All posts in Chapter 7

ABI’s Proposed Changes for Small and Mid-Size Businesses

By | January 18, 2015 | Chapter 11, Chapter 13, Chapter 7, Court Clerk Information, Courts | No comments

Below is a great article discussing the American Bankruptcy Institute’s proposal to help small business debtors.  The article first apppeared in the WSJ’s DealB%k by Prof. Michelle M. Harner.

When small and middle-market companies fail, families and founders often lose a business to which they have devoted not only most of their time but also most of their life savings, and most of the time the reason why these business fail is because they don’t know what is lead generation, which at the end is a fact that could have prevented the situation. Others lose as well: employees, suppliers, communities and lenders. Consequently, a federal bankruptcy system that effectively and efficiently rehabilitates distressed small and middle-market companies is essential.

Read more…

Supreme Court Oral Arguments Today in Wellness International Ltd. v. Sharif

By | January 14, 2015 | Appeals, Cases, Chapter 11, Chapter 13, Chapter 7, Courts, Supreme Court | No comments

Today, January 14, 2015, the Supreme Court is scheduled to hear oral arguments in the latest case before the Court regarding the bankruptcy court’s jurisdictional powers — Wellness International Network, Limited v. Sharif.  The Court was not too interested in delving into this issue since the case was on the list of cases to be considered by the Justices at five separate conferences.  Regardless, the Court finally granted certiorari to the Seventh Circuit’s decision on July 1, 2014.

The Court will address the following two issues:

(1) Whether the presence of a subsidiary state property law issue in an 11 U.S.C. § 541 action brought against a debtor to determine whether property in the debtor’s possession is property of the bankruptcy estate means that such action does not “stem[] from the bankruptcy itself” and therefore, that a bankruptcy court does not have the constitutional authority to enter a final order deciding that action; and

(2) whether Article III permits the exercise of the judicial powers of the U.S. by the bankruptcy courts on the basis of litigant consent, and if so, whether implied consent based on a litigant’s conduct is sufficient to satisfy Article III.

For more information:  www.scotusblog.com/case-files/cases/wellness-international-network-limited-v-sharif/

B.A.P. Holds Judge Does Not Have Authority To Prevent Debtor From Adding An Exemption to the Schedules (In re Gray et al., 9th Cir. B.A.P. 2014)

By | December 16, 2014 | Appeals, Cases, Chapter 13, Chapter 7, Uncategorized | No comments

The 9th Circuit B.A.P. recently held that a bankruptcy judge does not have the authority to prevent a debtor from adding an exemption to his or her court papers based solely on the judge’s finding they had acted in bad faith.  The Panel intricately cites U.S. Supreme Court’s decision in Law v. Siegel in reaching its conclusion.

Summary holding:  Bankruptcy courts have no discretion under federal law to deny debtors leave to amend their exemptions absent express statutory authority.  The panel reversed a ruling to disallow an amended exemption.   In re Gray et al.; Gray et al. v. Warfield, No. 13-1502, 2014 WL 6972522 (B.A.P. 9th Cir. Dec. 9, 2014).

Tentative Ruling on Contempt for Violation of the Discharge Injunction

By | December 8, 2014 | Cases, Chapter 7, Judges Corner | No comments

Judge Ted Albert’s usual excellent work.

United States Bankruptcy Court
Central District of California
Judge Theodor Albert, Presiding
Courtroom 5B Calendar
Santa Ana
Tuesday, December 09, 2014 Hearing Room 5B
11:00 AM

8:10-23458 Carlos Antonio Bernal Chapter 7
#14.00 Order To Show Cause RE: Contempt Against *************

This is a hearing on the OSC re contempt issued by the court 10/29/14 at the request of the debtor.  There is proof of service upon attorney Silverstein but not as to the other alleged contemnor, Grand Commerce Center, LLC.  Only attorney Silverstein has responded.  First, the discharge injunction is effective as to all discharged debts.  While Attorney Silverstein alleges that he was not listed in the petition and schedules, the certificate of notice dated 9/26/10 suggests that his client was.  Moreover, in no-asset cases all debts are discharged whether listed or not.  In re Heilman, 430 B.R. 213, 218 (9th Cir. BAP 2010).  Therefore, every aspect of the garnishment obtained on a judgment issued after the 1/13/2011 is potentially a contempt.  But unlike stay violations which make all violations automatically void, violation of the discharge injunction is treated as contempt, so damages and penalties resulting must be considered in terms of the willfulness of the violation.  Attorney Silverstein tries to make an issue of the corporate vs individual status under §362(k), but this is misplaced since clearly the debtor (which is the only status that matters) is an individual, and discharge injunction violations are judged on a different standard anyway.  Attorney Silverstein submits a declaration indicating he knew nothing about the bankruptcy and stopped immediately the garnishment once he learned of it. He also mentions the monies garnished were refunded or never obtained (it is unclear which).  But the exact timing of all of this is left vague.  The court notes that several wage statements are attached as exhibits showing that garnishments continued for several pay periods including as late as 9/26, although Mr. Spector’s letter to attorney Silverstein is dated August 8, 2014.  So, absent another explanation, it would seem at the very least that Attorney Silverstein was slow in responding. Also conspicuously absent in Attorney Silverstein’s papers is any recognition that ongoing garnishment imposes a real hardship on a debtor struggling to obtain his fresh start. Lastly, the court expects attorneys, particularly ones involved in debt collection practice who must know of these principles, will adhere to higher standards. Different considerations (and potentially higher consequences) may apply as to Grand Commerce, if service can be effected.

Damages equal to attorney’s fees and reopening fee incurred post discharge.

Valuable Bible Exempt in Illinois says District Court Judge Overruling Bankruptcy Judge

By | December 2, 2014 | Cases, Chapter 7 | No comments

Illinois exemption statute says:”The necessary wearing apparel, bible, school books, and family pictures of the debtor and the debtor’s dependents.”  This bible however was a 1830 relic worth at least $10,000 with some people saying it could be five to ten times that value.  And, says the trustee, the debtor had other bibles and did not use this one.   Her total debt was in the range of $30,000.  The bankruptcy judge ruled that it was not exempt and the district court reversed.  The district court decision is here.

This is really straight statutory construction.  There are lots of dollar limitations among the various exemptions but none on bibles.  The district court writes,

The Court believes a reading of the plain language indicates the Bible is exempt without regard to its value.  First, it is the most reasonable interpretation that “necessary” only modifies “wearing apparel” and does not modify the remaining items in the list.  Wearing apparel is a necessity for basic living.  However, one does not need a bible, school books or family pictures to survive.  As such, the Court finds that the statute, as written, does not require the Court to undertake a “necessary” analysis.

The article at Credit Slips is here.  The Wall Street Journal article is here.

The biggest problems law students have is that they learn a bunch of rules which they can spew back to you nicely but then they jump to a “reasonable” type argument.   Congress makes the laws.  Obviously the Illinois legislature could have exempted bibles “irrespective of the value.”  There would be no debate.  But is that what it did here?  It depends on what the code says.  The district court judge’s analysis here is supported by the plain language of the code.  The trustee’s arguments on the other hand are completely “reasonable.”

Home Loan As Compensation is Not Consumer Debt For Purposes of Dismissal (In re Cherrett)

By | November 24, 2014 | Cases, Chapter 7 | No comments

A home loan that an employee accepted as part of a compensation package was not a “consumer debt” for purposes of determining whether his Chapter 7 bankruptcy case was subject to a statutory dismissal provision, said the 9th Circuit BAP in their published opinion on Nov. 7, 2014.

Debtor-husband’s former employer moved to dismiss debtors’ Chapter 7 case as abuse of provisions of that chapter,  butt Judge Scott C. Clarkson denied the motion on ground that the debt  was not “consumer debt,”  as required by the Code.

Supreme Court to Review Lam Motions

By | November 23, 2014 | Chapter 7, Supreme Court | No comments

The Supreme Court has accepted cert in Bank of America, N.A. v. Caulkett agreeing to review the right of a chapter 7 debtor to strip off an entirely unsecured lien. In Los Angeles we call them “Lam Motions.” I expect oral argument some time in April, 2015 and I expect to be there. Nearly every court in the country has held that the Supreme Court case of Dewsnup requires denial of the strip off in chapter 7. My briefs of the cases follow.

Bank of America, N.A. v. Caulkett, (unpublished) (11th Cir., May, 2014)

Issue: May a chapter 7 strip off a wholly unsecured lien pursuant to sections 506(a) and 506(d)?

Holding: Yes.

The bankruptcy court here “void[ed] a wholly unsecured second priority lien on residential property owned by a Chapter 7 debtor. The issue on appeal is whether a Chapter 7 debtor is allowed to ‘strip off’ a second priority lien on his home, pursuant to 11 U.S.C. § 506(a) and (d), when the first priority lien exceeds the value of the property.” The district court affirmed.

The 11th Circuit affirmed in a very short opinion saying only that it is bound by its prior ruling in McNeal v. GMAC Mortg., LLC (In re McNeal), 735 F.3d 1263 (11th Cir. 2012).

McNeal v. GMAC Mortg., LLC (In re McNeal), 735 F.3d 1263 (11th Cir. 2012)

Issue: May a chapter 7 strip off a wholly unsecured lien pursuant to sections 506(a) and 506(d)?

Holding: Yes.

Per curiam

The debtor here filed chapter 7. “In her petition, McNeal reported that her home was subject to two mortgage liens: a first priority lien in the amount of $176,413 held by HSBC and a second priority lien in the amount of $44,444 held by Homecomings Financial, LLC, a subsidiary of GMAC Mortgage, LLC (collectively, “GMAC”). McNeal also reported that her home’s fair market value was $141,416. The parties do not dispute these factual allegations.” “McNeal then sought to ‘strip off’ GMAC’s second priority lien, pursuant to sections 506(a) and 506(d).” The bankruptcy court denied the request and the district court affirmed.

The 11th Circuit reversed also in a very short opinion. “That GMAC’s junior lien is both ‘allowed’ under 11 U.S.C. § 502 and wholly unsecured pursuant to section 506(a) is undisputed. To determine whether such an allowed—but wholly unsecured—claim is voidable, we must then look to section 506(d), which provides that ‘[t]o the extent that a lien secures a claim against a debtor that is not an allowed secured claim, such lien is void.’” The court distinguished Dewsnup saying, “[b]ecause Dewsnup disallowed only a ‘strip down’ of a partially secured mortgage lien and did not address a ‘strip off’ of a wholly unsecured lien, it is not [determinative of] the facts at issue in this appeal.”

When Appealing, First Seek a Stay (In re Mortgages)

By | November 19, 2014 | Appeals, Chapter 11, Chapter 13, Chapter 7 | No comments

When appealing an order, remember to put on your checklist to first seek a stay of the challenged order.  If not, the appellate court will regrettably inform you “there is nothing we can do for you now”.   That is what happened in In re Mortgages Ltd., — F.3d — (9th Cir. 2014).

In a recently published Ninth Circuit Opinion, the Court held that an appeal by a group of creditors was equitably moot because they never sought a stay of the order that they were appealing from.  The debtor had already acted, and other third parties would be unfairly harmed if the panel were to side with the creditor-appellants.  The Court said, “clawing back money from those investors who already paid their full allocation would be either impossible or inequitable.”

As such, the panel dismissed the appeal citing In re Thorpe, which held that appeals can be dismissed based on mootness when a “comprehensive change of circumstances” has occurred that makes it inequitable for a court to consider the appeal’s merits.  In re Thorpe Insulation Co., 677 F.3d 869 (9th Cir. 2012).

Full Opinion Here: http://cdn.ca9.uscourts.gov/datastore/opinions/2014/11/12/12-15234.pdf

Supreme Court To Revisit In Re Dewsnup To Decide On “Strip Off’s” (Bank of America v. Caulkett and Bank of America v. Toledo-Cardona)

By | November 18, 2014 | Cases, Chapter 11, Chapter 13, Chapter 7 | No comments

The Supreme Court will hear two consolidated cases to determine whether a Chapter 7 debtor may “strip off” an underwater mortgage.

From SCOTUSblog:

The Supreme Court, taking on a bankruptcy issue that grew out of the collapse of the U.S. housing market, agreed on Monday to sort out when a mortgage debt on a home that has lost its value can be completely wiped out.  At issue in a pair of cases is the so-called “strip off” in bankruptcy of a mortgage that is ranked lower than another loan when the mortgaged property is worth so little that it could not cover either debt.

The Court, in the consolidated cases of Bank of America v. Caulkett and Bank of America v. Toledo-Cardona, will be deciding whether a “strip off” of a mortgage is to be barred in the same way that a “strip down” already is, under a 1992 Supreme Court ruling (Dewsnup v. Timm).

Read more…

Lawyer Hit With Sanctions For Filing Frivolous Motion To Compel (In re Medina, Bankr. E.D. Cal.)

By | November 14, 2014 | Chapter 11, Chapter 13, Chapter 7 | No comments
A California bankruptcy judge has imposed a $500 sanction on an attorney for filing a frivolous  motion to compel his clients’ Chapter 13 trustee to close their case.  The motion included inaccurate facts, no supporting legal authority, and forced the trustee to waste time by filing an opposition. The judge determined that a $500 sanction was a “reasonable deterrent to encourage Gillis to investigate the facts of his cases, and to familiarize himself with applicable law, before he files any future motions” in Chapter 13 cases.
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