most Important 9th Circ. B'cy Opinion of the Summer: Above-Median Income Ch. 13 Debtors Can Have 0%, Shorter-than 5-Year Plans


June 8, 2008
In re Joseph Elliot Ryan, BAP Case No ID-07-1316-DMkMo
Key sentence in this Bulletin: This recent 9th Circuit BAP opinion, written for the court by Judge Randall Dunn in his capacity as a BAP judge, fills an important gap in the nexus between bankruptcy and criminal law in the 9th Circuit. Besides reminding attorneys to be very mindful of the distinctions among the various components of a criminal judgment, this opinion states clearly that criminal prosecution costs ARE dischargeable in Chapter 13 cases.
Title & Link: 9th Circ BAP Holds $77,088 of Costs of Prosecution Dischargeable in Ch 13 Since is Not a "Criminal Fine": Judge Dunn Writes BAP Opinion Over a Dissent


May 6, 2008
Johnson v. Nielson (In re Slatkin)
9th Circuit, Case No. 06-56334
Key sentence in this Bulletin: In this opinion the Ninth Circuit Court of Appeals ruled that the appellants must pay back to the trustee "millions of dollars" they had received from debtor as "profits" from their investments in debtor's Ponzi scheme, even though appellants had no knowledge of debtor's fraudulent intent and even though some of these funds may have been based on legitimate investments.
Title & Link: Transferees Must Pay Chapter 7 Trustee "Millions of Dollars" under § 548(a) with Debtor's Plea Agreement As Sole Evidence of His Fraudulent Intent

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

© 2008 Bankruptcy Litigation Support for Attorneys

Connecticut Bar Association v. U. S. : Another U. S. District Court Agrees with Oregon's Olsen v. Gonzales about BAPCPA's Unconstitutionality

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

First a word of context: the first U. S. Circuit Court to rule on the constitutionality of BAPCPA's § 526(a)(4) and § 528(a)(4) and (b)(2)(B) published its opinion just last week: Milavetz, Gallop & Milavetz v. United States, 8th Circuit Case No. 07-2405. These provisions deal with BAPCPA's prohibition against attorneys advising clients to incur additional debt before filing bankruptcy, and the required "We are a debt relief agency ..." advertising disclosures. This 8th Circuit opinion was the subject of my Bankrutpcy Bulletin of 9/09/08. I referred there to Milavetz's potential impact in Oregon, particularly in light of our own U.S. District Court opinion of much earlier, Olsen v. Gonzales, 350 B. R. 906 (D. Or. 2006), which covered many of the same issues. My conclusion in that Bulletin was that the "holdings of and the rationales used in this 8th Circuit opinion give reason to believe that Oregon's Olsen v. Gonzales will continue to stand firm as least as to these issues."

Now just days after Milavetz, we have all the more reason to believe in our Olsen case. On 9/09/08 the U. S. District Court of Connecticut published an opinion that again covers these same BAPCPA provisions and rules largely the same as both Milavetz and Olsen but then goes a half-step further. Connecticut Bar Assn. v U.S., Civil Action No. 3:06-CV-729 (CFD). These two earlier opinions held that the prohibition against attorneys advising clients to incur additional debt was unconstitutional as applied to attorneys while the advertising disclosures were not. The Connecticut District Court agreed to the unconstitutionality of the advising-clients provision but also held that the advertising disclosures ARE ALSO unconstitutional as to "attorneys representing clients other than consumer debtors filing for bankruptcy."

The plaintiffs to whom this applied included a domestic relations attorney who "sometimes discusses bankruptcy with his clients," a law firm which represented only creditors, and an attorney who used to represent both creditors and debtors but had stopped representing debtors after BAPCPA. The District Court in Connecticut relied on the same "reasonably related to the State's interest" rule used by the 8th Circuit in Milavetz days earlier, with both courts basing much of their rationales on the same U.S. Supreme Court case, Zauderer v. Office of Disciplinary Counsel of Supreme Court of Ohio, 471 U.S. 626 (1985). But as applied to these non-bankruptcy attorneys, the Court found that the required disclosure (the familiar: “We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.”) was NOT reasonably related to the state's interest in preventing deceptive advertising. Because the definition of debt relief agency included "attorneys beyond those who actually do help people file for relief under the Bankruptcy Code and extends to attorneys for creditors, landlords and other clients whose legal issues relate to bankruptcy." For these attorneys the Court said that the required statement--"We help people file for bankruptcy relief under the Bankruptcy Code"--"is in fact a false statement--but the advertiser is nevertheless required to adopt it as its own view." The Court rejected the Government's argument that attorneys can just clarify the required language elsewhere in their advertising, saying that practically speaking attempting to do so would be confusing, with contradictory statements in the same advertising.

Maybe the most interesting parts of this Connecticut State Bar opinion are where it directly referenced the ink-is-barely-dry Milavetz 8th Circuit opinion (dated literally only 5 days earlier) and Oregon's Olsen opinion, managing to "respectfully disagree" with both.

This Court rejected the 8th Circuit's argument that non-bankruptcy attorneys "should tailor their advertisement disclosure statements to factually represent the 'bankruptcy assistance' they provide, basing this "tailoring" on the phrase in § 528(a)(4) and (b)(2)(B) which allowed language "substantially similar" to the "We are a debt relief agency..." verbiage. The Connecticut District Court retorted: "For such a disclosure to be accurate with respect to these attorneys, it would necessarily be substantially dis-similar from the statement prescribed by section 528." (Emphasis in original.)

As to Olsen, the Connecticut District "Court respectfully disagrees with the Olsen court to the extent that its decision upholds the requirement of the two-line advertising disclosure in situations in which the statement is indeed false." By this the Court presumably meant to include attorneys who do not help clients actually file bankruptcies but still deal with debt problems, such as attorneys who help with tax collections, disputes with landlords, unlawful debt collection and other consumer protections, but simply do not file bankruptcies.

Looking at the broader picture, all three of these cases agree that 1) attorneys are debt relief agencies, 2) § 526(a)(4)'s prohibition against debt relief agencies advising clients to incur additional debt is unconstitutional as to attorneys, and 3) § 528(a)(4) and (b)(2)(B)'s advertising disclosures are constitutional as to attorneys who do in fact help at least some of their clients file bankruptcies. These consistencies among these opinions far outweigh their modest differences, again reinforcing the likelihood that Olsen v. Gonzales will continue to be the law in Oregon for the foreseeable future.

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

© 2008 Bankruptcy Litigation Support for Attorneys

Oregon Chapter 13 Cases Under Trustees Long, Lynch & Ridgway, By the Numbers

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

In the Bankruptcy Bulletin of September 2, 2008 entitled Intriguing Oregon & National Chapter 13 Trustee Statistics, I presented some data and observations about the money that flows yearly into Chapter 13 cases (more than $5 billion in FY 2007) and where this money goes. The source for that information, the U. S. Trustee's detailed spreadsheet entitled Chapter 13 Standing Trustee FY07 Audited Annual Reports, also has very informative data about the number of filed and completed or terminated Chapter 13 cases, both nationally and per each trustee. This data includes, for example, the number of active cases at the beginning and end of the fiscal year, how many converted into Chapter 7's, were dismissed, were completed normally and through hardship discharges, and even how many cases paid designated percentages to the unsecured creditors. This information provides a closer look at both the national and local Chapter 13 world than the much publicized numbers available from the Administrative Office of the U. S. Courts. It provides a window into what trustees & attorneys in other parts of Oregon & the nation may be doing differently. If you are in that Chapter 13 world, here's some help looking at those important numbers.



OBSERVATIONS AND ANALYSIS

#1: THE NUMBER OF ACTIVE CASES: While nationally the number of active cases at the beginning of this fiscal year compared to its end (9/01/07) decreased by 1.7%, they decreased at a much higher rate for trustees Fred Long and Brian Lynch, by 5.6% and 5.3%, respectively, & increased by 24% for Robert Ridgway.

(NOTE: Because Mr. Ridgway's sample size is so much smaller and his history as a trustee is different than the other two trustees, while I will include his numbers in the rest of these notes, I will usually not refer to them in any analysis, leaving that to those more familiar with the specifics of his pool of cases.)

#2: NEW CASES FILED: The percentage between the number of new cases filed during the year and the number of cases at the start of the year was very similar nationally and for Long & Lynch, 29.3%, 28.4%, & 26.2%, respectively; 60.3% for Ridgway.

#3: REOPENED CASES: For some reason a much larger number of Lynch's reopened cases closed this year although it is not clear how they were closed, e.g. by successful discharge or dismissal. This accounts for a small part of the difference between the national and Long, and especially Lynch, percentages in note #1. It does NOT reflect a higher rate of reopened cases compared to active cases, with both the national and Lynch at 1.1%, with Long & Ridgway at 1.7% and 2.5% respectively.

#4: CONVERSIONS TO CHAPTER 7: The percentage of conversions to Ch. 7 relative to the number of new cases filed for Long are much lower than the national average for conversions pre-confirmation, 1.2% versus 2.9% nationally, and about the same for post-confirmation conversions, 8.5% versus 8.0% nationally. Lynch's pre-confirmation percentage was closer but still under the national average, 2.1%, while his post-confirmation percentage was somewhat lower than the average, at 6.4%. Ridgway's pre- and post-confirmation rate was both at 4.3%.

(NOTE about these calculations: Be aware that these percentages do not precisely track the rate of conversion for cases during their lifetime, rather comparing the total conversions of this fiscal year in relation to the number of cases filed, even though some of these conversions were in cases filed before this fiscal year, and some of the cases filed this fiscal year will undoubtedly be converted after the end of this fiscal year. However, these comparisons within the fiscal year are still informative, as long as it is clear what we are actually comparing. This also applies to my other listed observations. I am aware that with some of these comparisons it might make more sense to change what I've calculated, for example to compare the conversion amounts to the number of cases pending at the start of the the fiscal year instead of to the number of cases filed. Feel free to play with the numbers as makes sense to you, and tell me what you've learned!)

#5: DISMISSED CASES: The percent of cases dismissed pre-confirmation relative to the number of new cases filed are substantially lower than the national average for all 3 Oregon trustees, at 10.5%, 11.8% & 12.9% for Long, Lynch & Ridgway respectively, compared to the national average of 21.3%; for post-confirmation dismissals, again relative to the number of new cases filed, Long is slightly higher than the national average of 30.1%, at 33.1%, compared to Lynch at 23.1% and Ridgway at 11.4%, both much lower than the average. These seem to reflect that in Oregon, undoubtedly through the combined efforts by the bench and bar.

#6: COMPLETED PLANS: Consistent with this, Long & Lynch's percentage of cases closed with completed plans compared to the number of cases filed this fiscal year is substantially higher than the national average of 49.1%, at 80.1% and 78.8%. Ridgway's low percentage at 16.4%, with 19 cases completed compared to 70 filed, presumably reflects the age of his case pool compared to the other two trustees.

#7: HARDSHIP DISCHARGE: Long and Lynch both had a substantially higher number of hardship discharged cases than the national average compared to number of cases filed this year, especially Lynch, with 0.55% and 1.02% respectively, compared to 0.32%. This perhaps reflects Oregon's debtors' attorneys greater familiarity with this procedure, and the trustees' and judges', and perhaps creditors',less resistance to it. Ridgway's percentage was 1.43% but was statistically skewed because he had just one hardship discharge.

#8: CASES LONGER THAN 60 MONTHS: The number of Lynch's cases longer than 60 months as a percentage of the number of cases at the end of the fiscal year (which I assumed is the pertinent point in time) is slightly lower than the national average, 0.67% compared to 0.84% nationally. Long does not have any cases longer than 60 months, presumably reflecting the procedures used in his office and the attitudes of the judges in the Eugene Division. Ridgway also has no 60+ month cases.




THE DATA

________________________________________________________________

	# CASES ACTIVE FY07	NEW CASES FILED	CASES RE- OPENED	CLOSURE OF REOPENED CASES
Long	3,200	910	53	-17
Lynch	4,862	1,275	54	-67
Ridgway	116	70	3	0
National Totals	790, 030	281,337	84,686	-3,922
National Average Per Trustee	4,115	1,465	44	-20

________________________________________________________________

	CONVER- TED PRE- CONF	CONVER- TED POST- CONF	DIS- MISSED PRE- CONF	DIS- MISSED POST- CONF
Long	-11	-77	-96	-301
Lynch	-27	-82	-151	-294
Ridgway	-3	-3	-9	-8
National Totals	-8,140	-22,635	-60,003	-84,767
National Average Per Trustee	42	-118	-313	-441

________________________________________________________________

	CLOSED COM- PLETED PLAN	CLOSED HARD- SHIP DIS- CHARGE	# OF CASES END OF FY07	CASES > 60 MOS.
Long	-736	-5	3,021	0
Lynch	-1,005	-13	4,606	31
Ridgway	-19	-1	144	0
National Totals	-138,065	-901	776,269	6,531
National Average Per Trustee	-719	-5	4,043	34

_______________________________________________________________

Underlying data from Chapter 13 Standing Trustee FY07 Audited Annual Reports,
calculations by: Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, Andy@BLSforAttorneys.com

© 2008 Bankruptcy Litigation Support for Attorneys

BAPCPA's § 526(a)(4) Is Unconstitutional, Says 8th Circuit: Attorneys ARE "Debt Relief Agencies" But MAY Advise Clients to Incur Additional Debt

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

Milavetz, Gallop & Milavetz v. United States
U. S. Circuit Court for the Eighth Circuit, Case No. 07-2405
September 4, 2008

For the first time, just last week, a Circuit Court has addressed whether bankruptcy attorneys are "debt relief agencies" under BAPCPA, and, if they are, whether specific controversial prohibitions or requirements of debt relief agencies are unconstitutional as applied to attorneys. Although of course not binding on Oregon attorneys, this case is of local interest because of important clues it may give about the long-term viability of our earlier Oregon U. S. District Court opinion covering much of the same ground, Olsen v. Gonzales, 350 B. R. 906 (D. Or. 2006).

The 8th Circuit addressed 3 questions that have arisen under BAPCPA 1) whether bankruptcy attorneys who provide bankruptcy assistance to assisted persons are debt relief agencies; 2) if so, whether the prohibition of § 526(a)(4) for debt relief agencies to advise clients to incur debt is unconstitutional; and 3) if attorneys are debt relief agencies, whether the now-familiar advertising disclosure requirements of § 528(a)(4) and (b)(2)(B) are unconstitutional as applied to attorneys. The U. S. District Court for the District of Minnesota had resolved these issues by granting summary judgment in favor of the plaintiff bankruptcy law firm, and thereby ordering that the attorneys of the District of Minnesota were not debt relief agencies and that the above challenged provisions were unconstitutional as applied to Minnesota's attorneys.

1) The Circuit Court disagreed with the lower court's application of the doctrine of constitutional avoidance, which dictates that "where an otherwise acceptable construction of a statute would raise serious constitutional problems, the Court will construe the statute to avoid such problems unless such construction is plainly contrary to the intent of Congress." (Quoting from.Edward J. DeBartolo Corp. v. Florida Gulf Coast Bldg. & Constr. Trades Council, 485 U.S. 568, 575 (1988).) The 8th Circuit believed the Congressional intent was clear: that BAPCPA's definition of "debt relief agency" in § 101(12A), and the component definitions of "bankruptcy assistance" and "assisted persons," required the conclusion that Congress intended for attorneys to be included as debt relief agencies. "The statutory language sweeps broadly and clearly covers the legal services provided by attorneys to debtors in bankruptcy unless excluded by another provision." The Court then noted that the five exclusions listed in § 101(12A).did not refer to attorneys, so it ruled that attorneys are debt relief agencies.

2) After briefly addressing the competing First Amendment standards of scrutiny for weighing the prohibition against advising a client to incur more debt in contemplation of bankruptcy, the Circuit Court held that

regardless of whether the government's interest in prohibiting the speech was legitimate (Gentile standard) or compelling (strict scrutiny standard), § 526(a)(4) is unconstitutionally overbroad as applied to attorneys falling within the definition of debt relief agencies because it is not narrowly tailored, nor narrowly and necessarily limited, to restrict only that speech that the government has an interest in restricting. Instead, § 526(a)(4) prohibits attorneys classified as debt relief agencies from advising any assisted person to incur any additional debt in contemplation of bankruptcy; this prohibition would include advice constituting prudent prebankruptcy planning that is not an attempt to circumvent, abuse, or undermine the bankruptcy laws. Section 526(a)(4), as written, prevents attorneys from fulfilling their duty to clients to give them appropriate and beneficial advice not otherwise prohibited by the Bankruptcy Code or other applicable law.

The government argued, and a dissenting opinion discussed at some length, that the restriction on speech is constitutional because it should be interpreted to mean only inappropriately given advice, but the majority dismissed this because "the plain language of the statute does not permit this narrow interpretation."

3) As for the advertising disclosure requirements of §§ 528(a)(4) and (b)(2)(B), these require the use of the following (or a substantially similar) disclosure by any debt relief agency providing bankruptcy or a list of other debtor-related assistance to any assisted person: "We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code." In reviewing the constitutionality of these disclosures. the Eighth Circuit disagreed with the District Court's use of the "intermediate scrutiny" standard and determined that the "rational basis" standard was instead appropriate. The Court relied on the U. S. Supreme Court opinion, Zauderer v. Office of Disciplinary Counsel of the Supreme Court of Ohio, 471 U.S. 626 (1985) in determining that the "disclosure requirements here, like those in Zauderer, are intended to avoid potentially deceptive advertising". That context called for the regulation of speech to be merely reasonably related to preventing consumer deception, so "although less intrusive means may be conceivable" for meeting the governmental goal, these disclosures were reasonably related to that goal and so they passed constitutional muster.


This 8th Circuit opinion referred repeatedly and favorably to the 2006 Oregon U. S. District Court opinion, Olsen v. Gonzales, mentioned at the beginning of this Bulletin, in fact using it as direct or indirect support for each of its three key holdings above. That gives strong indication that this Olsen opinion will represent the law in Oregon on these issues for at least the near future. In addition, the 8th Circuit expressly stated that its was following the majority view that attorneys are debt relief agencies; and it only cited (and presumably only found) opinions supporting the unconstitutionality of § 526(a)(4) and the constitutionality of §§ 528(a)(4) and (b)(2)(B). These seem also to indicate some stability for the same holdings in Olsen. Until the 9th Circuit or its Bankruptcy Appellate Panel rules to the contrary, these particular rooms in the BAPCPA house of ambiguity are relatively settled in Oregon.

THE BOTTOM LINE: In Oregon since 2006, and now in the 8th Circuit, attorneys ARE debt relief agencies, but they are EXCLUDED from the § 526(a)(4) prohibition against giving advice to procure additional debt, since that prohibition is unconstitutional broad in violation of the First Amendment. However the disclosure requirements. However the disclosure requirements of §§ 528(a)(4) and (b)(2)(B) are reasonably related to the governmental purpose of regulating deceptive advertising and so they continue to be applicable to attorneys. The holdings of and the rationales used in this 8th Circuit opinion give reason to believe that Oregon's Olsen v. Gonzales will continue to stand firm as least as to these issues.


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

© 2008 Bankruptcy Litigation Support for Attorneys