POST
BAPCPA:
Scraping Off Secured Debts:
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. Includes lengthy dissent.
Read more...
Vehicles:
Tidewater
Fin. Co. v. Kenney, No. 07-1664
(U.S. 4th Circuit Court of Appeals,
June 25, 2008)
In a Chapter 13 bankruptcy proceeding, an order confirming
the debtor's Chapter 13 bankruptcy plan is reversed and the
case remanded for further proceedings where: 1) the parties
are left to their contractual rights and obligations and a
creditor may pursue an unsecured deficiency claim under
state law after a debtor satisfies the requirements for plan
confirmation under section 1325(a)(5)(C) by surrendering his
910 vehicle; and 2) the circuit court joints the Seventh
Circuit Court of Appeals in further recognizing that such
unsecured debt need not be paid in full any more than other
unsecured debts, but it cannot be written off in toto while
other unsecured creditors are paid some fraction of their
entitlements.
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Disposable Income and Applicable
Commitment Period:
In re:
Kagenveama, No. 06-17083
(U.S. 9th Circuit Court of Appeals,
June 05, 2008)
In an appeal arising from Chapter 13 bankruptcy proceedings,
an order confirming a debtor's bankruptcy plan is affirmed
where: 1) "projected disposable income" means "disposable
income," as defined by Bankruptcy Code section 1325(b)(2),
projected over the "applicable commitment period,"; and 2)
although the term "applicable commitment period" denotes the
time by which a debtor is obligated to pay unsecured
creditors, the requirement is inapplicable to a plan
submitted voluntarily by a debtor with no "projected
disposable income."
Read more...
In re
Davis, 348 B.R. 449 (Bkrcy.E.D.Mich. 2006) PHILLIP J.
SHEFFERLY, Bankruptcy Judge "APPLICABLE COMMITMENT PERIOD"
DETERMINES THE LENGTH OF THE CHAPTER 13 PLAN §
1325(b)(1)(B)
In case where the debtor's income was over the state median,
Chapter 13 trustee objected to debtor's plan proposing to
make payments for 36 months rather than 50 months. The
debtor argued that the term "applicable commitment period"
found at § 1325(b)(1)(B) does not determine the actual
length of the plan but only functions as a multiplier
pursuant to § 1325(b)(4). The court rejected this theory
primarily based on the dictionary definitions of the words
"period" and "commitment," and concluded "... a debtor's
applicable commitment period, as determined by § 1325(b)(4)
does impose a minimum length of a plan, rather than a
calculation of a minimum amount..."
In re
Fuger, 347 B.R. 94 (Bkrtcy.D.Utah 2006) WILLIAM T. THURMAN,
Bankruptcy Judge
ABOVE-MEDIAN INCOME DEBTOR IS REQUIRED TO HAVE A PLAN OF 60
MONTHS (THE APPLICABLE COMMITMENT PERIOD) § 1325(b)(1)(B)
The trustee argued that the term "applicable commitment
period" uses the word "period" and therefore is a measure of
time. Debtor argued that the "applicable commitment period"
was only a multiplier used in calculating disposable income.
While acknowledging that the terms are unclear as used in
the BAPCPA amendments, the court looked to Congressional
intent and agreed with the trustee, noting that the same
word "period" is used in that code section under pre-BAPCPA
text to mean a period of time, and was also used in
calculating projected disposable income.
"The court concludes that Congressional intent underlying
the amendments to § 1325(b)(1)(B) is clear - - - the term
'applicable commitment period' is both a monetary and a
temporal provision. It is monetary in the sense that it has
always required debtors to commit to pay unsecured creditors
a set return. It is temporal in the sense that it has always
required debtors to determine that return by projecting over
a specific time period, and it provides debtors with a time
limit for performing under a chapter 13 plan."In re: Zahn, No. 07-1974
(U.S.
8th Circuit Court of Appeals, May 22, 2008)
A debtor who objects to her own Chapter 13 plan may be an
"aggrieved party" and have standing to appeal confirmation
of such plan.
Read more...
In re Demonica, 345 B.R. 895 (Bkrtcy.N.D.Ill.
2006)
DEBTOR'S "PROJECTED DISPOSABLE INCOME" HAD TO BE BASED ON
SCHEDULES "I" AND "J" RATHER THAN "HISTORICAL AVERAGE"
§ 1325(b)(1)(B), § 707(b)(2)(A) Chapter 13 trustee
objected to plan where projected disposable income was based
on the code formula, and where debtor's current monthly
income ("disposable income") was $1,199.55 but his actual
"projected monthly income" from the schedules was $2,517.36.
The court held that the actual amount that must be paid
through the plan was the projected disposable income as
shown on the schedules. The court also held that in order to
determine the proper expenses to be deducted from projected
income, the debtor is allowed to take the full National and
Local Standard amounts. Additional expenses for the
categories specified by the IRS are only proper if they fall
within the additional expense provisions as specified by the
IRS or as defined in the Code. In order to claim Other
Necessary Expenses, the debtor must itemize, document and
provide a detailed explanation of the special circumstances
that render those expenses reasonable and necessary.
In re Fridley,
380 B.R. 538 (9th Cir. BAP 2007). Held that debtors could
not complete their Chapter 13 plan and obtain an early
discharge by paying the remaining amounts due early, without
first obtaining an order of the court allowing them to do
so.
In re
Brown, 348 B.R. 583 (Bkrtcy.N.D.Ga. 2006) JOYCE BIHARY,
Bankruptcy Judge COURT HAS DISCRETION TO ALTER THE TIMING
OF ADEQUATE PROTECTION PAYMENTS TO PMSI SECURED CREDITOR AND
DIRECT THAT PAYMENT WILL GO TOWARD PRINCIPAL, NOT INTEREST
§ 1326(a)(1)
PMSI creditor objected to chapter 13 plan. Creditor argued
that the payment had to be made directly to creditor rather
than through the trustee, and should be applied to interest
rather than the principal.
The court pointed to the language in § 1326(a)(1) stating
"Unless the court orders otherwise ..." and held that this
language gives the court discretion to alter the
requirements of the remainder of the section which provides
adequate protection payments to be paid within 30 days of
filing the petition directly to the creditor with proof of
payment to the trustee. And, payment could be made to the
trustee rather than the creditor.
The opinion offers a thorough exploration of the history of
the general rule regarding postpetition interest and
concludes "Past bankruptcy practice supports the conclusion
and the Court holds that these pre-confirmation adequate
protection payments are to compensate for any depreciation
in the collateral and should be applied to principal only."
In re Johnson, 346 B.R. 256 (Bkrtcy.S.D.Ga.
2006)
DEBTORS' PAYMENTS TO THEIR 401(k) AND PAYROLL DEDUCTIONS TO
REPAY A 401(k) LOAN NEED NOT BE INCLUDED IN DISPOSABLE
INCOME: BUDGET FOR HOUSING AND TRANSPORTATION IS FLEXIBLE
§ 1325(a), 1325(b), 1322(f), 101(10A)(A), 101(10A)(B), §
707(b)(2)(A)(ii)(I), (A)(iii). In its analysis the
court in several places cited language in the IRS Manual for
clarification or support on certain issues.
Chapter 13 trustee objected to budget that deducted
voluntary payments to debtor's 401(k) pension plan, and also
repayments of loan drawn from the 401(k), Court held that §
1325(b)(2) permitted such expenses as a deduction from
current monthly income or disposable income.
The court appears to have held that the disposable income
that must be paid through the plan is only based only on
"disposable income" as prescribed by § 1325(b) and §
707(b)(2), thus excluding actual disposable income from the
schedules. However, the court noted "This creates an
opportunity for savvy debtors to artificially reduce CMI by
intentionally avoiding pre-petition income, citing other
authority for "The debtor might take an unpaid leave of
absence, quit a job, or refuse overtime the[y] formerly
welcomed." Cite.
Discussing the budget calculation, the court observed " ...
debtors who can demonstrate "reasonably necessary" may
adjust the allowances for food and clothing by up to 5%."
The debtor may deduct actual expenses for the "Local
Standards" for monthly housing and transportation expenses
for debts secured by their real estate and vehicles.
Court cited § 707(b)(2)(A)(ii)(I) which states " ... the
monthly expenses of the debtor shall not include any
payments for debts." The debtor may only deduct as an
expense the difference between the actual payment amount and
the IRS guideline amount. However, the court pointed out
that notwithstanding that language, the actual expenses for
secured debts may be deducted pursuant to §
707(b)(2)(A)(iii). The court disallowed the debtor's claim
for unusually high unreimbursed medical expenses, as well as
the claimed amounts of deductions for income taxes because
of insufficient documentation to support it. Court held that
"gross income" as used in Form B22C is income before tax
deductions.
In re
Barraza, 346 B.R. 724 (Bkrtcy.N.D.Tex. 2006) RUSSELL F.
NELMS, Bankruptcy Judge
CASE DISMISSED OR CONVERTED BASED ON ABUSE FOR DEBTOR
WORKING 80 HOURS A WEEK AT TWO JOBS
DEBTOR CANNOT CLAIM IRS OWNERSHIP EXPENSE FOR CAR THAT IS
PAID OFF
DEBTOR CANNOT DEDUCT PAYMENTS TOWARD 401(k) LOAN FROM INCOME
IN DOING THE MEANS TEST BUT CAN DEDUCT THEM FOR CALCULATION
OF CHAPTER 13 DISPOSABLE INCOME § 707(b)(2), § 1325(f),
1325(b)(3)(A)
Although the court acknowledged that the equities favored
permitting the hard-working and sincere debtor to file
chapter 7, the court felt bound by the strict letter of the
Code. "The starting point for the court's analysis is not
whether the debtor's lifestyle makes him deserving of one
form of relief or another, but the language of the statute
itself."
As to a claim for ownership cost (as opposed to operating
cost) the court concluded that the IRS Collection Standards
must be followed, and such guidelines do not permit an
ownership expense where the car is paid for. The court did
not that since the debtor's vehicle was 18 years old he
would be entitled to an additional operating expense of
$200.
Although acknowledging that section 1322(f) explicitly
provides that repayments of loans to retirement funds do not
constitute disposable income, nevertheless the codified
formula for calculation of means test does not provide a
step for deduction of such loan repayments, and therefore
they could not be deducted from the final figure for
purposes of the presumption of abuse.
Said the court: "... why are these sums not deducted from
current monthly income when determining chapter 7
eligibility? Stated another way, why would Congress presume
under section 707(b)(2)(A) that this amount of money could
be used to pay unsecured creditors, and then deny unsecured
creditors access to that money in chapter 13? The court
confesses that it does not know. Nevertheless, the court's
lack of prescience as to Congress's reasoning does not
permit it to revise a formula that is otherwise clear on
this particular point."
The court also held that the debtor's $400 monthly payment
to his girlfriend to cover living expenses and to help
support girlfriend's dependent children were not deductible.
The court observed that his basic living expenses were
already deducted under the 707(b)(2)(A) and could not be
deducted as a "special circumstance" under 707(b)(2)(B),
because the language of the section does not authorize a
deduction for voluntary support as to which the debtor is
morally, but not legally obligated.
Finally, the court held that the disposable income
calculation must be based on actual projected income (i.e.,
a "forward-looking analysis") pursuant to the schedules, not
merely the codified formula.
WARNING: PRE-BAPCPA: In re Mason (Bankr.N.D. CAL. 2004)
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 claims as unsecured.
IN RE: BATEMAN (05/23/03 - No.
02-11221) (11th Cir) A secured creditor cannot
collaterally attack a confirmed Chapter 13 plan, even though
the plan conflicted with mandatory provisions of the
bankruptcy code, when the secured creditor failed to object to
the plan's confirmation or appeal the confirmation order. A
secured creditor's claim for mortgage arrearage survives the
confirmed plan to the extent it is not satisfied in full by
payments under the plan.
http://caselaw.lp.findlaw.com/data2/circs/11th/0211221p.pdf
IN RE:
RICHARD W. PASCHEN (07/10/02 - No. 01-16353) (11th
Cir Ct App) 11 U.S.C. section 1322(c)(2) permits Chapter 13
debtors to bifurcate undersecured, short-term home mortgages
into secured and unsecured claims, with the unsecured claim
subject to "cramdown" pursuant to 11 U.S.C. section
1325(a)(5).
http://laws.lp.findlaw.com/11th/0116353opn.html
TILL v. SCS CREDIT CORP. (US Sup Ct 05/17/04 -
No. 02-1016) Four justices conclude that the "prime-plus" or
"formula rate" best meets the purposes of the Bankruptcy
Code's cram down provision; because the proposed 9.5% interest
rate is higher than the risk-free rate, it is sufficient to
account for the time value of money, which is all 11 U.S.C.
section 1325(a)(5)(B)(ii) requires.
http://laws.lp.findlaw.com/us/000/021016.html
NOTE
TO ATTORNEYS RE Post petition debt: Pursuant to 11 U.S.C.
1327(b), all property of the estate vests in the debtor upon
confirmation "[e]xcept as otherwise provided in the plan or
the order confirming the plan...." Most orders confirming
in Arizona specifically provide that the property of the
estate vests in the debtor.
If you carefully review Section
362, you will note that the automatic stay does NOT apply to
efforts to enforce a post-petition debt against property of
the debtor, i.e. property that vested in the debtor upon
confirmation. A debtor in Chicago learned this the hard way
when the city impounded and crushed her car due to her
failure to pay post-petition parking tickets. Because the
car vested in the debtor upon confirmation, the District
Court found that the automatic stay did not bar the action
and she was out of luck. See In re Fisher, 203 B.R. 958 (N.Dist.Ill
1997)
ENEWALLY v. WASHINGTON MUTUAL BANK, No.
02-57119 (9th Cir. May 27, 2004) A Chapter 13
bankruptcy plan may not provide for dividing a loan into
secured and unsecured claims with the debtor satisfying the
secured claim beyond the life of the Chapter 13 plan. http://caselaw.lp.findlaw.com/data2/circs/9th/0257119p.pdf
In re Valenti (9th Cir. BAP.
2004) Fraud discovered after 180-day deadline cannot
be raised to deny Plan confirmation. The 180-day
period to move for revocation of confirmation for fraud is a
strict deadline, even if the fraud is not discovered until
after the deadline has passed. Section 105 is not a proper
basis for changing the deadline. Rule 60(b) is not a basis
for revocation. A timely request for revocation of
confirmation cannot be amended, after the 180-day period has
expired, to add new grounds not pled within the 180-day
period. Where a creditor knows of a basis for challenging
confirmation and fails to object, the creditor cannot be
permitted to use that basis to claim fraud under after
confirmation. Moreover, confirmation is res judicata as to
all issues that could have or should have been litigated at
the confirmation hearing. An issue "could have" been
litigated at the confirmation hearing if a party in interest
had the opportunity to investigate and litigate it and the
debtor did not prevent it from being litigated by fraud,
misrepresentation or concealment.
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