AMERICAN BANKRUPTCY INSTITUTE CONSUMER BANKRUPTCY SEMINAR NOVEMBER 11, 2013

CASE LAW UPDATE

Honorable Marci B. McIvor United States Bankruptcy Court Eastern District of Michigan James Boyd Traverse City, Michigan Thomas D. DeCarlo Staff Attorney Office of David Wm. Ruskin, Chapter 13 Trustee

THE NEW FORMS ARE COMING!

THE NEW FORMS ARE COMING!!

Effective December 1, 2013, there are a few new forms that take effect. These include the new form schedules I and J, which take the current one page form and transform them into multiple page forms.

The new forms can be found at http://www.uscourts.gov/FormsAndFees/Forms/ BankruptcyForms/BankruptcyFormsPendingChan ges.aspx

Or Google “Amended Bankruptcy Forms”

Recent Supreme Court Cases Bullock v. BankChampaign, 133 S. Ct. 1754 (2013) – Intent or scienter require to prove defalcation under Section 523(a)(4).

U.S. v. Windsor, ______ US _________, 133 S.Ct.

2675, 2013 WL 3196928 (2013) – Federal Defense of Marriage Act is unconstitutional.

Federal Government cannot deny benefits to same sex couples where couple is lawfully married as a matter of state law where the ceremony was performed.

Upcoming Supreme Court Cases In re Bellingham Insurance Agency, Inc., 702 F.3d

553 (9 th Cir. 2012), cert granted, ___ U.S. ___ (2013) – Can parties waive objection to subject matter jurisdiction after Stern?

In re City of Detroit, 2013 WL 5425104 (Bankr.

E.D. Mi. 2013) – authority of bankruptcy court to enter final judgment after Stern.

Law v. Siegel, 435 Fed. Appx. 67 (9 th Cir.

2011), cert granted, ___ S. Ct. ___ (2013) – Can Chapter 7 Trustee surcharge debtor’s exemptions to cover administrative costs?

Property of the Estate Leitch v. Christians, 494 BR 918 (8 th Cir. BAP 2013) – Debtor’s interest in Health Savings Account is property of the estate.

Post Petition Property In re Hargis, 2013 WL 4514090 (Bankr. N.D. Ohio 2013) – Property that debtor acquires post petition such as life insurance proceeds and proceeds of inherited 401-k are property of estate that do not revest and remain property of estate.

Axis Surplus Insurance Company v. Flugence, 732 F.3d 428 (5 th Cir. 2013) – Chapter 13 debtor has continuing duty to disclose causes of action that arise post-petition and post-confirmation.

Post Petition Equity In re Hodges, 2013 WL 1755483 (Bankr. E.D. Tn.

2013) – Equity that accrues in converted case between commencement of Chapter 13 and conversion to Chapter 7 is not property of the estate.

Abandonment Cook v. Wells Fargo Bank, NA, 2013 WL 1297590 (10 th Cir. 2013) – Failure to follow procedural requirements of Section 554 and Rule 6007 renders abandonment ineffective.

Authority of Chapter 7 Trustee In re Przybysz, Case No. 10-7110 (Bankr. W.D. Mi.

2013) – Chapter 7 Trustee of individual debtor’s estate has authority to cause wholly owned subsidiaries to file independent bankruptcy cases.

In re Breece, 2013 WL 197399 (6 th Cir. BAP 2013) – Debtor’s status as sole member of LLC does not convey to debtor an ownership interest in the assets of the LLC.

Windham v. East Ohio Gas, 2013 WL 5216429 (N.D. Ohio 2013) – Only Trustee has standing to pursue pre-petition causes of action.

Tyler v. DH Capital Management, Inc., 2013 WL 5942072 (6 th Cir. 2013) – All pre-petition causes of action become property of estate upon filing, and only the trustee has standing to pursue actions post-petition.

Judicial Estoppel

Mowder v. Permanent General Assurance Corp. of

Ohio, 2013 WL 5923766 (N.D. Ohio 2013) – Chapter 7 Trustee not precluded from pursuing undisclosed asset even if debtor might receive a portion of any award.

In re Rotunda, 2013 WL 486968 (Bankr. D.C. 2013) – Chapter 7 Trustee is not judicially estopped from pursuing unscheduled and undisclosed cause of action but debtor cannot receive any recovery from undisclosed action.

Mortgage Modification In re Brinkley, 2013 WL 5935157 (Bankr. E.D. Mi.

2013) – Prohibition on modification of mortgages on debtor's principal residence applies to the residence where debtor lived on the petition date.

Further, debtor’s plan lacked good faith where plan proposed to retain rental property in Florida where rental income is less than monthly expenses.

In re Rogers, 2013 WL 5804003 (Bankr. W.D. Mi.

2013) – Attorney fees cannot be paid ahead of ongoing monthly mortgage payment without constituting improper modification of mortgage.

Attorney Ethics In re Ortiz, 2013 WL 447890 (Bankr. S.D.N.Y. 2013) – Retainer agreement that purported to limit counsel’s obligations to attend only one 341 meeting, even if not concluded, and limited post petition services, violated ethical obligations.

In re Slabbinick, 2012 WL 5386677 (Bankr. E.D. Mi.

2012) – Unbundling services into pre- and post petition services does not per se violate Michigan ethical limitations.

Attorney Fees Carroll v. Goldstein, Bershad & Fried, 2013 WL 1120019 (E.D. Mi. 2013) – Counsel can receive additional attorney fees for time expended in defending prior fee application.

Automatic Stay Dunn v. Advantage Windows, Inc., 2013 WL 1091737 (Bankr. E.D. Tn. 2013) – Section 362(b)(1) excludes from the automatic stay enforcement of criminal statutes without regard to alleged motivation of creditor in filing criminal complaint.

In re Vega, 2013 WL 3158516 (Bankr. E.D. Mi. 2013) – Creditor holding property pursuant to possessory security interest does not violate stay by retaining property post-petition.

In re Stewart, 2013 WL 5592899 (Bankr. E.D. Mi.

2013) – Creditor’s retention of property of estate and refusal to return property on demand of debtor violated stay.

Lien Strips In re Brisco, 486 BR 422 (Bankr. N.D. Ill. 2013) – Filing of proof of claim by creditor is prerequisite to determination of secured status. Where creditor does not file claim, creditor does not have “allowed claim” and lien cannot be stripped.

In re Almeida, 2013 BR 1163777 (Bankr. M.D. Fl.

2013) – Condominium Association lien is not within sphere of protection from valuation under Section 506. Debtor in Chapter 7 can strip wholly unsecured condo lien from the property using Section 506.

Abandonment In re Rosa, 2013 WL 3380166 (Bankr. D. Hawaii 2013) – Chapter 13 plan that provided that confirmation order shall constitute a deed of conveyance of the property when recorded conveyed title to secured creditor who did not object to plan term.

Exemptions Eleiwa v. Whitmore, 2013 WL 2443086 (9 th Cir.

BAP 2013) – Debtor could not claim exemption in home owned by Trust.

In re Nickeas, 2013 WL 4017940 (Bankr. W.D. Wis.

2013) – Liquor license is not “tool of the trade even if essential to operation of business.

Maestas v. Old World Construction, Inc., 497 BR 167 (10 th Cir. BAP 2013) – Debtor cannot claim real property as “tool of the trade”.

In re Stanley, 2013 WL 2154787 (Bankr. E.D. Mi.

2013) – Benefits paid by State Workers Compensation Fund constitute payments by “insurance company” and are exempt under Section 600.5451 after receipt. Exemption is not limited to entitlement to future benefits, as long as funds remain in cash form.

In re Daley, 2013 WL 2922651 (6 th Cir. 2013) – Debtor did not engage in prohibited transaction in IRA by signing account agreement that granted to broker a security interest in the account for any indebtedness that debtor incurred with broker.

In re Clark, 2013 WL 1729600 (7 th Cir. 2013) - Non spousal inherited IRA is not exempt.

Means Test In re Gandy, 2013 WL 3712425 (Bankr. E.D. Tn.

2013) – Creditors are not authorized to go behind the figures listed in the Chapter 7 Statement of Current Monthly Income (Means Test Calculation) for the purposes of filing a § 707(b) motion.

Disposable Income In re Hicks, Case no. 12-64774 (Bankr. E.D. Mi.

2013) – Debtor’s non-filing spouse not required to commit spouse’s income for funding of debtor’s plan where claims being administered in Chapter 13 consist of debts that debtor accrued prior to commencement of the case and spouse was contributing substantial portion of income to the plan.

U.S. Trustee v. Holmes, 2013 WL 4446947 (Bankr.

M.D. Pa. 2013) – Debtor could exclude money of debtor’s same sex partner in calculating current monthly income. Debtor not required to include income of partner not used for payment of joint debts.

Liquidation Analysis In re Engle, 2013 WL 4038625 (Bankr. S.D. Ohio 2013) – Debtor’s plan does not satisfy liquidation analysis where plan would impose on Chapter 13 Trustee the obligation to pursue preference recovery. Debtors must either includes anticipated net value of the preference recovery in liquidation calculation or prosecute the recovery action.

Avoidable Transfers Suhar v. Bruno, 2013 WL 5734120 (6

th Cir.

2013) – Assumption of third party debt by debtor who does not receive value as part of transaction is not for reasonably equivalent value.

Gold v. JPMorgan Chase Bank, NA, 2013 WL

3270346 (Bankr. E.D. Mi. 2013) –Any instrument received and recorded by a register of deeds is conclusively presumed to comply with recording requirements.

McClarty v. University Liggett School, 2013 WL 4786861 (Bankr. E.D. Mi. 2013) – Pre-petition payments for debtor’s minor children to attend private school is not constructively fraudulent .

Sikirica v. Wettach, 2013 WL 1289149 (Bankr.

W.D. Pa. 2013) – Deposit of paychecks into joint account with spouse is fraudulent transfer to extent funds were not used to pay household or personal expenses of debtor.

Suhar v. Agree Auto Services, Inc., 2013 WL 3993867 (Bankr. N.D. Ohio 2013) – Payment of deficiency on prior car avoidable preference.

Student Loans

Tresedder v. National Collegiate Student Loan

Trust 2005-2, Case No. 12-99011 (W.D. Mi. 2013) – Private student loans are funded by a non-profit institution where lender intended loans to pay educational expenses and loans were guaranteed by non-profit.

Educational Credit Management Corporation v.

Alfes, 709 F.3d 631 (6th Cir. 2013) – Guarantor of debtor’s obligation holds independent claim against debtor. Default judgment against lender in action to determine dischargeability of student loans does not bind non-party guarantor.

Hahn v.

Educational Credit

Corporation, 711 F.3d 235 (1 st

Management

Cir. 2013) – Order disallowing student loan claim on basis that debtor had paid non-dischargeable student loans prior to commencement of bankruptcy precluded post-discharge efforts to collect alleged balances owed.

Tax Issues In re Martin, 2013 WL 4094413 (Bankr. S.D.N.Y.

2013) – Debtor can redeem property from pre petition tax foreclosure sale over life of chapter 13 plan in Chapter 13 filed after the sale occurred but before redemption expired.

U.S. v. Monahan, 497 BR 642 (1 st Cir. BAP 2013) – Chapter 13 Plan that provided for payment of IRS priority non-dischargeable claim but did not propose to pay interest did not discharge interest portion of tax debt.

Moffitt v. Massachusetts Dept. of Revenue, 2013 WL 5441984 (Bankr. W.D. Ky. 2013) – Debtor’s failure to timely file returns for years 2003, 2004 or 2005 until August, 2008, did not satisfy obligation to file tax returns, rendering debts non dischargeable. Moffitt v. U.S., 2013 WL 3294898 (Bankr. W.D. Ky. 2013) – Section 523(a)(1)(B)(i) makes a tax debt non-dischargeable if a return is not filed. Tax return not filed prior to due date was not a “return” for purposes of Section 523(a)(1).

Lien Avoidance In re Pees, 2013 WL 3808153 (Bankr. N.D. Ohio 2013) – Debtor can avoid judicial lien were value of property is less than value of unavoidable liens plus exemptions. Debtor permitted to avoid entire lien after claiming asset exempt to extent of $1.00

using wild card exemption.

Discrimination In re Mead, 2013 WL 64758 (Bankr. E.D.N.C. 2013) – IRS discriminated against debtor when IRS refused to abide by pre-petition Offer in Compromise Ellis v. Dep’t of Homeland Security, 2013 WL 3480259 (Bankr. D. Colo. 2013) – Department of Homeland Security did not violate Section 525 by denying renewal of security clearance based on “bad debt” criteria.

Social Security Drummond v. Welsh, 711 F.3d 1120 (9 th Cir. 2013) – Chapter 13 debtor’s calculation of repayment plan that excludes social security income is not lack of good faith.

In re Holls, Case no. 13-46765 (Bankr. E.D. Mi.

2013) – Debtor’s failure to include SSI in calculating the plan payment was a lack of good faith.

In re Wise, Case no. 13-44673 (Bankr. E.D. Mi.

2013) – Debtor’s failure to commit social security for funding of plan constituted lack of good faith.

Disposable Income In re Maura, 2013 WL 1730040 (Bankr. E.D. Mi.

2013) – Debtors cannot deduct on means test payments on retirement loans or voluntary contributions to retirement accounts.

In re Rogers, Case No. 12-32558 (Bankr. E.D. Mi.

2012) – Debtors cannot exclude post-petition voluntary retirement contributions in calculating disposable income.

In re Hargis, 2013 WL 4514090 (Bankr. N.D. Ohio 2013) – Section 1325(b) requirement for payment of disposable income is not applicable to a post confirmation plan modification.

Chapter 13 Plan Term In re McGehan, 2013 WL 4069524 (Bankr. D. Colo.

2013) – Debtor who proposes 100% dividend cannot be compelled to pay larger payment and to shorten plan term.

Custodians In re Ohakpo, 2013 WL 794347 (Bankr. E.D. Mi.

2013) – Custodian retains secured claim in bankruptcy to extent of equity in property, but custodian is not entitle to administrative claim as the seizure of the property does not provide any benefit to the estate and the custodian has not been hired by the Chapter 7 Trustee. Custodian is not entitled to percentage fee as property was neither sold by custodian nor released because debtor paid the underlying judgment.

Dismissal In re Cyncynatus, 2013 WL 3864310 (Bankr. N.D.

Ohio 2013) – Section 1307(b) does not afford debtor an absolute right to dismiss where debtors acted in bad faith in the bankruptcy case.

In re Hennessy, 2013 WL 3939886 (Bankr. N.D.N.C.

2013) – When a debtor dies while in confirmed chapter 13 plan, Rule 1016 allows for case to either be dismissed or to continue as if debtor was still alive but does not provide for hardship discharge based on death of debtor.

Binding Effect of Plan In re Bolden, 2013 WL 3897048 (E.D. Mi. 2013) – Creditor holding lien on debtor’s vehicle bound by terms of confirmed plan that modified contract to reduce interest rate and reduce principal.

Creditor required to release lien where creditor had been paid stated principal plus interest, even if total paid was not sufficient to pay lien under applicable non-bankruptcy law.

Funds on Hand at Dismissal or Conversion In re Tejchma, Case No. 09-9138 (Bankr. W.D. Mi.

2013) – In Chapter 12 case, court held that under Section 349(b), Court has discretion to order that funds on hand at dismissal be disbursed to confirmed plan. Disbursement to creditors was consistent with the plan, on which creditors relied to their detriment, and disbursement to creditors would be in the best interests of creditors.

In re Hamilton, 2013 WL 2151457 (Bankr. M.D. Tn.

2013) – Funds on hand with Trustee at dismissal of case after confirmation of Plan must be used to pay any outstanding administrative costs including any previously awarded attorney fees, and any remaining balance must be returned to the debtor.

In re James, 2013 WL 1700933 (Bankr. N.D. Ill.

2013) – Funds on hand at pre-confirmation dismissal are to be paid first to unpaid administrative expenses including attorney fees, with balance of funds returned to debtor.

Discharge and Secured Claims Canning v. Beneficial Maine, Inc., 462 BR 258 (1 st Cir. BAP 2011) , aff’d 706 F.3d 64 (1 st Cir 2013) – Creditor does not violate stay or discharge injunction by refusing to release lien or foreclose against property. Creditor not required to accept possession of collateral unless refusal to accept collateral is subterfuge to coerce payment by the debtor of the discharged debt.

In re Rogers, 2013 WL 3422702 (Bankr. E.D.N.C.

2013) – Discharge under chapter 13 discharged debtor’s liability for deficiency resulting from post discharge default and foreclosure. Deficiency judgment is not excluded from the scope of the discharge.

Section 109 Rivera v. Matos, Case No. 12-087 (9 th Cir. BAP 2013) – Court dismissed second filing where debtor voluntarily dismissed first case after mortgage company filed for relief from stay.

Bar Orders Papas v. Buchwald Capital Advisors, LLC, 728 F.3d

567 (6 th Cir. 2013) – Court has authority under Section 105 to release a non-debtor from liability as a condition of a settlement.

Foreclosure Issues Mentag v. GMAC Mortgage, LLC, 2013 WL 489181 (E.D. Mi. 2013) – Debtor lacks standing to contest validity of alleged assignment of mortgage or to raise alleged defect in assignment in response to request for relief from stay.

Mullins v. FNMA, 2013 WL 5707798 (E.D. Mi. 2013) – Legal title to foreclosed property vests in the purchaser if the property is not redeemed within allowable time.

Sanctions Goldberg v. Goodman, Case No. 12-1643 (9 th Cir. BAP 2013) – Bankruptcy court acted within discretion in sanctioning debtor’s counsel including 6 month suspension from filing new bankruptcy cases, and referrals to the United States Attorney, Nevada Secretary of State, Nevada Attorney General, Nevada State Bar and United States Trustee. Court also imposed monetary sanctions for attorney fees incurred by debtor’s new counsel in connection with sanctions process.

Sale Free and Clear In re Scott, 2013 WL 4498987 (Bankr. E.D. Ky. 2013) – Section 363(f) allows sale free and clear of liens if the creditor consents; if the price to be received is more than the aggregate value of liens on the property; the lien is in bona fide dispute; or the creditor could be compelled to accept money satisfaction of interest. There is no legal basis on which a debtor could force the lienholder to accept less than full payment.

Section 523

Pazdzierz v.

First American

Company, 2013 WL 2460415 (6 th

Title Insurance

Cir. 2013) – Title Insurance company, as assignee of original lender has standing to bring action against debtor to have debt excepted from discharge based on fraud.

Although fraud claims are generally not assignable, where promissory note can be assigned, assignee can bring fraud complaint incidental to execution of assigned note.

Objections to Claims In re Rodgers, 2013 WL 2404000 (Bankr. E.D. Tn.

2013) – Failure to attach documents required by Rule 3001(c), standing alone, is not basis to disallow claim.

Debtor must allege factual dispute about who is the holder of the claim; that Debtors owe someone else or they do not owe the obligation at all.

In re Reed, 2013 WL 2015984 (Bankr. E.D. Tn. 2013) – Creditor’s issuance of Form 1099-C “cancellation of debt” does not alone extinguish the underlying debt. However, where Form 1099-C has resulted in debtor’s inclusion of amount stated in Gross Income on which Debtor then was required to pay taxes, the combination of the Form 1099-C and equity requires conclusion that creditor did discharge debt.

First Place Bank v. Casino Concepts by Design,

Inc., 2013 WL 3351572 (Mi. App. 2013) – Unscheduled debt is not discharged regardless of whether case is asset or no asset. There is no exception in Section 523(a)(3) based on whether the bankruptcy case as an asset or a no-asset case. Debtor bears burden for re opening bankruptcy case to add creditor if debtor wants debt to be declared discharged.

Right to Discharge In re Voshell, Case No. 13-0454 (Bankr. W.D. Mi.

2013) – Section 1328(f) precludes entry of a discharge in Chapter 13 if the debtor received a discharge in a case filed under chapter 7 during the preceding 4 years. Debtor cannot waive prior discharge, and there is no basis for a debtor to revoke his own discharge.