Source: http://www.rkovacslaw.com/Bankruptcy-Blog/2012/May/Cases-In-Review2.aspx
Timestamp: 2013-05-23 17:50:43
Document Index: 206448325

Matched Legal Cases: ['§ 101', '§ 704', '§ 362', '§ 502', '§ 506', '§ 506']

Massachusetts Bankruptcy Lawyer | Cases In Review
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Cases In Review Posted on May 19, 2012 1:38pm PDT ______________________________________________________________________ Cases In Review May 2012 "Cases In Review" highlights recent cases that may be of particular interest to consumer bankruptcy practitioners. It is brought to you by Consumer Bankruptcy Abstracts & Research (www.cbar.pro) and the National Consumer Bankruptcy Rights Center (www.ncbrc.org). Household size—Postpetition change in Chapter 13 case: Where the Chapter 13 debtor married after filing his bankruptcy petition and prior to confirmation of his plan, the debtor’s household size was determined as of the plan confirmation date, so that his household included his new wife and her two children, who lived with the debtor. In re Hernandez, 2012 WL 1067692 (Bankr. D. Wyo., March 23, 2012). Means test—Constitutional challenge: The Chapter 7 means test, which limits debtors to a deduction of no more than $1,775 per year per child for the expense of attending a private or public elementary or secondary school, does not violate debtors’ free exercise right as parents to send their children to a Catholic school. In re Meyer, 467 B.R. 451 (Bankr. E.D. Wis., March 22, 2012). Means test—Expenses: A single Chapter 13 debtor who owned two older motor vehicles in case one became inoperable was allowed to deduct the standard motor vehicle operation expense for both vehicles. In re Warden, 2012 WL 1414277 (Bankr. E.D. Wis., April 23, 2012). Means test—Income: The Bankruptcy Court for the District of Maryland rejected In re Wiegand, 386 B.R. 238 (9th Cir. B.A.P. 2008) and its progeny and held that a self-employed Chapter 13 debtor may deduct the debtor’s business expenses as called for on Form 22C in order to calculate the debtor’s "current monthly income." See In re Biscoe, Case No. 1:10-bk-20177 (Bankr. D. Md., April 12, 2012). The Bankruptcy Court for the Middle District of North Carolina ruled, however, that a debtor may not exclude benefits received under the Civil Service Retirement System (CSRS) from the calculation of the debtor’s current monthly income, even though the definition of
"current monthly income" in Code § 101(10A) excludes benefits received under the Social Security Act, and a CSRS pension is paid in lieu of Social Security benefits. See In re Moose, 2012 WL 954713 (Bankr. M.D. N.C., March 20, 2012). Proof of claim—Requirements of Rule 3002.1: Several recent decisions have applied new Bankruptcy Rule 3002.1. Two courts held that a mortgage creditor is not entitled to recover attorney’s fees for filing a notice of a change in the amount of the Chapter 13 debtor’s monthly mortgage payment. The courts found that the creditors had not shown that the work required the assistance of an attorney. See In re Adams, Case No. 8:12-bk-553 (Bankr. E.D. N.C., May 3, 2012) and In re White, Case No. 8:10-bk-1628 (Bankr. E.D. N.C., April 30, 2012). In In re Kraska, 2012 WL 1267993 (Bankr. N.D. Ohio, April 13, 2012), the court declined to waive the requirements of Rule 3002.1 as provided in a creditor’s motion for relief from stay, even though the motion was unopposed. And in In re Sheppard, 2012 WL 1344112 (Bankr. E.D. Va., April 18, 2012), the court reached a number of substantive holdings. The court concluded that a mortgage creditor could not include, in its "Notice of Postpetition Mortgage Fees, Expenses, and Charges," charges that had been resolved in the parties’ prior consent order, as inclusion of the charges in the notice would create uncertainty as to the total sums for which the debtors would be liable upon emerging from bankruptcy, in contravention of the basic purpose of the rule. The court also held that the Chapter 13 trustee had no obligation, and indeed had no authority, to pay fees, expenses or charges identified in a notice filed in accordance with Bankruptcy Rule 3002.1 unless the creditor filed a formal amended proof of claim.
Property of the estate—Bankruptcy-specific exemptions: In a detailed opinion, the Bankruptcy Court for the District of Kansas held that a new Kansas statute that permits a debtor in bankruptcy, but not a general debtor, to exempt the right to receive a federal and state earned income tax credit violates neither the Uniformity Cause, nor the Supremacy Clause, of the U.S. Constitution. There is no Uniformity Clause violation, the court said, because the exemption statute is a state, rather than a federal, enactment on the subject of bankruptcy. And there is no Supremacy Clause violation because there is neither an express conflict between the exemption statute and the Bankruptcy Code nor an implied conflict between the statute and the language and goals of the Code. In re Westby, 2012 WL 1144412 (Bankr. D. Kan., April 4, 2012). Property of the estate—Exemptions—Of homestead—Necessity of reinvestment of proceeds: Reversing In re Jacobson, 2010 WL 6259967 (9th Cir. B.A.P. 2010) on this issue, the Ninth Circuit Court of Appeals held that, where the Chapter 7 debtor’s homestead was sold postpetition in a judicial execution sale, and the debtor received the amount of her homestead exemption from the proceeds of the sale, the requirement in Cal. Civ. Proc. Code § 704.720(b) that the proceeds be reinvested in a new homestead in order to retain their exempt status applied, so that the proceeds lost their exempt status when the debtor did not reinvest them within six months. While the debtor contended that, under the "snapshot" view of exemptions, the exempt status of property was determined as of the petition date, the court replied that it is the "entire state law applicable on the filing date" that is determinative of whether an exemption applies, and, in this case, the entire state law included a reinvestment requirement for the debtor's share of the homestead sale proceeds. In re Jacobson, --- F.3d ----, 2012 WL 1382979 (9th Cir., April 23, 2012). Violation of stay—Arising from administrative hold on bank account: Taking a different view of the matter than In re Mwangi, 432 B.R. 812 (9th Cir. B.A.P. 2010) in the Chapter 7 debtors’ appeal following remand by the BAP, the District Court for the District of Nevada held that Wells Fargo’s placing an administrative hold on the debtors’ bank account, allegedly in violation of Code § 362(a)(3), which prohibits acts to obtain possession of, or exercise control over, property of the estate, did not injure the debtors. The court reasoned that (1) since the debtors’ claimed exemption in 75% of the funds in their account was not allowed until 30 days after the meeting of creditors, the debtors could not have been injured by Wells Fargo’s refusal to turn over the funds during this period of time; and (2) after the 30 days had passed, the exemption was allowed and the account funds left the estate and became the debtors’ separate property. In re Mwangi, --- F.Supp.2d ----, 2012 WL 1150406 (D. Nev., April 6, 2012).
Violation of stay—By mortgage creditor—Award of $3 million in punitive damages: Declaring that Wells Fargo’s actions had been "highly reprehensible," and that there was a strong societal interest in preventing similar future conduct, the Bankruptcy Court for the Eastern District of Louisiana awarded punitive damages of $3,171,154 for Wells Fargo’s conduct in misapplying payments made on mortgage loans in Chapter 13 cases. Wells Fargo violated the automatic stay, the court concluded, by applying payments first to fees and costs, then to outstanding principal, accrued interest, and escrowed costs, in violation of Wells Fargo’s standard form mortgages and notes, as well as the terms of confirmed Chapter 13 plans. These accounting procedures, the court declared, resulted in the incorrect amortization of mortgage loans postpetition and the imposition of additional interest, default fees and costs to the loan. When postpetition fees or costs were assessed on a loan in bankruptcy, the court continued, Wells Fargo, acting in a "clandestine" manner, applied payments received from the debtor to those fees and charges without disclosing the assessments or requesting authority to assess the fees in the first place. The evidence established, the court emphasized, that Wells Fargo utilized this method for every mortgage loan in bankruptcy. Wells Fargo, the court said, had taken advantage of borrowers who relied on it to accurately apply payments and calculate the amounts owed, and it had refused to voluntarily correct its errors. The lender, the court continued, preferred to rely on the ignorance of borrowers or their inability to fund a challenge to its demands, rather than to voluntarily relinquish gains obtained through improper accounting methods. When exposed, Wells Fargo "revealed its true corporate character by denying any obligation to correct its past transgressions and mounting a legal assault [to] ensure it never had to." Society requires, the court declared, that those in business conduct themselves with honesty and fair dealing. Thus, there was a strong societal interest in deterring future conduct of the same nature through the imposition of punitive relief, which the court calculated as ten times the total compensatory damages awarded of $317,115.49. In re Jones, 2012 WL 1155715 (Bankr. E.D. La., April 5, 2012). Chapter 7—Stripping unsecured lien: In a surprising decision by a court of appeals not noted for its sympathy for debtors’ positions, the Eleventh Circuit Court of Appeals, relying on circuit precedent, held in a unanimous panel decision that a Chapter 7 debtor may strip off a lien that is wholly unsecured by value in the collateral. Twenty-three years earlier, the Court of Appeals had reached this conclusion in Matter of Folendore, 862 F.2d 1537 (11th Cir. 1989), and the present court reasoned that the decision in Folendore survived the Supreme Court’s decision in Dewsnup v. Timm, 502 U.S. 410, 112 S.Ct. 773, 116 L.Ed.2d 903 (1992), which held that a Chapter 7 debtor may not cram down an undersecured claim to the value of the collateral. Here, the Court of Appeals reasoned, the creditor’s junior mortgage lien was both allowed under Code § 502 and wholly unsecured under § 506(a), and the lien was therefore voidable under the plain language of § 506(d). In re McNeal, Case No. 11-11352 (11th Cir., May 11, 2012).
Chapter 13—Requirement of using form plans: Two cases reaffirmed the necessity of adhering to a district’s model Chapter 13 plan. The bankruptcy court in In re Walters, 2012 WL 1536964 (Bankr. E.D. Okla., April 30, 2012) denied confirmation of a Chapter 13 plan that the debtor’s counsel, working with other local Chapter 13 practitioners, had developed, as the plan did not substantially conform to the district’s form plan, which a local rule required. While the attorney explained that he developed a plan shorter than the 17-page-long form plan created by the district’s standing Chapter 13 trustee because the form plan was too long, was virtually impossible for debtors and creditors to understand, and contained provisions that might result in debtors' counsel violating the law, the court said it believed that a standard form plan was essential for the court to meet its responsibility to review all Chapter 13 plans that were filed in the district, to provide proper notice to interested parties, and to promote efficiency in the review of those plans by the court and by interested parties. And in In re Gordon, 2012 WL 1020643 (D. Colo., March 27, 2012) the district court, reversing the bankruptcy court, held that the bankruptcy court erred in ruling that the court lacked the authority to include in its form Chapter 13 plan a provision requiring the debtor to "file and serve upon all parties in interest a modified plan which will provide for allowed priority and allowed secured claims which were not filed and/or liquidated at the time of confirmation." The district court also held erroneous the bankruptcy court’s conclusion that Chapter 13 debtors could add, to the district’s form Chapter 13 plan, non-standard language providing that the plan’s treatment of claims was binding on creditors if the plan was confirmed and the creditor failed to object, even if the creditor had not yet filed a proof of claim and the time for doing so had not yet expired. Chapter 13—Cramdown of claim secured by lien on entireties property: The Bankruptcy Court for the Southern District of Florida held that a Chapter 13 debtor whose spouse does not join in the debtor’s bankruptcy petition is not permitted to cram down a claim secured by a lien on property owned by the debtor as a tenant by the entireties. If the debtor were allowed to cram down the claim, the court reasoned, his nonfiling wife would be granted the benefit of having filed for bankruptcy without having to carry any of the burdens, and the Code does not permit this. In re Alvarez, 2012 WL 1425097 (Bankr. S.D. Fla., April 24, 2012).
Categories: Bankruptcy , Case Law Update