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HERE
REPLACEMENT VALUE MUST
BE USED IN CRAMDOWN The bankruptcy court
erred in its valuation of collateral for confirmation of a
cram down plan when it used the foreclosure value of the
collateral on the petition date. The Supreme Court's Rash
decision requires use of replacement value in this
context. The Supreme Court's
decision in Rash does not address the appropriate "as of"
date on which collateral should be valued for plan
confirmation. The appropriate date is the petition date, not
the effective date of the plan. In order to confirm a plan,
the value of the collateral should be determined as of the
filing of the petition, and the plan should provide the
replacement value less any adequate protection payments
already paid. In re Stembridge (5th
Cir. 2004) BAR TO REFILING MAY BE
INVALID WITHOUT HEARING The BAP has "serious
doubts" whether a local rule providing for an automatic bar
on refiling for 180 days after dismissal for failure to file
schedules is enforceable in the absence of a motion, hearing
and finding of willful failure. In re Tennant (9th Cir.
BAP 2004) <![if
!supportEmptyParas]> <![endif]> December 13
2004 DEBTOR'S
SCHEDULES ARE NOT DISPOSITIVE EVIDENCE OF AMOUNT OR
LIABILITY FOR DEBT FOR PURPOSES OF §
109(e) In this case the Debtors'
Chapter 13 was subject to dismissal on the basis that the
total of their liquidated debts, as of the date of filing
the bankruptcy, exceeded the debt limits of 11 U.S.C.
§ 109(e). The court said: Debtors' schedules
indicate that Debtors are the sole owners of Lucky M and
that Debtors owe unsecured debts totaling $379,807.25. Of
this unsecured debt, Debtors scheduled two separate debts to
the Texas Comptroller. One debt is listed in the amount of
$248,678.20 for the period beginning October 1, 1999 and
ending September 30, 2002. The other debt is listed as
unknown in amount and no date or range of dates is specified
to indicate when the debt arose. Both debts are listed as
disputed, but none of the unsecured debts scheduled by
Debtors, including both debts to the Comptroller, are
denominated as contingent or unliquidated. On September 3, 2004 the
Comptroller filed the Motion seeking dismissal of Debtors'
bankruptcy case on the basis that Debtors' are ineligible
under section 109(e) of the Code to be chapter 13 debtors
because the amount of their unsecured debt exceeds the
statutory cap provided by section 109(e). The Comptroller argues
that the court need look no further than Debtors' schedules
to conclude that Debtors are ineligible for chapter 13
relief since Debtors' scheduled unsecured debt exceeds
$307,675.00 and the debts to the Comptroller are not
designated as contingent or unliquidated. However, this court
previously declined to adopt a per se rule that debts which
are merely disputed must be included in the section 109(e)
analysis, stating: It seems sensible that, unless the
equities of the case require a different result, a debt
denominated as "disputed" should be included in the section
109(e) eligibility analysis if, on its face, it is a legally
enforceable debt on the petition date. . . . Conversely,
where the "dispute" requires a creditor to establish the
debtor's liability, the debt should not count for section
109(e) purposes. Hatzenbuehler, 282 B.R. at 832 (citations
omitted). [In re Hatzenbuehler, 282 B.R. 828, 833
(Bankr. N.D. Tex. 2002)] (ed. note: although the
court in this case acknowledged that some "disputed" debts
should not be included in the § 109(e) where the
nature of the dispute goes to the liability for the debt, in
this case it found on the evidence that as a matter of law
the debtor was liable for the tax debt, and hence the claims
were included, resulting in dismissal of the
case.) In re Moomand (Bankr.
N.D. TX 2004) ______________________ POST-PETITION CROP
DISASTER AID IS NOT PROPERTY OF THE ESTATE A crop disaster payment
from the federal government to a farmer, who was the debtor
in a closed bankruptcy case, should not be treated as
property of his bankruptcy estate where the legislation
authorizing the payment did not exist at the time of the
bankruptcy. In re Burgess (5th Cir.
2004) _________________________ COURT MAY AWARD FEES
UNDER § 330 EVEN WHERE TERMS OF PROFESSIONAL
ENGAGEMENT WERE APPROVED UNDER § 328 United States Court of
Appeals for the Sixth Circuit considered whether the
bankruptcy court abused its discretion in declining to award
attorneys fees to debtor's counsel under section 328 of the
Bankruptcy Code, notwithstanding the bankruptcy court's
approval of the terms of the professional's engagement, and
instead awarding fees in a substantially reduced amount
under section 330 of the Bankruptcy Code. The Sixth Circuit
held that a determination of whether a fee arrangement, like
the one at issue, has been pre-approved under section 328 of
the Bankruptcy Code should be judged by the "totality of the
circumstances." Having applied this standard, the Sixth
Circuit concluded that the attorney's contingency fee
agreement had not been pre-approved by the bankruptcy court.
and conditions of employment of any professionals engaged
under section 327 be "reasonable," including an engagement
entered into on a retainer or contingency fee
basis. Section 330(a) of the
Bankruptcy Code provides that, subject to section 328, the
court shall allow reasonable compensation for actual,
necessary services rendered by professional persons. A court
which has approved the terms and conditions of a
professional's employment under section 328 may authorize
fees under an arrangement, under section 330(a), other than
that previously approved under section 328 if the court
finds that the arrangement under section 328 proves to be
"improvident" under the circumstances. Factual Background
Airspect Air, Inc. ("Airspect") Nischwitz v. Miskovic (In
re Airspect Air, Inc.), 385 F.3d 915 (6th Cir.
2004). November 7,
2004 DEBT LIMITS UNDER 109(e)
MAY BLOCK DEBTOR'S RIGHT TO CONVERT TO CHAPTER 13 A debtor has an absolute
right to convert from Chapter 7 to Chapter 13 so long as the
debtor is eligible to be a debtor in Chapter 13. A debtor's
schedules are presumptive evidence of the debtor's
liabilities on the petition date. If the schedules show that
the debtor is ineligible for Chapter 13 on the petition
date, postpetition reductions in the amounts of the debtor's
liabilities can not make the debtor eligible for Chapter 13,
since eligibility is measured from the petition
date. In re Hansen (Bankr. N.D.
Ill.) [ed. note: This
situation is to be distinguished from that where a claim
that is unliquidated on the date of filing becomes
liquidated postpetition; the only kinds of debts that count
for eligibility under § 109(e) are debts,
including tax claims, that were liquidated as of the date of
filing the bankruptcy. For example, a tax liability, the
amount of which has not been determined, that is
unliquidated on date of filing may become liquidated
postpetition through litigation of the claim, or compromise,
but such a claim need not be included in the §
109(e) count.] DEBTOR'S ATTORNEY MAY BE
DEEMED AGENT FOR SERVICE OF PROCESS In an adversary
proceeding, a lawyer can be deemed to be a client's implied
agent to receive service of process when the lawyer
repeatedly represented that client in the underlying
bankruptcy case, and where the totality of the circumstances
demonstrates the intent of the client to convey such
authority. In re Focus Media Inc.
(9th Cir. 2004) FAILED BUSINESS MAY NOT
BE PROPER CASE FOR CHAPTER 11 Although a debtor's
business is unsuccessful, dismissal of the debtor's
voluntary Ch. 11 case is appropriate, where the debtor has
cash well in excess of its liabilities and does not need
bankruptcy protection to avoid wasteful liquidation of its
business assets. In re Liberate
Technologies (Bankr. N.D. Ca. 2004) PARALEGAL'S TIME FOR
ROUTINE TASKS IS NOT COMPENSABLE Where a professional fee
applicant affirms that it bills its nonbankruptcy clients
for reasonable CALR usage charges, such charges are
reimbursable in bankruptcy cases. Travel charges are allowed
at 1/2 of the timekeeper's normal hourly rate.
Paraprofessional time devoted to administrative activities
such as mailing or delivering papers, photocopying, word
processing, and organizing files constitutes overhead
expenses not compensable form the estate. "After hours
support" is overhead time not compensable form the
estate. In re Fibermark, Inc.
(Bankr. Vt 2004) October 21,
2004 DIVORCE ATTORNEY'S FEES
REDUCED FROM $65,276 TO
$19,955 A debtor in chapter 13
need not obtain court approval to retain an attorney to
represent the debtor in divorce proceedings, but such
attorney must apply to the court for approval of fees. In
this case the firm representing the debtor applied for
approval of fees. The court reduced the amount for vague
descriptions in the services provided in the billing
statement, excessive staff conferencing time, and because
the firm's fee application did not break it down into
respective subject areas. The debtor's estranged
husband objected, arguing in part that 11 U.S.C.
§ 330 only allows compensatiou out of the estate
for services directly related to the bankruptcy, and that
divorce proceedings are not directly related. The court
rejected that argument and held that services provided to
the debtor personally need not be solely for bankruptcy
services. In re Powell (N.D.Tex.
2004) LICENSE FORFEITURE NOT A
VIOLATION OF AUTOMATIC STAY The bankruptcy court did
not err in finding that the postpetition commencement of
license forfeiture proceedings before a State board
regulating realtors was not a violation of the automatuc
stay in the realtor's bankruptcy case. In re McMullen (1st Cir.
2004) ce fraud elements of both
the bankruptcy crime and the grounds for denial of discharge
were identical and the debtor had an opportunity to litigate
the criminal proceeding but elected not to, the doctrine of
collateral estoppel applies to justify summary judgment in
denial of discharge proceeding. In re Peterson, (C.D.Ill.
2004) October 20,
2004 CHAPTER 7 DISMISSED
BECAUSE MORTGAGE PAYMENT WAS EXCESSIVE UNDER §
707(b) A mortgage on a house in
which a debtor resides and intends to reside is a consumer
debt regardless of the fact that the debtor intends to
ultimately sell the house and use the funds for
retirement. The evidence in the
record reveals that Debtors' primary purpose in incurring
the debt secured by the Residence was to furnish and
complete the construction of the Debtors' home for family
and personal use. Accordingly, we cannot hold that the
bankruptcy court clearly erred in finding that the Debtors'
debts are primarily consumer debts under §
101(8). The bankruptcy court did
not err in dismissing debtors' Chapter 7 case under section
707(b) where the court found that the debtor's mortagge
payment was excessive and that redusing the payment would
have contributed to funding a Chapter 13 plan. Debtors' monthly payment
on the first mortgage is $2,930 per month and $482 per month
on the second mortgage. The UST produced the
testimony of Todd Vandenberg, bankruptcy analyst for the
UST's office for the Southern District of Iowa, in support
of its motion. Va ndenberg testified that the maximum
reasonable housing expense was $1,175 per month. Vandenberg
relied on the 2001 Consumer Expenditure Survey produced by
the United States Bureau of Labor and Statistics (the
"Survey") in reaching this conclusion. Vandenberg opined
that if Debtors reduced their housing expense to $1,175 per
month and included the $1,083 that they had ceased remitting
to the IRS in their net income, Debtors would have
sufficient disposable income to fund a Chapter 13
plan. In re Cox (8th Cir. BAP
2004) (Southern District of Iowa) <![if
!supportEmptyParas]> <![endif]> PROOF OF CLAIM FAXED TO
TRUSTEE'S COUNSEL IS NOT TIMELY A creditor who faxed its
proof of claim to the trustee's counsel on the bar date
rather than delivering it by mail to the post office box for
the claims agent was not entitled to have the claim treated
as timely. The bankruptcy court erred however in disallowing
the claim. The claim should have been subordinated to timely
filed claims. In re Outboard Marine
Corporation (7th Cir. 2004) <![if
!supportEmptyParas]> <![endif]> CHAPTER 13 DEBT0R MAY
RETURN COLLATERAL AND AMEND PLAN A debtor operating under
a confirmed Chapter 13 plan is entitled to return collateral
to a secured creditor and modify the plan to treat the
creditor's claim as unsecured. In re Mason (Bankr. N.D.
Cal. 2004) <![if
!supportEmptyParas]> <![endif]> October 17,
2004 CREDITOR'S FAILURE TO
RAISE FRAUD ISSUE TIMELY BARS RICO CLAIMS Because a creditor bank
neither raised the issue of fraud during a bankruptcy nor
timely moved to set aside the bankruptcy sale of its
collateral, the bank's RICO claims (based upon alleged fraud
in the procurement of a loan and the subsequent transfer and
use of the collateral for the loan before and during a
bankruptcy, culminating in a bankruptcy sale) were an
impermissible collateral attack on the final sale judgment
of the bankruptcy court. Regions Bank v. J.R. Oil
Company, LLC (8th Cir. 2004) ________________________ LATE CHECK IS STILL IN
ORDINARY COURSE Where a check was paid by
a debtor substantially after the payment date recited on the
invoice, it was nevertheless in the ordinary course of
business. The check was paid after the invoice payment date
because the debtor had refused to pay on the contractual
payment date, citing dissatisfaction with the goods and
services. The vendor agreed to make modifications, and the
debtor paid the invoice (by then overdue) promptly after the
modifications were competed. In re US Office Products
Company (Bankr. De. 2004) __________________ OPINION DESCRIBES
REQUIREMENTS FOR INFORMAL PROOF OF CLAIM In order to establish an
informal proof of claim a putative creditor must prove: (1)
presentment of a writing; (2) within the time for the filing
of claims; (3) by or on behalf of the creditor; (4) bringing
to the attention of the court; (5) the nature and amount of
a claim asserted against the estate. Filings in prepetition
State court litigation cannot constitute an informal proof
of claim. In re Pacific Gas &
Electric Corp. (Bankr. N.D. Cal. 2004) _____________________ PARTY OPPOSING PLAN
CONFIRMATION CAN RAISE NEW ISSUES A party opposing
confirmation of a plan can, at the hearing on confirmation,
raise new issues not addressed in its written objection if
the plan proponent does not object to evidence pertaining to
such issues and is not prejudiced (i.e., prevented from
offering opposing evidence) by the introduction of such
issues. In re Enriquez (Bankr.
N.D. Cal. 2004) <![if
!supportEmptyParas]> <![endif]> September 27,
2004 HIGH INCOME AND ABILITY
TO PAY 11% OF UNSECURED DEBT IS NOT SUBSTANTIAL
ABUSE The Debtor has unsecured
indebtedness of at least $145,000.00. Based upon that amount
of unsecured indebtedness, the dividend that Debtor could
pay to those unsecured creditors with his disposable income
and a 36 month plan would be approximately 11%. Even this
figure probably is overly optimistic given Debtor's mortgage
indebtedness which totals $763,197.87 and the likelihood
that such indebtedness will not be fully paid in the
foreclosure proceedings and result in additional unsecured
deficiency debt. Faced with these figures, the
representative from the Chapter 13 who reviewed the Debtor's
income and expenses and who testified at the hearing
concluded that the Debtor did not have sufficient disposable
income to fund a 36 month plan that would pay 25% to
unsecured creditors. Based upon the foregoing, the court
finds that there has been no showing in this case that the
Debtor has the ability to pay for purposes of §
707(b). The court also considers
the circumstances leading to the filing of the case and
whether there were extenuating circumstances such as
illness, loss of employment or calamity that led to the
filing. This case was not filed as a result of sudden
illness, disability or unemployment. It does appear, however,
that the breakup of Debtor's marriage did play a significant
role in the filing of this case. The marital separation
resulted in Debtor having increased expenses related to
maintaining two households. The Debtor also was saddled with
the legal and other expenses related to protracted and
expensive litigation involving his former wife. IN RE SHINN, (M.D.N.C.
2004) _________________________ DEBTOR NEED NOT OBTAIN
COURT AUTHORIZATION TO EMPLOY AN ATTORNEY TO HANDLE HER
DIVORCE DURING CHAPTER 13 Debtor employed Brewer,
Anthony as her divorce attorneys. Brewer, Anthony requests
total compensation and reimbursement of expenses of
$65,276.79 for that entire period. The court did not enter
an order authorizing debtor to retain Brewer, Anthony as her
special divorce counsel during the Chapter 13 case. A
Chapter 13 debtor does not need court authorization to
employ an attorney. The Code provides that a "trustee" may,
with court approval, employ an attorney. 11 U.S.C.
§ 327(a) and (e). Section 327, both subsections
(a) and (e), apply only to "the trustee." Chapter 13 does
not decree that a Chapter 13 debtor has the rights or
performs the functions or duties of a trustee. However, the
Code does require court approval of fees. In re Powell (Bankr. N.D.
Tx. 2004) ________________________ GAMBLING LOSSES MAY
JUSTIFY DENIAL OF DISCHARGE IF LOSSES CANNOT BE
DOCUMENTED Section 727(a)(5) of the
Bankruptcy Code provides that "[t]he court shall
grant the debtor a discharge, unless . . . the debtor has
failed to explain satisfactorily . . . any loss of assets or
deficiency of assets to meet the debtor's
liabilities[.]" 11 U.S.C. §
727(a)(5). "Section 727(a)(5) is
broadly drawn and clearly gives a court broad power to
decline to grant a discharge in bankruptcy where the debtor
does not adequately explain a shortage, loss, or
disappearance of assets." Martin, 698 F.2d at 886 (citations
omitted). The Court is not concerned with the wisdom of a
debtor's disposition of assets but instead focuses on the
truth, detail and completeness of the debtor's explanation
of the loss. See In re D'Agnese, 86 F.3d 732, 735 (7th Cir.
1996). The Creditor demonstrated
that in January 2003, the Debtor obtained approximately
$64,000.00 from the refinance of the first mortgage on the
Property. By October 2003, those funds were no longer
available for his creditors. The only evidence adduced at
trial was the Debtor's testimony that he lost the money
gambling. The Debtor offered no
documentary or other testimonial evidence to corroborate his
explanation. Those gambling loses are not reflected in his
bank account records. See Creditor's Group Ex. F. The Court
finds that the Debtor has not satisfactorily explained the
loss of those funds. The Debtor simply has no corroborative
records or other credible testimony to substantiate his
explanation. IN RE MANTRA, (N.D.Ill.
2004) ______________________ PREPETITION ATTORNEY'S
FEES OF CHAPTER 13 DEBTOR ARE NOT DISCHARGEABLE IN THE
CHAPTER 13 In this case, the
debtor's attorney ran up several hundred dollars in
prepetition services in connection with the case, and which
were unpaid as of date of filing. The attorney filed a
motion for court approval of the fees. The only issue addressed
at the final hearing was whether the Prepetition Fees could
be paid as an administrative expense. Daniels, the trustee,
and a third party, appearing amicus curiae, argued without
opposition in favor of allowing the Prepetition Fees as an
administrative expense. Shortly after the final hearing, the
bankruptcy court entered an Order allowing all postpetition
fees and costs requested in the Fee Application, as modified
by an agreement between Daniels and the trustee, as an
administrative expense (the "Postpetition Fee Order"). The
bankruptcy court did not rule on the Prepetition Fees in the
Postpetition Fee Order, stating that the matter remained
under advisement. The bankruptcy court
subsequently entered its memorandum opinion and order
disallowing the Prepetition Fees as an administrative
expense and allowing them as a general unsecured claim to be
paid pro rata with the claims of other unsecured prepetition
creditors under the terms of Debtor's confirmed
plan. The bankruptcy court held
that, despite case law and sound policy in favor of treating
the Prepetition Fees as an administrative expense, such
treatment was not expressly authorized by 11 U.S.C.
§§ 330 or 507, and those sections
could not be interpreted to grant prepetition fee claims
priority in light of the fundamental distinction between
prepetition and postpetition assets and
liabilities. The Tenth Circuit BAP
reversed, apparently holding that fees incurred prepetition
could be deemed an administrative expense under 11 U.S.C.
§ 503(b)(1)(A), and thus were priority claims
under 11 U.S.C. § 507(a)(1). Thus they could be
paid in full through the chapter 13 plan. [ed. note: the
opinion fails to explain how services performed prepetition
could be deemed administrative expenses. - M.
King] IN RE BUSETTA-SILVIA,
(10th Cir. BAP 2004)
FORMULA FOR INTEREST
RATE FOR SECURED CLAIMS IN CHAPTER 13 The Supreme Court, in a complicated
split, has ruled on the appropriate interest rate for a
Chapter 13 plan for a secured claim (whose collateral is an
automobile). The Court's opinion, written by Justice
Stevens and joined by Justices Souter, Ginsberg and Breyer,
states that the appropriate rate is the market rate which
includes an element of risk, with a likely result of the
prime rate plus an additional 1% to 3%. Justice Thomas ruled
that the discount rate need not include an adjustment for
risk and, therefore, under the circumstances in which the
case was presented, concurred with Justice Stevens.
In the case at bar, the debtors purchased
a truck for approximately $6,700, including taxes and
charges. After a $300 down payment, the balance of just over
$6,400 was financed at a rate of 21%. In the Chapter 13
case, after the parties had agreed that the vehicle was
worth $4,000 (in contrast to the outstanding balance of
approximately $4,900), and, after an evidentiary hearing,
the Bankruptcy Court approved the debtors' plan which
included an interest rate of 9.5%. The Court of Appeals
reversed, utilizing a rate that could be obtained if a new
loan was obtained under the circumstances, and ruling that
the "original contract rate should serve as a presumptive
[cram down] rate." TILL ET UX. v. SCS CREDIT CORP. (St.
Court 2004) For full opinion ___________________ NO STATE SOVEREIGN
IMMUNITY IN ADVERSARY PROCEEDING TO DETERMINE
DISCHARGEABILITY The Supreme Court has affirmed the Sixth
Circuit (and the Bankruptcy Court) in Tennessee Student
Assistance Corporation v. Hood. The issue was whether a Bankruptcy Court
could overrule a state's objection to jurisdiction based on
sovereign immunity in an adversary complaint seeking
discharge of a student loan. The Appellant had asserted that
the Eleventh Amendment's protection of state sovereign
immunity prohibited the complaint without the assent of the
state. The Supreme Court, by a 7 &endash; 2 majority, said
that the Bankruptcy Court had in rem jurisdiction to hear
the adversary proceeding. Chief Justice Rehnquist, writing for the
majority, stated the Eleventh Amendment does not bar federal
jurisdiction over in rem admiralty actions when the State is
not in possession of the property, citing California v. Deep
SeaResearch, Inc., 523 U. S. 491 (1998). He also ruled that
that "[t]he discharge of a debt by a bankruptcy
court is similarly an in rem proceeding. Accordingly, the
"[b]ankruptcy courts have exclusive jurisdiction
over a debtor's property, wherever located, and over the
estate." Further, the requirement that the debtor take
action to initiate a hardship discharge was not, as the
state asserted, a congressional authorization of a suit
against a state, but effecting the discharge's in rem
jurisdiction. Chief Justice Rehnquist also found the statute
did not prohibit a debtor from pursuing discharge relief by
the filing of a motion (although the rules require it) which
would also eliminate constitutional issues. The debtor was represented by Leonard
Gerson, with 14-attorney Angel & Frankel in New
York. TENNESSEE STUDENT ASSISTANCE CORPORATION
v. HOOD (S.Ct. 2004) For full opinion
SUPREME COURT RULES
DEBTOR'S ATTORNEY IN CHAPTER 7 NOT ENTITLED TO COMPENSATION
OUT OF THE ESTATE UNLESS APPOINTED Held: Under the Code's plain language,
§330(a)(1) does not authorize compensation awards to
debtors' attorneys from estate funds, unless they are
employed as authorized by §327. If the attorney is to
be paid from estate funds under §330(a)(1) in a chapter
7 case, he must be employed by the trustee and approved by
the court. Before 1994, §330(a) of the
Bankruptcy Code authorized a court to "award to a trustee,
to an examiner, to a professional person employed under
section 327 ... , or to the debtor's attorney" "(1)
reasonable compensation for ... services rendered by such
trustee, examiner, professional person, or attorney ... ."
(Emphasis added to highlight text later deleted.) In 1994
Congress amended the Code with a reform Act. The Act altered
§330(a) by deleting "or to the debtor's attorney" from
what was §330(a) and is now §330(a)(1). This
change created apparent legislative drafting error in the
current section. The section is left with a missing "or"
that infects its grammar. And its inclusion of "attorney" in
what was §330(a)(1) and is now §330(a)(1)(A)
defeats the neat parallelism that otherwise marks the
relationship between current §§330(a)(1)
("trustee, ... examiner, [or] professional person")
and 330(a)(1)(A) ("trustee, examiner, professional person,
or attorney"). In this case, petitioner filed an application
with the Bankruptcy Court seeking attorney's fees under
§330(a)(1) for the time he spent working on a behalf of
a debtor in a chapter 7 proceeding. The Government objected
to the application. It argued that §330(a) makes no
provision for the estate to compensate an attorney who is
not employed by the estate trustee and approved by the court
under §327. Petitioner admitted he was not employed by
the trustee and approved by the court under §327, but
nonetheless contended §330(a) authorized a fee award to
him because he was a debtor's attorney. In denying
petitioner's application, the Bankruptcy Court, District
Court, and Fourth Circuit all held that in a chapter 7
proceeding §330(a)(1) does not authorize payment of
attorney's fees unless the attorney has been appointed under
§327. (a) Petitioner argues that this Court
must look to legislative history to determine Congress'
intent because the existing statutory text is ambiguous in
light of its predecessor. He claims that subsection (A)'s
"attorney" is facially irreconcilable with the section's
first part since the two parts' lists were previously
parallel. He claims also that only a drafting error can
explain the missing conjunction "or" between "an examiner"
and "a professional person" since the text was previously
grammatically correct. The starting point in discerning
congressional intent, however, is the existing statutory
text, Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, and not
predecessor statutes. So this Court begins with the present
statute. Pp. 5--6. (b) That the present statute is awkward,
and even ungrammatical, does not make it ambiguous on the
point at issue. A debtor's attorney not engaged under
§327 does not fall within the eligible class of persons
that the first part of §330(a)(1) authorizes to receive
compensation: trustees, examiners, and §327
professional persons. Subsection (A) allows compensation for
services rendered by four types of persons (the same three
plus attorneys), but unless an applicant is in one of the
classes named in the first part, the kind of service
rendered is irrelevant. The missing "or" does not change
this conclusion. Numerous federal statutes inadvertently
lack a conjunction, but are read for their plain meaning.
Here, the missing "or" neither alters the text's substance
nor obscures its meaning. Subsection (A)'s nonparalleled
fourth category also does not cloud the statute's meaning.
"Attorney" can be straightforwardly read to refer to those
attorneys who qualify as §327 professional persons.
Likewise, neighboring §331, which permits both debtors'
attorneys and §327 professional persons to receive
interim compensation, most straightforwardly refers to
§327 debtors' attorneys. This reading may make
"attorney" in §330(a)(1)(A) surplusage, but surplusage
does not always produce ambiguity. When there are two ways
to read the text&endash;either attorney is surplusage, which
makes the text plain, or attorney is nonsurplusage, which
makes the text ambiguous&endash;applying a rule against
surplusage is inappropriate. Pp. 6--9. (c) The plain meaning that
§330(a)(1) sets forth does not lead to absurd results.
Petitioner's arguments&endash;that this Court's
interpretation will lead to a departure from the principle
of prompt and effectual administration of bankruptcy law and
attributes to Congress an intent to eliminate compensation
essential to debtors' receipt of legal
services&endash;overstate §330(a)(1)'s effect.
Compensation remains available through various permitted
means. Compensation for debtors' attorneys in chapter 12 and
13 bankruptcies, for example, is not much disturbed by
§330 as a whole. Moreover, compensation for debtors'
attorneys in chapter 7 proceedings is not altogether
prohibited. Sections 327 and 330, taken together, allow
chapter 7 trustees to engage attorneys, including debtors'
counsel, and allow courts to award them fees. Section
§327's limitation on a debtor's incurring debts for
professional services without the trustee's approval also
advances the trustee's responsibility for preserving the
chapter 7 estate. Add to this the apparent sound functioning
of the bankruptcy system in the Fifth and Eleventh Circuits,
which have both adopted the plain meaning approach, and
petitioner's arguments become unconvincing. And
§330(a)(1) does not prevent a debtor from engaging in
the common practice of paying counsel compensation in
advance to ensure that a bankruptcy filing is in order. Pp.
9--11. (d) With a plain, nonabsurd
meaning in view, this Court will not read "attorney" in
§330(a)(1)(A) to refer to "debtors' attorneys," in
effect enlarging the statute's scope. See Iselin v. United
States, 270 U.S. 245, 251. This Court's unwillingness to
soften the import of Congress' chosen words even if it
believes the words lead to a harsh outcome is longstanding.
P. 11. (e) Though it is
unnecessary to rely on the 1994 Act's legislative history,
it is instructive to note that the history creates more
confusion than clarity about the congressional intent.
History and policy considerations lend support both to
petitioner's interpretation and to the holding reached here.
This uncertainty illustrates the difficulty of relying on
legislative history and the advantage of resting on the
statutory text. 290 F.3d 739, affirmed. Kennedy, J., delivered the
opinion of the Court, in which Rehnquist, C. J., and
O'Connor, Souter, Thomas, Ginsburg, and Breyer, JJ., joined,
and in which Scalia, J., joined except for Part III.
Stevens, J., filed an opinion concurring in the judgment, in
which Souter and Breyer, JJ., joined. LAMIE v. UNITED STATES TRUSTEE __ S.Ct.
__ (January 26, 2004) See oral argument before the Supreme
Court
DEBTOR HAS RIGHT TO CONVERT TO CHAPTER 13 Debtor appealed an order of the United States Bankruptcy
Court for the District of Utah that denied his motion to
convert his Chapter 7 case to one under Chapter 13 of the
Bankruptcy Code on the grounds that there were circumstances
indicating an abuse of process. Acknowledging that cases are split on this issue, the
court held the statute governing conversion, 11 U.S.C.
§ 706, provides that the bankruptcy court does not have
the discretion to deny conversion on any basis other than
the requirements set forth in that statute. "We find that a
bankruptcy court may not exercise its discretion to evaluate
other circumstances when considering a motion to convert
under § 706, but is restricted to considering whether
the debtor meets the requirements delineated in the plain
language of that statute." Prior to the involuntary petition being filed Mr. Miller
had filed no less than 10 separate bankruptcy petitions
since January of 1999. At least four of these cases were
dismissed with prejudice to re-filing for 180 days. The
different entities, all 20 had an interest in the same real
property, each time statements and schedules were filed. The
Chapter 11 case of Miller was converted to Chapter 7. Mr.
Miller and his attorney were sanctioned in at least one case
for an improper filing. None of the proposed Chapter 13
plans were ever confirmed. In re Miller, __ B.R. __ (10th Cir BAP 2003) ___________________ TRUSTEE'S FAILURE TO TIMELY OBJECT TO EXCESS
DISPOSABLE INCOME BARS LATER OBJECTION TO CONFIRMATION OF CH
13 PLAN Chapter 13 Trustee's failure to object to debtors'
exemption of contingent and unliquidated claim within 30
days bars later objection, and failure to object to total
exemption of such claims prior to confirmation of plan bars
post-confirmation objection on basis of Section 1325(b)
(disposable income). In re Smith __ B.R. __ (W.D.Mo 2003) ______________________ COURT COULD DISMISS CHAPTER 7 WHERE DEBTORS HAD
$2,497.37 in DISPOSABLE MONTHLY INCOME The first prerequisite to dismissal under section 707(b)
is that the debtor have primarily consumer debt; the second
requirement is a finding by the court that granting the
debtor's petition would be a "substantial abuse" of Chapter
7. Zolg v. Kelly (In re Kelly), 841 F.2d 908, 912-13 (9th
Cir. 1988). The court rejected the debtors' argument that
the mortgage on their home should be counted as "consumer"
debt. Whether or not a particular secured debt is excluded
from inclusion as "consumer debt" under § 707(b)
depends on the purpose of the debt. Under the Bankruptcy
Code, "consumer debt" is "debt incurred by an individual
primarily for a personal, family or household
purpose[.]" § 101(8). As we held in Kelly, this
includes all secured debt incurred for personal, family, or
household purposes. In this case, Price's personal residence
was secured by two mortgages. The first, in the amount of
$120,000, secured debt incurred to purchase the home; the
second, in the amount of $21,511, secured debt incurred to
finance household improvements. Thus, there is no question
that the secured debt at issue was incurred "primarily for a
personal, family or household purpose" and must be
considered "consumer debt" for the purposes of §
707(b). In re Price __ F.3d __ (9th Cir. 2004) _________________ CAUSE OF ACTION INCURRED AFTER CONVERSION FROM CH 13
TO CH 7 IS NOT PROPERTY OF THE ESTATE Although, as a general matter, a Ch. 7 trustee has
authority to conduct a Rule 2004 examination of a debtor's
former employer to determine whether an employment
discrimination claim exists, such authority requires that
the potential claim belong to the Chapter 7 estate.
Where the parties stipulate that the termination occurred
after the conversion of the Ch. 13 case to Ch. 7, the claim
belongs to the debtor individually, and there is no
authority to conduct a Rule 2004 exam. In re Rosenberg __ B.R. __ (8th Cir. BAP 2004) Jan. 5, 2004 Jan. 5,
2004 DEBTOR'S TRANSFER OF HOUSE TO MOTHER FOR LESS THAN FAIR
VALUE, AND CONTINUED OCCUPANCY, WAS FRAUDULENT A debtor's prepetition transfer of his $115,000 house to
his mother for $78,000 was a fraudulent transfer where the
debtor continued to live in the property after the
transaction, the debtor used the funds to pay off the
mortgage on the house, and filed bk within a year. Court
recited badges of fraud to include inadequacy of
consideration, financial condition of debtor, pendency of
suits, and whether debtor retained possession of the
property following the transfer. In re Harris (Bkrtcy.De. 2003) _______________________ FEES REDUCED IN PART BECAUSE HOURLY RATES EXCEEDED
COMPARABLE NON-BANKRUPTCY RATES Held, hourly rates for bankruptcy work should be
commensurate with, but not higher than, hourly rates for
comparable non-bankruptcy work and with similar legal
experience. The court required the fee applicant to provide
a complete survey of law firm hourly rates for the
surrounding community. The court also reduced fees for unnecessary exercises,
citing authority that "futile efforts aimed at achieving
unattainable objectives are unreasonable; fees generated at
tilting at windmills will be disallowed." In re Fleming Companies, Inc. (Bkrtcy.De. 2003) ___________________ STATE SALES TAX PENALTIES HELD DISCHARGEABLE Held, penalty, notwithstanding its status under §
507(a)(8)(G), may be dischargeable as long as it is not
punitive in nature and it is shown that, pursuant to
paragraph (A), the penalty is related to an underlying debt
that is dischargeable or, under paragraph (B), the penalty
relates to a transaction or event that occurred more than
three years before the date of the filing of the bankruptcy
petition. Ohio state sales tax penalties were held
dischargeable. IN RE BAIR, (N.D.Ohio 2003) _______________ BK COURT HAS JURISDICTION TO ADJUDICATE UN-ASSESSED
TAX DEBT In this Chapter 7 case, although IRS showed no
liabilities had been assessed against the debtor for the
years in question, the debtor nonetheless filed a complaint
to determine their dischargeability. Held, the Government holds a contingent claim against
the Plaintiff's bankruptcy estate. As such, a "case or
controversy" exists in this case, thereby entitling the
Plaintiff to maintain an action to determine the dischargeability of any potential federal tax
obligations. COMMENT: It is unclear what theory the debtor would use
to assert the un-assessed taxes were discharged, in view of
the rule that to be dischargeable in Chapter 7 the taxes
must have been assessed prepetition by at least 240 days,
pursuant to 11 U.S.C. § 507(a)(8)(A)(ii). IN RE LANDRIE, (N.D.Ohio 2003) __________________ ASSETS ACQUIRED DURING CHAPTER 13 AND BEFORE
CONVERSION WERE NOT PROPERTY OF THE CHAPTER 7 ESTATE The issue raised in this case concerned whether two
assets which were obtained subsequent to the filling of the
Debtors' Chapter 13 Bankruptcy, but prior to the conversion
of the case to a Chapter 7 bankruptcy, were included within
the Debtors' Chapter 7 estate. Bankruptcy Code section
548(f) excludes such property, absent evidence of bad faith
conversion. No inference of "bad faith" arises solely because a
debtor acquires postpetition, but preconversion assets, and
thereafter elects to convert their case on account of the
protection afforded by § 348(f)(1). To hold otherwise
would clearly go against the principle that a person should
not be penalized solely for exercising a statutory right. IN RE BEJARANO, (N.D.Ohio 2003) ___________________ EDUCATIONAL LOAN NOT ENTITLED TO HARDSHIP DISCHARGE
WHERE DEBTOR SHOWED NO EFFORT TO PAY BACK The evidence presented by debtor in terms of the good
faith requirement falls far below the legal standard
required for hardship discharge. Debtor chose to abruptly quit making payments on his
loan rather than contacting his loan provider[s] in
an effort to negotiate a lower monthly payment for the loan
and/or extend its term. Further, debtor failed to pay the
student loan at issue in the present matter, while
continuing to faithfully pay his son Jeremy's student loan
for which debtor is not legally obligated. Such conduct in
no way reflects a good faith effort to pay the student loan
for which debtor is legally obligated. IN RE FISH, (W.D.Pa. 2003) Dec. 29, 2003 Dec. 29,
2003 CONCEALED ASSETS CANNOT BE CLAIMED EXEMPT FOLLOWING
DISCOVERY BY TRUSTEE A debtor is not entitled to a claim of exemption on an
asset which she knowingly concealed and failed to disclose
and then later disclosed and claimed as exempt. Debtor concealed receipt of approx. $4k in personal
injury settlement funds, and concealed bank account into
which the funds were deposited on the eve of bankruptcy.
Assets were discovered by the trustee several months after
the bk was filed. COMMENT: The court followed the majority rule that
debtors may not claim as exempt assets which they knowingly
conceal and which are determined to be property of the
estate, even if debtors argued that the property was not
property of the estate. In re Grogan, __ B.R. __ (Bkrtcy.Utah 2003) ____________________ HORSES ARE TOOLS OF THE TRADE Debtors used four horses to give riding lessons to
children, and four heifers to teach rodeo roping and
penning. She, therefore, used the livestock as tools of her
trade. The court relied on a functional approach. The
functional approach, or "use test,”
requires a court to look to the function or use of the
property to determine if it is, indeed, a tool of
debtor‚" trade. COMMENT: The courts are split on whether animals may be
deemed tools of the trade, some opinions drawing a
distinction between animate and non-animate objects.
However, the federal tools of the trade exemption makes no
such distinction. In re Gray, __ B.R. __ (Bkrtcy.W.D.Missouri 2003) _____________________ RETURN FILED AFTER IRS SFR AND ASSESSMENT IS NOT A
TAX RETURN FOR PURPOSES OF THE 2-YEAR RULE Taxpayer filed returns several years late, following IRS
assessments; the returns showed less tax due. Held, income
tax forms unjustifiably filed years late, where the IRS has
already prepared substitute returns and assessed taxes, do
not constitute "returns" for purposes of 11 U.S.C. §
523(a)(1)(B)(i). "We hold then that income tax forms unjustifiably filed
years late, where the IRS has already prepared substitute
returns and assessed taxes, do not constitute "returns" for
purposes of 11 U.S.C. § 523(a)(1)(B)(i). For its part,
the government urges a broader rule than we adopt here,
namely, that any post-assessment filing can never qualify as
a return for purposes of Section 523(a)(1)(B)(i). This
simply goes too far. Circumstances not presented in this
case might demonstrate that the debtor, despite his
delinquency, had attempted in good faith to comply with the
tax laws." COMMENT: The majority rule is that a taxpayers' filed
return, following a substitute-for-return filed by the IRS
but prior to assessment of tax, is a "return" for purposes
of the 2-year rule for discharge; however, if the return is
filed following an assessment of an amount due, the opinions
are split on whether the return satisfies the rule. Some
courts hold that, following an assessment, a return filed by
the taxpayer disclosing corrected financial information and
changing the amount of the tax due, is a return for purposes
of the rule. Note: many post-SFR assessments are mere
estimates by the taxing entity, and may be corrected by a
taxpayer's later-filed return. Unlike most of the opinions on this issue, the ruling
here does not hang on whether the late-filed return serves
any useful purpose (such as correcting the amount due), but
rather the debtor's good-faith effort to comply with the tax
reporting laws. Debtor's explanation that he "simply didn't
get around to it" did not satisfy that criterion. In re Moroney, __ F.3d __ (4th Cir. 2003) Dec. 22,
2003 7TH CIR. HOLDS THAT DEBTOR'S ATTORNEY'S FEES FOR
PREPETITION SERVICES ARE DISCHARGED Pre-petition debts for legal fees are subject to
discharge under §727 even if services are
performed or owed postpetition. Three debtors in bankruptcy hired lawyers before filing
their petitions. Each agreed to a retainer that would cover
the legal services entailed in preparing and prosecuting the
proceedings. Unlike most retainers, however, these were to
be paid over time -- some installments before the petition
was filed, others thereafter. The lawyers performed as
promised: all three debtors received their discharges, and
the cases were closed. When the lawyers continued to collect
the unpaid installments, the three debtors (with the
assistance of new counsel) commenced adversary proceedings
in which they asked the bankruptcy court to hold their
former lawyers in contempt for violating the injunctions
implementing the discharges. The Bankruptcy Court and District Court held that the
fees were not dischargeable. Reversed by the Seventh
Circuit. "We . . . agree with In re Biggar, 110 F.3d 685 (9th
Cir. 1997), that pre-petition debts for legal fees are
subject to discharge under § 727. See also In re
Sanchez, 241 F.3d 1148, 1150 (9th Cir. 2001). Although
Biggar is the only appellate decision squarely in point,
almost every bankruptcy judge and district judge who has
considered the question has come to the same conclusion . .
‚" COMMENT: In this case Circuit Judge CUDAHY, concurring
in part and dissenting in part, added to the opinion with an
interesting discussion of the conundrum of compensation for
debtors' attorneys in view of an "awkward" code. Must
reading for every consumer bankruptcy attorney. Bethea v. Robert J. Adams & Associates, __ F.3d __
(7th Cir. 2003) BK
DISMISSED DUE TO DEBTOR'S REFUSAL TO COOPERATE The Bankruptcy Court did not err in dismissing a
dischargeability action brought by George Harrison against
his manager when Harrison refused to submit himself for
deposition. "Fed. R. Bankr. P. 7037(b), the bankruptcy counterpart
of Fed. R. Civ. P. 37(b), authorizes a court to sanction a
party who disobeys a discovery order with dismissal if the
disobedience is willful and prejudices another party.
(cite). In the context of Rule 37 motions, a court may find
willful disobedience sufficient to support dismissal when a
party employs stall tactics and disregards court orders." In re O'Brien, __ F3d. __ (8th Cir. 2003) ____________________ EXEMPTION DETERMINED AT TIME OF FILING Time for determining a debtor's exemption is the time of
filing. When the Debtor filed her original Chapter 13
petition the Missouri homestead exemption was only $8,000.00
(raised postpetition by the Missouri legislature to
$15,000), and the exemption in effect at the time of the
filing of the original petition is the only exemption to
which the Debtor is entitled. In re Burley, __ B.R. __ (Bkrtcy.Mo. 2003) ______________ HELD, LAVISH LIFESTYLE IS NOT SUFFICIENT TO DENY
DISCHARGE OF SUBSTANTIAL TAX DEBT A debtor with a significant debt to the Internal Revenue
Service ("IRS"), seeks to discharge this debt even though,
by any fair standard, his annual income is munificent, and
he spends much of it on private education for his children
and the rental of his large and expensive family home. This
case, one of first impression in this circuit, presents the
following novel questions: (1) whether "cause" for dismissal
under 11 U.S.C. § 707(a) includes a debtor's lack of
good faith; and if so, (2) whether the facts presented here
reflect a lack of good faith on the part of this debtor. The debtor's total debt to all creditors was
$5,461,986.85, the lion's share of which was the
$5,135,464.66 owed to the IRS. The IRS debt was largely
unsecured. Held, in the absence of other evidence of fraud or
wrongdoing, mere lavish lifestyle is not sufficient to deny
discharge under § 707(a). McDOW v. SMITH, __ B.R. __ (E.D.Va. 2003) ____________________ "STRIP OFF" DENIED IN CHAPTER 7 CASE The United States Court of Appeals for the Sixth
Circuit, affirming the decision of the District Court for
the Western District of Michigan in Talbert v. City Mortgage
Services (In re Talbert), held that a chapter 7 debtor could
not avoid (or "strip off") an allowed junior lien on real
property pursuant to Bankruptcy Code section 506(d) even
though a senior lien on the property exceeded the fair
market value of the real property in question. In support of
its ruling, the Sixth Circuit reasoned that such a result is
demanded by the statutory construction of section 506(d) as
interpreted by the Supreme Court of the United States in
Dewsnup v. Timm. __________________ IRS ORDERED TO CONSIDER OFFER-IN-COMPROMISE In Holmes v. United States (In re Holmes), the United
States Bankruptcy Court for the Middle District of Georgia
held that the Internal Revenue Service ("IRS") did not
violate the antidiscrimination provision of the Bankruptcy
Code by refusing to consider an offer-in-compromise from a
chapter 11 debtor. However, the court exercised its
equitable powers and directed the IRS to consider the
offer-in-compromise because it was necessary and appropriate
to carry out the congressional intent found in chapter 11 of
the Bankruptcy Code. Holmes v. United States (Bkrtcy.M.D.Fla. 2003) SOURCE: The Bankruptcy Bulletin Dec. 15,
2003 CHAPTER 7 DISMISSED FOR BAD FAITH WHEN ADJUSTED BUDGET
COULD PAY 40.07% ON UNSECURED DEBT In this case, the Debtor's projected expenses, at a
minimum, provide a very comfortable lifestyle. The Debtor's
schedules show $502.00 per month for transportation. Upon
questioning, the Debtor's were unable to account for $300.00
of the amount. Further, the Debtor's included a $306.00
monthly charge for telephone service. These charges included
home telephone, mobile phones for both Debtors, and a mobile
phone for the Debtors' 14 year-old child. Under the
Utilities section of Schedule J, the Debtor's include a
$143.00 monthly charge for television cable service, trash
disposal service, TWO digital television recording, and
Internet service. Also, the Debtor's include $400.00 per
month for recreation, clubs and entertainment, newspapers,
magazines, etc, and $175.00 per month for fingernail and
hair care. In re Fergason, (S.D.Tex. 2003) COMMENT: It is unclear in this opinion whether the
"majority" of the debtors' debts were "consumer" debts
within the meaning of 11 U.S.C. § 707(b); an argument
can be made that over 50% of the debts were priority income
tax liabilities, which are typically not deemed consumer
debts. If the majority of debts was not consumer debt, then
§ 707(b) should not apply. ____________________ ERISA PLAN THAT IS NOT A TRUST IS PROPERTY OF THE
ESTATE Only an interest in a trust can be the subject of an
enforceable transfer restriction within the meaning of 11
U.S.C. § 541(c)(2). An ERISA-qualified plan that is not
a "trust" is not excluded from the estate under section
541(c)(2) regardless of the presence of an anti-alienation
clause. In re Adams __ F.3d __ (6th Cir. 2003) __________________________ LIQUIDATION VALUE IS PROPER VALUE FOR REDEMPTION
PURPOSES Debtors moved for approval of redemption pursuant to 11
U.S.C. § 722 and Bankruptcy Rule 6008, seeking to
redeem a 2000 Dodge Intrepid and requesting that Liberty
Bank allowed secured claim in the motor vehicle be set at
its trade-in value of $5,300.00. Liberty Bank objected to
the Debtors motion arguing that the retail value of the
motor vehicle is $9,200.00. Held, the proper measure for valuing collateral pursuant
to § 722 is the liquidation method (i.e., trade-in
value) and the appropriate date for that determination is
the date of the contested hearing. "The purpose of redemption is to counteract creditor
threats of repossession, which often allows the secured
creditor to extract more from the debtor than if it had
simply repossessed or foreclosed on the property. In re Podnar, __ B.R. __ (Bkrtcy.W.D. Missouri 2003) Dec. 8, 2003 Dec. 8,
2003 SOLE SHAREHOLDER HELD LIABLE FOR PAYROLL TAXES A person may be a responsible person even though he does
not know that the withholding taxes have not been paid.
[cite] Chabrand meets the recognized indicia of
responsible person status because he: (i) was the sole
shareholder in Trailnor; (ii) was president and the sole
member of the board of directors; (iii) had the authority to
sign, and in fact signed, corporate checks; (iv) obtained
financing and loans for Trailnor, and personally guaranteed
those obligations; (v) negotiated, purchased and sold assets
on behalf of the corporation; (vi) had the corporate
authority to hire and fire employees, negotiate contracts,
and all other corporate duties associated with being the
senior executive in the company. Accordingly, the Court
finds that Chabrand was a responsible person of Trailnor
under Section 6672. Willfulness is normally proved by evidence that the
responsible person paid other creditors with knowledge that
withholding taxes were due at the time to the United States. This includes a responsible person's failure to
investigate or correct mismanagement after being notified
that withholding taxes have not been duly remitted. A taxpayer cannot satisfy the burden of proof as to
willfulness merely by showing that he delegated his
responsibilities to someone else. A fiduciary cannot absolve
himself merely by disregarding his duty and leaving it to
someone else to discharge. IN RE CHABRAND, (S.D.Tex. 2003) __________________________ NO SUBSTANTIAL ABUSE FOUND WHERE DEBTOR COULD PAY 36%
OF CONSUMER DEBT Debtor's Schedule I and J indicate that Debtor has
insufficient income to repay all her outstanding debts.
After adjusting Schedule J for the payroll deductions
accounted for in Schedule I, Debtor still has a current
monthly shortfall. Even under the UST's analysis, at most,
the Debtor would able to pay 36% of her unsecured debts
through a 36 month Chapter 13 plan. The Court finds that an
ability to repay this amount, absent other indications of
substantial abuse, is insufficient for dismissal under 11
U.S.C. § 707(b). Although Debtor helps support her two adult sons and her
two grandchildren, dependents she is not legally obligated
to support, Debtor does not have an extravagant lifestyle.
Her reported expenses are not excessive. Nothing in the
Debtor's testimony leads the Court to conclude that she is
not deserving of the fresh start afforded by the Bankruptcy
Code. IN RE O'NEILL, (N.M. 2003) Dec. 1,
2003 ORAL
ARGUMENT DEC. 2 U.S. Supreme Court to hear
oral argument in Till v. SCS Credit Corp - a 7th circuit
case holding that the proper interest rate for a Chapter 13
cram-down is cost of coercive loan. Argument is scheduled for
Dec. 2, 2003 The entire 7th Cir. Till
opinion may be read HERE.
Unsecured delinquent taxes
over three years old are typically dischargeable in Chapter
13 bankruptcy. Where the IRS has a filed tax lien and the
taxpayer has an ERISA retirement plan, the IRS has argued
the tax debt is secured and must be paid up to the value of
the taxpayer's ERISA plan. If unsecured, the taxpayer could
probably pay only a fraction and discharge the
rest. This week the Ninth Circuit
Court of Appeal held that for purposes of Chapter 13 a tax
liability secured on an ERISA plan is treated as unsecured
in Chapter 13, because the debtor in Chapter 13 is required
to treat a lien as secured only on "property of the
bankruptcy estate," and the Supreme Court has held that
ERISA retirement plants are not property of the estate.
Robert Kolb, Esq., for the Debtor. For an explanation of what
this means for taxpayers in chapter 13, click on NEWS
UPDATE, above. In re Snyder, __ F.3d __
(9th Cir. Sept. 15, 2003) _____________________ NINTH
CIRCUIT RULES LACK OF FINAL ADMINISTRATIVE DETERMINATION OF
STATE TAX LIABILITY MEANS BK COURT COULD
ADJUDICATE Because there was no final
administrative determination of the California debtors' tax
liability prior to the commencement of bankruptcy
proceedings, the bankruptcy court had jurisdiction to
consider the debtors objection to the claim of the taxing
agency. In re Mantz __ F.3d __ (9th
Cir. 2003) _____________________ IRS SHOULD
NOT REFUSE TO CONSIDER AN OFFER-IN-COMPROMISE BASED ON
TAXPAYER BEING IN BANKRUPTCY The IRS' refusal to consider
offers-in-compromise during the pendency of a bankruptcy
frustrates the basic policy of bankruptcy and can be
enjoined. In re Holmes __ B.R. __
(Bkrtcy.M.D.Ga. 2003) Nov. 24,
2003 3 WEEKS OF BEAUTY SCHOOL
- ED. LOAN HARDSHIP DISCHARGE GRANTED To satisfy the second prong
of the Brunner test, Plaintiff must prove that her state of
affairs is likely to persist for a significant portion of
the repayment period. The repayment period for the
subject loan began on March 30, 1986, which was Plaintiff's
anticipated graduation date from beauty school. This was
more than 17 years ago. Plaintiff was only able to attend
beauty school for three weeks in 1985. Plaintiff never
acquired any specialized job skills or training, and
Plaintiff does not appear at this time to be
underemployed. While Plaintiff has not made
any voluntary payments on the loans, this was not the result
of any willfulness or negligence on her part. Plaintiff's
sporadic and minimal income over the years has been
insufficient to cover her minimal household expenses, let
alone permit her to make payments on the subject
indebtedness. IN RE COMAN, (C.D.Ill.
2003) SOURCE: LOISlaw /
LawWatch _____________________ CH 13 DEBTOR'S ATTORNEY'S
FEES FOR PREPETITION WORK COULD NOT BE PAID POSTPETITION AS
ADMINISTRATIVE EXPENSE A claim by a Chapter 13
debtor's attorney for the fee which he had earned in
connection with prepetition legal services was not entitled
to priority as an administrative expense, a New Mexico
bankruptcy judge has held. Rather, the claim had to be
treated as any other unsecured, non-priority dischargeable
debt, to be paid pro rata along with other unsecured
non-priority claims. An application for the
payment of compensation and expenses filed by a Chapter 13
debtor's attorney prompted the bankruptcy court to question
"whether counsel may be compensated postpetition, as an
administrative claim from estate assets, for work performed
for the debtor in preparation for the [C]hapter 13
filing." The Chapter 13 trustee and the attorney, as well as
the court, agreed that the fees in question had been
incurred in connection with the debtor's case and the
underlying work was reasonable, necessary, and benefited
either the estate or the debtor. Thus, the court concluded,
"prepetition attorney fees, not listed in either the
priority or dischargeability statute, are treated as any
other unsecured non-priority dischargeable debt: they may be
paid pro rata along with the other unsecured non-priority
claims, but no more." In re Busetta-Silvia,
(Bkrtcy.D.N.M.,2003). SOURCE: Thomson/West
Bankruptcy Newsletter _____________________ TAX PENALTIES DISCHARGED
DESPITE TAXES' NONDISCHARGEABILITY Held, subsections (A) and
(B) of 11 U.S.C.A. § 523(a)(7), the discharge exception
for certain debts that are in the nature of a fine, penalty,
or forfeiture, must be construed disjunctively, so as to
permit the discharge of tax penalties imposed for tax
periods more than three years prior to the petition date,
even if the underlying tax liability was
nondischargeable. In re Miller,
(Bkrtcy.N.D.Ohio 2003). SOURCE: Thomson/West
Bankruptcy Newsletter _______________________ DEBTOR'S ATTORNEY SHOULD NOT
SUPPORT DEBTOR'S UNETHICAL OR UNFEASIBLE
PROPOSALS Counsel to a debtor in
possession cannot be expected to perform functions
inconsistent with the debtor's fiduciary duties and
counsel's own fiduciary duties to the estate.
Counsel's failure to pursue management's improper and
unsupported positions did not warrant denial of
fees. Counsel to a debtor in
possession cannot be expected to perform functions
inconsistent with the debtor's fiduciary duties and
counsel's own fiduciary duties to the estate. See ICM Notes,
Ltd. v. Andrews & Kurth, 278 B.R. 117, 123 (S.D. Tex.
2002) (concluding that attorney for debtor-in possession
owes a general fiduciary duty to preserve the bankruptcy
estate); Zeisler & Zeisler v. Prudential Ins. Co. of Am.
(In re JLM, Inc.), 210 B.R. 19, 25 (B.A.P. 2d Cir. 1997)
(determining that "[b]oth management and its counsel
have fiduciary duties to an estate in bankruptcy"); In re
Sky Valley, Inc., 135 B.R. 925, 929 (Bankr. N.D. Ga. 1992)
(discussing a debtor's attorney's duty as a fiduciary of the
estate). If counsel was required to act illegally,
unethically or contrary to fiduciary responsibilities,
counsel cannot be penalized for failing to comply with such
requirements. determining that attorney had ethical
obligation to employ professional judgment to consider the
plausibility and appropriateness of client's
desires)
May 23, 2004TWO IMPORTANT
OPINIONS HAVE BEEN ISSUED BY THE UNITED STATES SUPREME
COURT
Jan. 26, 2004
Jan. 12,
2004
NINTH CIRCUIT RULES TAX LIENS ON RETIREMENT PLANS ARE
UNSECURED IN CHAPTER 13