POST BAPCPA:

Scraping Off Secured Debts: (see also Avoiding or Scraping off Liens)

In Re: Mansaray-Ruffin, No. 05-4790  (U.S. 3rd Circuit Court of Appeals, June 24, 2008)
A debtor in a Chapter 13 bankruptcy case did not invalidate a lien on her property by providing for it as an unsecured claim in her confirmed plan, without initiating an adversary proceeding as required by the Federal Rules of Bankruptcy Procedure. Read more...

In re Sobczak, 369 B.R. 512 (9th Cir. BAP 2007).  In a case arising out of Arizona, the BAP reversed the Bankruptcy Court's dismissal of the debtor's case, holding that (a) the debtor in a case converted from Chapter 7 to Chapter 13 had standing to move for dismissal of his bankruptcy, but (b) dismissal of the debtor's bankruptcy in the circumstances presented was improper.  The BAP found that the debtor's realization that in bankruptcy he was limited by §522 to Ohio's $5,000 homestead exemption, rather than the Arizona $150,000 exemption that would apply if he were not in bankruptcy, was not a proper basis for allowing the debtor to move under §1307 to dismiss his case.

In re Brown, 346 B.R. 868 (Bkrtcy.N.D.Fla. 2006) LEWIS M. KILLIAN JR., Bankruptcy Judge CREDITOR HOLDING PMSI NOT ENTITLED TO DEFICIENCY CLAIM IN CHAPTER 13 WHERE DEBTOR SURRENDERS VEHICLE IN FULL SATISFACTION OF DEBT  § 1325(a)5) (hanging paragraph), § 506, 502

Debtor proposed to surrender a motor vehicle subject to a PMSI and purchased for personal use within 910 days of filing the petition, in full satisfaction of the undersecured debt. Creditor objected.

The court first held that despite languge in § 1325(a) (hanging paragraph) that Code § 506 does not apply to a PMSI debt, the debt is still a secured debt. The court ruled that "just because § 506 does not apply does not mean that there is no secured claim. Section 506(a) simply provides for the bifurcation of claims into secured and unsecured portions in accordance with the value of the collateral; it does not form the basis for a secured debt." The court essentially held that § 502 is the section that determines the secured status of a claim.

The court then observed that "Secured creditors, like every other party to a bankruptcy case, have to take both the good and the bad," held that . . . the Hanging Paragraph following § 1325(a)(9) allows the Debtor to surrender his vehicle, which is the subject of a 910 claim, in full satisfaction of the debt owed to Wells Fargo."

In re Sparks, 346 B.R. 767 (Bkrtcy.S.D.Ohio 2006) J. VINCENT AUG, JR. Bankruptcy Judge  CREDITOR HOLDING PMSI NOT ENTITLED TO DEFICIENCY CLAIM IN CHAPTER 13 WHERE DEBTOR SURRENDERS VEHICLE IN FULL SATISFACTION OF DEBT  § 1325(a)(5)

The court held that where a vehicle is subject to a PMSI and was purchased for the debtor's personal use within 910 days of filing the petition the Code prohibits a "cram-down" but does not prohibit the debtor from surrendering the vehicle in full satisfaction of the debt, with no unsecured portion remaining to be treated in the plan. In other words, the anti-cramdown provision acts restricts both the creditor and the debtor from treating the claim as a cram-down or strip-down for a partially secured claim

In re Pennington, 348 B.R. 647 (Bkrtcy.D.Del. 2006)  MARY F. WALRATH, Bankruptcy Judge  COURT COULD DISMISS CHAPTER 13 FOR "ABUSE" NOTWITHSTANDING THE DEBTOR'S INCOME WAS BELOW THE STATE MEDIAN

THRESHOLD FOR "ABUSE" WHERE THE MEANS TEST PER SE DOES NOT APPLY IS 25% OF UNSECURED DEBT.  § 707(b)(1)

Debtor's income was below the state median but actual disposable income at the time of the hearing to dismiss or convert was sufficient to pay 42% of the unsecured debt over a 3-year plan. The court noted that the surplus income was more than enough to pay more than 25% of the unsecured debt, which was the "threshold were abuse is presumed under the means test", even though the means test is not applicable.
 

How to Obtain a Hardship Discharge in Chapter 13  By: Peter M. Lively petermlively@aol.com And: Hillary C. Coleman

The loss of so many jobs in the current recession will negatively impact many debtors who are making plan payments pursuant to their confirmed Chapter 13 plans but have yet reached plan completion.

Post-confirmation Chapter 13 debtors who experi­ence a decrease in disposable income may become eligible for either conversion to Chapter 7 or a Chapter 13 hard­ship discharge. In circumstances where debtors have not incurred post-petition debt that may be discharged in a case converted to Chapter 7, it is most advantageous for them to proceed with a request for hardship discharge.

Obtaining a hardship discharge under 11 U.S.C. section 1328(b) helps debtors to become eligible for a subse­quent Chapter 7 or 13 discharge two (2) years earlier than they would be if they converted their case and received a Chapter 7 discharge. See Discharge Analysis article in last issue of CDCBAA’s Newsletter.

A motion brought under 11 U.S.C. section 1328(b) is made on grounds that (1) the debtors are not able to complete the payments under their Plan due to circum­stances for which they should not be held accountable, (2) creditors have received more than would have been paid under a hypothetical liquidation of debtors’ estate, and (3) modification of the Plan is not practicable. Such a motion should set forth facts supporting lack of accountability on the debtors’ part for the hardship circumstances and a discharge analysis, evidenced, of course, by declarations, then quote and cite the statute, and finally, explain why debtors’ particular facts and circumstances meet each of the elements of the statute.

For example, where one spouse in a joint case (“Husband”) has lost his job, has been unable to secure replacement income and is receiving unemployment bene­fits that do not provide sufficient disposable income to pay the existing or a modified plan payment, an example of a format for such motion is:

MEMORANDUM OF POINTS AND AUTHORI­TIES

I. INTRODUCTION/STATEMENT OF FACTS.

Debtors WARREN WAGE EARNER (“HUSBAND”) and SALLY SALARIED (“WIFE”) (collectively “Debtors”) filed their joint petition as husband and wife under Chapter 13. Debtors’ Chapter 13 Plan was confirmed on [date], 2008. Debtors remained current with their plan payments of $1,500.00 through [date], 2008. See Declaration of HUSBAND, attached hereto and incorporated herein by reference (“HUSBAND Dec.”).

Unfortunately, Debtors have suffered some unexpected consequences since the filing of their case. Specifically, HUSBAND, a widget installer, was laid off from his job in late [date], 2008. He received just two weeks’ sever­ance pay, and now receives only $1,250.00 per month in unemployment benefits. While he has been seeking, and continues to seek, gainful employment, the negative impact of the current economic crisis on the job market is evident. As of even date, HUSBAND has been unable, despite his diligent efforts, to secure new employment. HUSBAND Declaration:

HUSBAND was the primary wage earner for the house­hold, earning base pay of $3,000.00 per month. WIFE earns a gross salary of only $2,500.00 per month. Debtors’ household expenses far exceed WIFE’s salary, and there is certainly no excess available with which to make plan payments of $1,500.00. Debtors’ plan was premised on contributions by both spouses. Without the income from HUSBAND’s employment, Debtors cannot possibly meet their obligations under their confirmed Chapter 13 Plan. HUSBAND Dec.

A liquidation analysis of the case shows that Debtors have already paid more to their unsecured creditors under their Chapter 13 Plan than such creditors would receive if the case proceeds as a Chapter 7. See Declaration of ATTORNEY FOR DEBTORS, attached hereto and incor­porated herein by reference. Under these circumstances, a hardship discharge is warranted.

II. A HARDSHIP DISCHARGE IS WARRANTED HERE BECAUSE THE DEBTORS ARE NOT ABLE TO COMPLETE THE PAYMENTS UNDER THE PLAN, CREDITORS HAVE RECEIVED MORE THAN WOULD HAVE BEEN PAID UNDER A HYPOTHETICAL LIQUI­DATION OF DEBTORS’ ESTATE, AND MODIFI­CATION OF THE PLAN IS NOT PRACTICABLE.

Under certain limited circumstances, the Bankruptcy Code provides for entry of a discharge order despite failure to pay all of the plan payments. Specifically, 11 U.S.C. section 1328(b) provides:

Subject to subsection (d)², at any time after the confir­mation of the plan and after notice and a hearing, the court may grant a discharge to a Debtor that has not completed payments under the plan only if–

(1) the Debtor’s failure to complete such payments is due to circumstances for which the Debtor should not justly be held accountable;

(2) the value, as of the effective date of the plan, or property actually distributed under the plan on account of each allowed unsecured claim is not less than the amount that would have been paid on such claim if the estate of the Debtor had been liqui­dated under chapter 7 of this title on such date; and

(3) modification of the plan under section 1329 of this title is not practicable.

Debtors’ circumstances here fall squarely within the statute. First, HUSBAND was laid off by his employer. This has eliminated HUSBAND’s ability to contribute to household expenses, including the plan payments. HUSBAND has attempted to secure new employment, but his efforts have been unsuccessful. This is certainly a situ­ation that is beyond HUSBAND’s control, and accordingly, Debtors’ resulting inability to make their plan payments is a circumstance for which Debtors should not justly be held accountable. Thus, one condition for a hardship discharge, as set forth in 11 U.S.C. section 1328(b)(1), is met.

Second, a hypothetical Chapter 7 liquidation would yield nothing for general unsecured creditors. Thus, another condition for a hardship discharge, as required by 11 U.S.C. section 1328(b)(2), is met here.

Finally, a modification of Debtors’ plan is pointless here as their current household income falls so far below their household expenses that there is clearly no means by which to modify the Chapter 13 Plan feasibly. Thus, all conditions for hardship discharge, including impractica­bility of modification of the Plan, required under 11 U.S.C. section 1328(b)(3) are met here.

Under these circumstances, 11 U.S.C. section 1328(b) permits this honorable Court to enter a discharge order.

Conclusion

When, as here, the value paid into the plan is no less than a hypothetical Chapter 7 liquidation payment to general unsecured creditors, and Debtors’ reduced income resulting from unexpected and uncontrollable separation from employment make further plan payments and plan modification infeasible, the Bankruptcy Code permits this honorable Court to enter a discharge order. Debtors respectfully request that the Court grant them a discharge.

Dated:

Respectfully submitted, COUNSEL FOR DEBTOR

WARNING PRE-BAPCPA:  IN RE: PATTULLO (11/21/01 - No. 99-17615)(9^th Cir. Ct App)  Appeal court lacks jurisdiction to hear appeal from a Chapter 13 proceeding when lower court dismissed the proceeding even if the court allowed debtors to file a new petition.  ttp://caselaw.lp.findlaw.com/data2/circs/9th/9917615p.pdf

RANDOLPH v. IMBS, INC. (05/12/04 - No. 03-1594, 03-2185, 03-2340, 03-3182, 7^th Cir) The Bankruptcy Code does not "preempt" the Fair Debt Collection Practices Act (FDCPA) when the act alleged to transgress the FDCPA also violates the Code. Dunning letters issued to debtors in Chapter 13 bankruptcy must be reconsidered in light of FDCPA section 1692. http://caselaw.lp.findlaw.com/data2/circs/7th/031594p.pdf