Source: http://www.bankruptcylawnetwork.com/justice-scalia-and-consumer-bankruptcy/
Timestamp: 2018-01-23 13:35:39
Document Index: 198371234

Matched Legal Cases: ['§105', '§105', '§ 707', '§ 1325', '§ 1325', '§ 1325', '§ 1325', '§ 1325', '§ 1325', '§ 362', '§ 362', '§ 506', '§ 506']

Bankruptcy Information | Justice Scalia and Consumer Bankruptcy
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Posted at 15:03h in Bankruptcy Basics	by	Brett Weiss, Esq. 0 Comments
In light of Justice Antonin Scalia’s death, I wanted to highlight several of his opinions in consumer bankruptcy cases, both in the majority and in dissent. (He has a host of opinions in corporate cases as well; see an excellent summary here.)
In Law v. Siegel, 571 U.S. ___, 134 S.Ct. 1188 (2014), Justice Scalia, writing for a unanimous Court, held that the Bankruptcy Court could not ignore statutory protections, even where the Debtor acted badly. This case narrowed the Court’s holding in Marrama v. Citizen’s Bank of Massachusetts, 127 S. Ct. 1105, 549 US 365 (2007), which had added an equitable good faith requirement into a Debtor’s previously absolute right to convert a Chapter 7 to a Chapter 13.
A bankruptcy court has statutory authority to “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of” the Bankruptcy Code. 11 U. S. C. §105(a). And it may also possess “inherent power . . . to sanction ‘abusive litigation practices.’ ” (citation omitted). But in exercising those statutory and inherent powers, a bankruptcy court may not contravene specific statutory provisions. It is hornbook law that §105(a) “does not allow the bankruptcy court to override explicit mandates of other sections of the Bankruptcy Code.” (citation omitted). Section 105(a) confers authority to “carry out” the provisions of the Code, but it is quite impossible to do that by taking action that the Code prohibits. That is simply an application of the axiom that a statute’s general permission to take actions of a certain type must yield to a specific prohibition found elsewhere. (citations omitted). Courts’ inherent sanctioning powers are likewise subordinate to valid statutory directives and prohibitions. (citation omitted). We have long held that “whatever equitable powers remain in the bankruptcy courts must and can only be exercised within the confines of” the Bankruptcy Code. (citations omitted).
571 S.Ct. at 1194-5.
Ransom v. FIA Card Services, 562 U.S. 61, 131 S.Ct. 716 (2011) was an 8-1 decision, with Justice Scalia writing in dissent. The majority opinion, written by Justice Kagan, held that the allowance under the Means Test for car ownership (11 U.S.C. § 707(b)(2)(A)) applied only if a debtor was obligated to make a car or lease payment. Drawing a distinction between the IRS’ “National Standards and Local Standards (NSLS)” and a directive in its “Collection Financial Standards (CFS),” Justice Scalia’s dissent noted that the later formed no part of the former. Since only the NSLS were to be applied to the Means Test, and the NSLS did not exclude a deduction for car ownership in the absence of a car or lease payment, the Bankruptcy Code should not be interpreted to add the CFS directive disallowing this deduction.
242 S.Ct. at 732.
In Hamilton v Lanning, 560 U.S. 505, 130 S.Ct. 2464 (2010), Justice Scalia was the sole dissenter in an 8-1 ruling. The majority held that “when a bankruptcy court calculates a debtor’s projected disposable income, the court may account for changes in the debtor’s income or expenses that are known or virtually certain at the time of confirmation.” In other words, rather than a mechanical application of the debtor’s “current monthly income,” as required by the Means Test, the court can take into consideration changes in income that have occurred or “are known or virtually certain at the time of confirmation.” Justice Scalia disagreed. Finding that the Code itself provided no support for the majority’s conclusion, he argued for a strict interpretation of language of 11 U.S.C. § 1325(b).
That interpretation runs aground because it either renders superfluous text Congress included or requires adding text Congress did not. It would be pointless to define disposable income in such detail, based on data during a specific 6-month period, if a court were free to set the resulting figure aside whenever it appears to be a poor predictor. And since “disposable income” appears nowhere else in § 1325(b), then unless § 1325(b)(2)’s definition applies to “projected disposable income” in § 1325(b)(1)(B), it does not apply at all. The Court insists its interpretation does not render § 1325(b)(2)’s incorporation of “current monthly income” a nullity: A bankruptcy court must still begin with that figure, but is simply free to fiddle with it if a “significant” change in the debtor’s circumstances is “known or virtually certain.” Ante, at 6, 12. That construction conveniently avoids superfluity, but only by utterly abandoning the text the Court purports to construe. Nothing in the text supports treating the definition of disposable income Congress supplied as a suggestion. And even if the word “projected” did allow (or direct) a court to disregard § 1325(b)(2)’s fixed formula and to consider other data, there would be no basis in the text for the restrictions the Court reads in, regarding when and to what extent a court may (or must) do so. If the statute authorizes estimations, it authorizes them in every case, not just those where changes to the debtor’s income are both “significant” and either “known or virtually certain.” Ibid. If the evidence indicates it is merely more likely than not that the debtor’s income will increase by some minimal amount, there is no reading of the word “projected” that permits (or requires) a court to ignore that change. The Court, in short, can arrive at its compromise construction only by rewriting the statute.
130 S.Ct. at 2479.
Till v SCS Credit Corp., 541 U.S. 465, 124 S.Ct. 1951 (2004) involved another dissent by Justice Scalia, this time from a 4-1-4 plurality ruling. Till involved the appropriate interest rate to be set for the payment of a crammed down car’s value in a Chapter 13 Plan. The plurality found that the interest rate to be used should be the prime rate, with an additional risk adjustment of between 1 and 3%. Justice Scalia disagreed, arguing that the presumptive contract method should instead be used.
541 U.S. at 498-99.
Citizens Bank of Maryland v. Strumpf, 516 U.S. 16, 116 S.Ct. 286 (1995) was a 9-0 decision where the opinion was written by Justice Scalia. The debtor had a checking account at Citizens, and also owed Citizens money on a defaulted loan. When he filed Chapter 13, Citizens froze the account, and filed a Motion for Relief from the Automatic Stay and a request for a set-off. The question was whether the automatic stay was violated when Citizens refused to honor post-filing withdrawal requests. Justice Scalia found that there was no stay violation, and that Citizens’ actions merely sought to maintain the status quo while pursuing stay relief. He said:
In our view, petitioner’s action was not a setoff within the meaning of § 362(a)(7). Petitioner refused to pay its debt, not permanently and absolutely, but only while it sought relief under § 362(d) from the automatic stay. Whether that temporary refusal was otherwise wrongful is a separate matter—we do not consider, for example, respondent’s contention that the portion of the account subjected to the “administrative hold” exceeded the amount properly subject to setoff. All that concerns us here is whether the refusal was a setoff. We think it was not, because—as evidenced by petitioner’s “Motion for Relief from Automatic Stay and for Setoff”—petitioner did not purport permanently to reduce respondent’s account balance by the amount of the defaulted Loan.
516 U.S. at 19.
Dewsnup v. Timm, 502 U.S. 410, 112 S.Ct. 773 (1992), dealt with whether a debtor could “strip off,” or lower or eliminate a secured claim where there was insufficient equity to support the claim. Justice Scalia dissented from a 6-2 decision holding that a a Chapter 7 debtor could not use §§ 506(a) and 506(d) of the Bankruptcy Code to “strip down” a creditor’s lien on real property to the current value of the property. Justice Scalia’s dissent said: With exceptions not pertinent here, § 506(d) of the Bankruptcy Code provides: “To the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void . . . .” Read naturally and in accordance with other provisions of the statute, this automatically voids a lien to the extent the claim it secures is not both an “allowed claim” and a “secured claim” under the Code. In holding otherwise, the Court replaces what Congress said with what it thinks Congress ought to have said—and in the process disregards, and hence impairs for future use, well established principles of statutory construction. I respectfully dissent.
502 U.S. at 420. In the recent case of Bank of America, NA v. Caulkett, 135 S.Ct. 1995, 575 U.S. ___ (2015), a unanimous Court questioned the continued viability of the majority’s ruling in Dewsnup, and indicated a willingness to reevaluate its decision.
Justice Scalia’s rulings were less focused on ideological issues in these holdings, and more on issues of statutory construction. He remained remarkably consistent in his approach to the Bankruptcy Code throughout his nearly 30 years on the high Court, consistently arguing for a “plain reading” of the Code’s language, regardless of where such a reading led. He had a major impact on the Bankruptcy Code.