tag:blogger.com,1999:blog-31136376210017612372024-03-24T23:09:12.116-07:00impudentbankruptcylawyerBANKRUPTCY ABCs FROM AN IMPUDENT LAWYER. I am a Worcester and Central Massachusetts bankruptcy lawyer. I do bankruptcy from all sides: commercial bankruptcies, consumer bankruptcies, and bankruptcy litigation. For most people (and lawyers), the ins and outs of bankruptcy law are scary and hard to understand. I know the law, I don’t scare easily, and I can explain it to you. This blog is your bankruptcy primer – delivered impudently and accurately. Licensed in MA & MA federal courts.Anonymoushttp://www.blogger.com/profile/14460465787358294185noreply@blogger.comBlogger12125tag:blogger.com,1999:blog-3113637621001761237.post-19225131938301978262015-02-27T14:04:00.000-08:002015-03-12T07:57:48.981-07:00Changing My Location, Not Changing My Practice<div class="MsoNormal">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;">Dear Clients, Colleagues, and Friends:<o:p></o:p></span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;">Twenty-six years is a long time in one place. While
there is sadness in parting, the partners of Seder & Chandler, LLP and I
have mutually agreed to separate our practices. Effective March 1, 2015, I will
leave the firm and join my wife, Marina R. Matuzek, at her law offices located
at 4 Austin Street, Worcester, MA 01609. <o:p></o:p></span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;">As for my practice, I will continue to offer my
services to present and future clients and represent them in consumer
bankruptcy, business bankruptcy, and bankruptcy litigation in Massachusetts courts. As I have often
said in my “elevator speech”, it does
not matter whether you are a debtor or creditor, consumer or business, owner or
claimant, plaintiff or defendant—if you plan to be involved or are already
involved in a bankruptcy case or an adversary proceeding, I can assist you. I
offer my experience and knowledge in business and consumer Chapter 7, Chapter
11, and Chapter 13 cases, on all sides of a bankruptcy case and on all sides of
an adversary proceeding. My twenty-six years in bankruptcy practice have also
provided me with experience and knowledge in commercial litigation, loan
transactions, corporate matters, mortgage foreclosure, and secured party sales.
If you have a problem or need representation in any of these areas, I will be
willing to sit down with you and explore your options. <o:p></o:p></span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;">Seder & Chandler, LLP and I plan to continue our
amicable relationship. The firm expects that it will refer many
bankruptcy-related matters and inquiries it receives to me, and I expect I will
refer to Seder & Chandler, LLP non-bankruptcy-related matters and inquiries,
if such referrals are in the best interests of a current or potential client. <o:p></o:p></span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;">I will continue to maintain this bankruptcy blog, my
Twitter account, my Linked-In account, and my Google+ page. Please visit those
sites, if you are so inclined, & stay tuned for updates.<o:p></o:p></span></div>
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Anonymoushttp://www.blogger.com/profile/14460465787358294185noreply@blogger.com2tag:blogger.com,1999:blog-3113637621001761237.post-47372238487548457272014-12-15T14:48:00.001-08:002014-12-15T14:48:37.024-08:00Hot Button Issues Before the U.S. Supreme Court: Bankruptcy Now Rules Docket<div class="MsoNormal">
Interesting statistic: a litigant has a 1% or less chance of convincing the U.S. Supreme Court to review his, her or its burning legal issue that all other appellate courts have rejected, dismissed or pooh-poohed. Don’t believe me? Look here: <a href="http://dailywrit.com/2013/01/likelihood-of-a-petition-being-granted/">http://dailywrit.com/2013/01/likelihood-of-a-petition-being-granted/</a><o:p></o:p></div>
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As of today (December 15, 2014), the U.S. Supreme Court has accepted five—count ‘em, five—different bankruptcy issues to hear in its 2014-2015 term. Depending upon your perspective, this is either like hitting a big-bucks lottery, or suffering the consequences of the old Chinese curse “May everything you wish for come true”. In addition, the justices have decided, on January 9, 2015, to confer on whether to accept another bankruptcy issue on their docket of cases to hear and decide.<o:p></o:p></div>
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Here are the five issues that the SCOTUS has agreed to decide, and the one it will consider in mid-January, in no particular order of importance:</div>
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1<span style="font-size: 7pt; font-stretch: normal;"> </span><u>11 U.S.C. §506(d) Strip-Offs of Totally Unsecured Second Mortgages in Chapter 7</u>: At the circuit level, the 11<sup>th</sup> Circuit stands alone in permitting Chapter 7 debtors to use §§506(a) and 506(d) to “strip-off” second mortgages when a first mortgage eats up all the value in a residence or other real property. </div>
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The SCOTUS has accepted certiorari on two 11<sup>th</sup> Circuit decisions allowing second mortgage strip-offs: <i>Bank of America, N.A. v. Caulkett</i>, No. 13-1421 (lower court opinion here: <a href="https://cases.justia.com/federal/appellate-courts/ca11/14-10803/14-10803-2014-05-21.pdf">https://cases.justia.com/federal/appellate-courts/ca11/14-10803/14-10803-2014-05-21.pdf</a>); and <i>Bank of America, N.A. v. Toledo-Cardona</i>, No. 14-163 (lower court opinion here: <a href="http://sblog.s3.amazonaws.com/wp-content/uploads/2014/09/11thcir-toledo-cardona.pdf">http://sblog.s3.amazonaws.com/wp-content/uploads/2014/09/11thcir-toledo-cardona.pdf</a>).<o:p></o:p></div>
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For a more detailed examination of this issue, see my previous blog posts (on two other 11th Circuit cases denied certiorari) here: <a href="http://impudentbankruptcylawyer.blogspot.com/2014/04/now-in-play-506d-strip-offs-in-chapter-7.html">http://impudentbankruptcylawyer.blogspot.com/2014/04/now-in-play-506d-strip-offs-in-chapter-7.html</a> ; and here: <a href="http://impudentbankruptcylawyer.blogspot.com/2014/06/11th-circuit-506d-strip-offs-part-deux.html">http://impudentbankruptcylawyer.blogspot.com/2014/06/11th-circuit-506d-strip-offs-part-deux.html</a>.<o:p></o:p></div>
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2 <u>Whether an Order Denying Confirmation of a Chapter 13 Plan is an Appealable “Final Order”</u>: This case originates from the First Circuit. This past spring, the First Circuit dodged the issue of whether a Chapter 13 debtor could propose and confirm a “hybrid” Chapter 13 plan (splitting a secured mortgage claim on underwater property into “secured” and “unsecured” claims, and continuing paying the stripped-down secured claim after five years), and held instead that the debtor’s appeal should be dismissed because the bankruptcy court’s order denying confirmation of the debtor’s Chapter 13 plan was not a “final” order for purposes of accepting appellate jurisdiction.</div>
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The SCOTUS accepted certiorari on the First Circuit case, on December 12, 2014: <i>Bullard v. Hyde Park Savings Bank</i>, No. 14-116 (lower court opinion here: <a href="http://media.ca1.uscourts.gov/pdf.opinions/13-9009P-01A.pdf">http://media.ca1.uscourts.gov/pdf.opinions/13-9009P-01A.pdf</a>). I examined the First Circuit opinion in my blog post here: <a href="http://impudentbankruptcylawyer.blogspot.com/2014/05/sound-fury-no-hybrid-chapter-13-plan.html">http://impudentbankruptcylawyer.blogspot.com/2014/05/sound-fury-no-hybrid-chapter-13-plan.html</a>.</div>
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3 <u>Bankruptcy Court Jurisdiction under Article III of the U. S. Constitution – Third Bite at the Apple</u>: First, we had <i>Stern v. Marshall</i>, in which the SCOTUS told us that bankruptcy jurisdiction—whether labeled ‘core” or “non-core”—did not extend to a bankruptcy court making final findings of fact or rulings of law on a state law issue that a debtor presents as a permissive (rather than mandatory) counterclaim to a creditor’s filed proof of claim. The SCOTUS, in the majority opinion, assured us that its ruling was no sea-change to bankruptcy practice and limited in scope. My previous blog post on <i>Stern v. Marshall</i> is here: <a href="http://impudentbankruptcylawyer.blogspot.com/2012/12/stern-v-marshall-seminar-materials.html">http://impudentbankruptcylawyer.blogspot.com/2012/12/stern-v-marshall-seminar-materials.html</a>.<o:p></o:p></div>
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Next, we had <i>Executive Benefits Agency v. Arkinson</i>, in which a unanimous SCOTUS assured us that if a bankruptcy court is confronted with a state law issue masquerading as a “core” issue—such as, in this case, a fraudulent transfer lawsuit—that invokes the specter of <i>Stern v. Marshall</i>, the bankruptcy court and/or the U.S. District Court may treat the bankruptcy court’s findings and rulings as "proposed”, as they would in a true non-core matter, and no harm would be done. My previous blog post on <i>Executive Benefits Agency v. Arkinson</i> is here: <a href="http://impudentbankruptcylawyer.blogspot.com/2014/06/executive-benefits-insurance-agency-v.html">http://impudentbankruptcylawyer.blogspot.com/2014/06/executive-benefits-insurance-agency-v.html</a>.<o:p></o:p></div>
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In <i>Executive Benefits Agency v. Arkinson</i>, Justice Thomas’s opinion conveniently ducked the issue of whether parties who had an Article III objection to bankruptcy court jurisdiction could expressly or impliedly “waive” that objection and allow a bankruptcy court to issue final findings and rulings on the matter. That issue, like many buried issues, rears its ugly head again in <i>Wellness International Network, Limited v. Sharif</i>, No. 13-935, scheduled for argument in mid-January (lower court opinion here: <a href="http://media.ca7.uscourts.gov/cgi-bin/rssExec.pl?Submit=Display&Path=Y2013/D08-21/C:12-1349:J:Tinder:aut:T:fnOp:N:1190505:S:0">http://media.ca7.uscourts.gov/cgi-bin/rssExec.pl?Submit=Display&Path=Y2013/D08-21/C:12-1349:J:Tinder:aut:T:fnOp:N:1190505:S:0</a>). In the <i>Wellness International Network</i> case, the SCOTUS has agreed to decide two issues: (a) whether a subsidiary state property law issue that needs to be decided in order to determine whether property in the debtor’s possession is property of the bankruptcy estate stems from the bankruptcy itself or is an issue that a bankruptcy court lacks the constitutional authority to decide with a final order; and (b) whether litigant consent—express or implied—is enough to permit a bankruptcy court’s exercise of the Article III judicial power, and if so, whether implied consent based on a litigant’s conduct is sufficient to satisfy Article III requirements for the exercise of that consent.</div>
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The SCOTUS has scheduled January 14, 2015 for argument on this case; you can read all the briefs here: <a href="http://www.scotusblog.com/case-files/cases/wellness-international-network-limited-v-sharif/">http://www.scotusblog.com/case-files/cases/wellness-international-network-limited-v-sharif/</a>.</div>
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<span style="text-indent: -0.25in;">4 </span><u style="text-indent: -0.25in;">Monies Paid into a Chapter 13 per a Confirmed Chapter 13 Plan: Who Gets the Funds if the Debtor’s Case is Converted to a Chapter 7 Case?</u><span style="text-indent: -0.25in;">:</span><span style="text-indent: -0.25in;"> </span><span style="text-indent: -0.25in;">There is a circuit conflict on this issue. 11 U.S.C. §348(f) says that, in a Chapter 13 case converted to Chapter 7 in good faith, the “property of the estate” is the property that the debtor came into bankruptcy with and “remains in the possession of or is under the control of the debtor on the date of conversion.” Such property apparently excludes undistributed monies—specifically, post-petition wages—that a debtor paid to the Chapter 13 trustee for distribution per a confirmed Chapter 13 plan.</span><span style="text-indent: -0.25in;"> </span><span style="text-indent: -0.25in;">The Third Circuit said that the statute (and 11 U.S.C. §1327(a)) required paid-in monies to be returned to the debtor and not distributed by creditors. </span><i style="text-indent: -0.25in;">In re Michael</i><span style="text-indent: -0.25in;">, 699 F.3d 305 (3rd Cir. 2012). The Fifth Circuit said that the statutes fail to adequately address the situation, the Chapter 13 plan needs to be respected, and the paid-in monies need to be distributed to creditors per the plan. </span><i style="text-indent: -0.25in;">Vieglelahn v. Harris</i><span style="text-indent: -0.25in;">, located here: </span><a href="http://www.jthomasblack.com/library/20140707-Vieglelahn-v.-Harris--13-50374--5th-Cir.-2014-.pdf" style="text-indent: -0.25in;">http://www.jthomasblack.com/library/20140707-Vieglelahn-v.-Harris--13-50374--5th-Cir.-2014-.pdf</a><span style="text-indent: -0.25in;">. The SCOTUS accepted the debtor’s writ of certiorari regarding the Fifth Circuit decision; the case and docket number are </span><i style="text-indent: -0.25in;">Harris v. Viegelahn</i><span style="text-indent: -0.25in;">, No. 14-400.</span></div>
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<span style="text-indent: -0.25in;">5 </span><u style="text-indent: -0.25in;">The Extent of Bankruptcy Court Authority to Award Fees under 11 U.S.C. §330</u><span style="text-indent: -0.25in;">: Another Fifth Circuit decision is up for review.</span><span style="text-indent: -0.25in;"> </span><i style="text-indent: -0.25in;">Baker Botts, L.L.P. v. ASARCO, L.L.C.</i><span style="text-indent: -0.25in;">, No. 14-103 (lower court opinion: </span><a href="http://sblog.s3.amazonaws.com/wp-content/uploads/2014/09/5ht-cir-12-40997-.pdf" style="text-indent: -0.25in;">http://sblog.s3.amazonaws.com/wp-content/uploads/2014/09/5ht-cir-12-40997-.pdf</a><span style="text-indent: -0.25in;">) involves a Chapter 11 case, but raises issues near and dear to all bankruptcy attorneys’ hearts: </span><span style="text-indent: -0.25in;"> </span><span style="text-indent: -0.25in;">(a) under 11 U.S.C. §330, can the bankruptcy court award “fee enhancements” (as opposed to fees based solely on hourly rates and time, i.e., the “lodestar” method) for exceptional results in a bankruptcy case; and (b) under the same statute, can the bankruptcy court approve fees for litigation associated with defending a fee application? The Fifth Circuit said “yes” to the fee enhancement, but “no” to the fee application litigation fees.</span><span style="text-indent: -0.25in;"> </span><span style="text-indent: -0.25in;">On the latter subject, the circuit court noted that §330(a)(6) allows for fees to be awarded only for preparation of a fee application. </span><span style="text-indent: -0.25in;"> </span><span style="text-indent: -0.25in;">I suspect, however, that the fee enhancement issue will draw much more attention in the briefs and argument of this case.</span></div>
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<span style="text-indent: -0.25in;">6 </span><u style="text-indent: -0.25in;">Whether a Bankruptcy Court can Limit or Eliminate “Plan Injunctions” and Releases in Favor of Non-Creditors in a Chapter 11 Plan (Pending Petition for Certiorari)</u><span style="text-indent: -0.25in;">: This writ of certiorari tests a bankruptcy court’s power to deny enforcement or approval of injunctions and releases in favor of non-creditors, which injunctions and releases are included in a proposed Chapter 11 plan. You can read the writ for certiorari here: </span><a href="http://sblog.s3.amazonaws.com/wp-content/uploads/2014/11/30262-pdf-Goroff.pdf" style="text-indent: -0.25in;">http://sblog.s3.amazonaws.com/wp-content/uploads/2014/11/30262-pdf-Goroff.pdf</a><span style="text-indent: -0.25in;">; </span><span style="text-indent: -0.25in;"> </span><span style="text-indent: -0.25in;">and the lower case opinion (from the 4</span><sup style="text-indent: -0.25in;">th</sup><span style="text-indent: -0.25in;"> Circuit) here: </span><a href="http://www.ca4.uscourts.gov/Opinions/Published/131608.P.pdf" style="text-indent: -0.25in;">http://www.ca4.uscourts.gov/Opinions/Published/131608.P.pdf</a><span style="text-indent: -0.25in;">. </span><span style="text-indent: -0.25in;"> </span><span style="text-indent: -0.25in;">The case and docket number are </span><i style="text-indent: -0.25in;">National Heritage Foundation v. The Highbourne Foundation</i><span style="text-indent: -0.25in;">, No. 14-481.</span></div>
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©Kevin C. McGee 2014<o:p></o:p></div>
Anonymoushttp://www.blogger.com/profile/14460465787358294185noreply@blogger.com1tag:blogger.com,1999:blog-3113637621001761237.post-27274191115924988502014-06-19T09:13:00.001-07:002014-06-19T09:15:09.420-07:0011th Circuit: §506(d) "Strip-Offs" Part Deux<div class="MsoNormal">
<b><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;">What
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<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;"> Back in
April, I posted about the U.S. Supreme Court's denial of certiorari on an
unpublished order of the 11th Circuit Court of Appeals, in which the 11th
Circuit followed a previous unpublished decision that allowed wholly unsecured
liens to be "stripped off" in Chapter 7, using 11 U.S.C. §§506(a)
& (e). As I discussed in that post, the 11th Circuit interpreted <i>Dewsnup v. Timm</i>, 502 U.S. 410 (1992) to
be limited to partially secured first mortgages, and followed its own
precedent -- handed down before <i>Dewsnup v. Timm</i> -- in ruling that 11 U.S.C. §506 could be used
to void wholly unsecured mortgages and liens in Chapter 7. <i><u>See</u> Folendore v. United States Small Bus. Admin.</i>, 862 F.2d
1537 (11th Cir. 1989).<o:p></o:p></span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;"> I also
noted that the 11 Circuit stood as an outlier on this issue, and that the other
circuits reaching the same issue had ruled that <i>Dewsnup v. Timm</i> controlled (and forbade) the use of §506 against wholly unsecured
liens in Chapter 7. My prior blog post is here: <a href="http://impudentbankruptcylawyer.blogspot.com/2014/04/now-in-play-506d-strip-offs-in-chapter-7.html">http://impudentbankruptcylawyer.blogspot.com/2014/04/now-in-play-506d-strip-offs-in-chapter-7.html</a><o:p></o:p></span></div>
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<b><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;"> The 11th Circuit Speaks Again <o:p></o:p></span></b></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;"> The 11th
Circuit, on June 18, 2014, published a decision in which it adopted the
majority view allowing debtors to use a "Chapter 20" to strip off
liens. The decision is <i>Wells Fargo Bank,
N.A. v. Scantling (In re Scantling)</i>, ___ F.3d ____ (11th Cir. Docket No
13-10558, 6/18/14), and you can read it here: <a href="http://www.ca11.uscourts.gov/opinions/ops/201310558.pdf">http://www.ca11.uscourts.gov/opinions/ops/201310558.pdf</a>. <o:p></o:p></span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;"> You won't
find "Chapter 20" in the Bankruptcy Code; bankruptcy lawyers use it
as a term of art to describe a two-step process used to strip off unsecured
junior liens and mortgages. First, the debtor files a Chapter 7 bankruptcy and
obtains a discharge of the underlying promissory note and other debt. Second,
immediately after the Chapter 7 discharge, the debtor files a Chapter 13, in
which the debtor files a plan (usually with token payments for lien creditors)
and files a motion, under 11 U.S.C. §506, to determine that the liens remaining
after the Chapter 7 are void because they are wholly unsecured.<o:p></o:p></span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;"> Here's
the trick: the debtor in these circumstances does not care that he or she
cannot get a "discharge" in Chapter 13; the debtor's sole purpose is
to use his or her Chapter 13 case to void and "strip off" the
unsecured mortgages. 11 U.S.C. §1328(f) mandates a four year waiting period
(after the date the debtor filed the prior Chapter 7) for filing a Chapter 13
in which the debtor seeks a discharge. But -- nothing in the Bankruptcy Code
prohibits the debtor from filing a Chapter 13 for another purpose in that four
year waiting period, so long as the debtor can confirm a plan according to the
dictates of Chapter 13. <o:p></o:p></span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;"> Wells
Fargo argued that the Chapter 13 plan and discharge must go hand-in-hand.
However, a Chapter 13 plan does more than secure a discharge after all its
payments are completed: it allows the debtor to cure mortgage defaults; pay off
income tax debt over five years, without further accrual of interest and
penalties; and allows the avoidance of wholly unsecured mortgages, even on the debtor's
primary residence. 11 U.S.C. §1322(b)(2) states that the plan may: "modify
the rights of holders of secured claims, other than a claim secured only by a
security interest in real property that is the debtor’s principal residence, or
of holders of unsecured claims, or leave unaffected the rights of holders of
any class of claims." Although the SCOTUS has ruled that Chapter 13
debtors cannot use §506(a) to modify a partially secured mortgage on a
residence, <i>Nobelman v. American Savings Bank</i>, 508 U.S. 324 (1993), most
circuits -- including the 11th Circuit -- have ruled that a §506(a) valuation
can be combined with §1322(b)(2) provision in a plan to void a wholly unsecured
mortgage. See <i>Tanner v. Firstplus
Financial, Inc. (In re Tanner)</i>, 217 F.3d 1357 (11th Cir. 2000). In other
words, if there is no equity in the residence to secure any part of the
mortgage, the mortgage becomes a wounded gazelle on the African savannah, and
the Chapter 13 plan is the lion.<o:p></o:p></span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;"> The 11th
Circuit recognized Chapter 13's versatility and thus followed the majority of
bankruptcy courts, district courts and circuit courts in allowing Ms.
Scantling's "Chapter 20" and her plan to void Well Fargo's second and
third mortgages on her residence. <o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;"> Of
particular interest is footnote 5 of the decision, in which the 11th Circuit
stated: <o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal" style="margin: 0in 0in 0.0001pt 0.5in;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;"> We are also mindful of the recent
unpublished opinion in <i>Wilmington Trust,
National 5 Ass’n v. Malone (In re Malone),</i> No. 13-13688, 2014 WL 1778982
(11th Cir. May 6, 2014), which was decided after oral argument in the instant
case, in which a panel of this court recently found it was bound by prior
published decisions and affirmed a decision by the bankruptcy court, in a
Chapter 7 proceeding, that allowed a debtor to strip off a worthless second
priority lien.<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;">The
Bottom Line<o:p></o:p></span></b></div>
<div class="MsoNormal">
<br /></div>
<br />
<div class="MsoNormal">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;"> Debtors
in the 11th Circuit have the best of both worlds: if they are daring, they can
try to strip off their wholly unsecured mortgages in their Chapter 7 case (and
now, those debtors have a footnote in a published opinion to cite). If they are
not daring (and have the funds for filing two bankruptcy cases), they can take
the safer route of a "Chapter 20" to get rid of their second or third
mortgage.<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;"><br /></span></div>
<div class="MsoNormal">
©Kevin C. McGee 2014<o:p></o:p></div>
Anonymoushttp://www.blogger.com/profile/14460465787358294185noreply@blogger.com0tag:blogger.com,1999:blog-3113637621001761237.post-14353283526244718502014-06-09T10:29:00.001-07:002014-08-26T07:50:36.088-07:00 EXECUTIVE BENEFITS INSURANCE AGENCY v. ARKINSON: THE STERN V. MARSHALL APPLE CART STAYS UPRIGHT<div class="MsoNormal">
This morning, on
June 9, 2014, the U.S. Supreme Court issued its unanimous decision in <i>Executive Benefits Agency v. Arkinson</i>, settling an issue that has
plagued federal courts on all levels since the SCOTUS’s 2011 decision in <i>Stern v. Marshall</i>, 564 U.S. ___, 131 S.
Ct. 2594 (2011): <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Does the bankruptcy court violate Article III of the U.S.
Constitution or Title 28 of the United States Code if it issues proposed findings and rulings on the type of issue
identified in <i>Stern v. Marshall</i> as “core”
under the bankruptcy statutory scheme, but beyond the tolerance of Article III
if the bankruptcy court makes final findings of fact and rulings of law? <o:p></o:p></div>
<div class="MsoNormal">
<u><br /></u></div>
<div class="MsoNormal">
<u>The Basics</u>: Bankruptcy jurisdiction, since 1984, has
divided issues into two categories: “core” matters spelled out in 28 U.S.C.
§157(b)(2), which involve matters “arising in” a bankruptcy case and that a
bankruptcy court would be expected to decide as part of the bankruptcy case
(i.e., deciding whether proofs of claim are allowed, adjudicating the debtor’s
discharge or the dischargeability of certain debts, confirming plans of
reorganization); and “non-core” matters, which are matters “related to” the
bankruptcy case. </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Classic examples of “non-core” matters are disputes between
non-parties, and the debtor’s pending state law claims against other persons. 28 U.S.C. §157 envisions that bankruptcy courts,
as adjuncts of the U.S. District Courts to whom the District Courts “referred”
all bankruptcy and related matters, can issue final findings of fact and final
rulings of law on core matters. If the matter is “non-core”, 28 U.S.C.
§157(c)(1) still allows the bankruptcy court to hear the case, but issue only “proposed” findings and
rulings for the U.S. District Court to either confirm or rehear. 28 U.S.C. §157(c)(2) allows bankruptcy courts,
like U.S. magistrates, to finally determine any non-core matters if both
parties to the matter consent. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The difference
between “core” and “non-core” has traditionally been on appeal. If the matter
is core, then the U.S. District Court (or a Bankruptcy Appellate Panel) sits as
an appellate court and its standard of review is “abuse of discretion” on
factual findings and “<i>de novo</i>” (or “anew”) on rulings of law based on those
facts (28 U.S.C. §158(a)). If the matter is non-core, the appellant gets another shot to try the
case in front of the U.S. District Court, which looks at the proposed factual
findings as suggested findings, and can rehear evidence to reach its own
factual findings (28 U.S.C. §157(c)(1)). <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<u>The Effect of <i>Stern
v. Marshall</i></u>: <i>Stern v. Marshall</i>,
in effect, created a third category of matters for the bankruptcy court: “core”
under the statutory definitions, but beyond the bankruptcy court’s power to
finally decide under the U.S. Constitution. In <i>Stern</i>, the “core” matter was the debtor’s state law counterclaim to
a proof of claim filed by a creditor. Because the counterclaim could not be
decided based on the same facts and occurrences raised in the proof of claim,
it was a “permissive” counterclaim instead of a “mandatory” counterclaim;
however, 28 U.S.C. §157(b)(2)(C) provides that <u>all</u> “counterclaims by the estate
against persons filing claims against the estate” fall into the “core”
category, including the permissive state law counterclaims.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The SCOTUS held
that if the allowance of the debtor’s permissive state law counterclaim did not
have the effect of directly offsetting the proof of claim amount, Article III
prohibited the bankruptcy court’s decision of that counterclaim as a “core” matter (with final findings and
rulings). The SCOTUS majority (it was a 5-4 decision authored by Chief Justice
Roberts) believed that “the removal of counterclaims such as [the debtor’s
counterclaim] from core bankruptcy jurisdiction meaningfully changes the
division of labor in the current statute; we agree with the Unite States that
the question presented here is a “narrow” one.” <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<u>Post <i>Stern v.
Marshall</i> Confusion</u>: <i>Stern v. Marshall</i> threw bankruptcy courts,
U.S. District Courts, and U.S. Circuit Courts of Appeal into a jurisdictional
tizzy. If the bankruptcy court’s “core” jurisdiction could be questioned for
counterclaims to proofs of claim, then does the bankruptcy court’s final decision of other types of “core”
matters implicate Article III? Will the
U.S. District Court be forced to withdraw its “reference” of <i>Stern</i>
“core, but really non-core” matters in every case, or can the bankruptcy court
issue proposed findings and rulings in such matters as if they were non-core
matters under the statute? Can the parties consent – or be deemed to consent –
to the bankruptcy court’s final decision of <i>Stern</i>
matters? Does Article III allow
bankruptcy courts to decide <u>any</u> <i>Stern</i>
matter, regardless of consent of the parties? <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Lawyers in
bankruptcy court were just as flummoxed. What the heck <u>is</u> a <i>Stern</i> matter? Do you commit malpractice
if you don’t challenge the bankruptcy court’s “core” jurisdiction on any issue that
might be beyond that jurisdiction per Article III, such as fraudulent transfers
and preferences? Does filing a proof of claim still waive objections to bankruptcy
court jurisdiction on <i>Stern</i> matters, as it does with jury trials on preferences and fraudulent
transfers? Do you need to file a motion for withdrawal of the reference from
the bankruptcy court as an automatic reflex? <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Local rules and orders from District Courts and bankruptcy courts tamed some of this chaos by: keeping the reference with the bankruptcy court; allowing for District Courts
to second-guess bankruptcy court determinations that a <i>Stern</i> matter was or was not involved; and permitting U.S. District
Court to treat bankruptcy court “final” findings and rulings as “proposed” if
the bankruptcy court guessed wrong on a <i>Stern</i>
issue.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<i><u>Executive Benefits
Agency v. Arkinson </u></i><u>Background</u>:
<i>Executive Benefits Agency v. Arkinson</i> involved state law fraudulent
transfer claims asserted under 11 U.S.C. §544; these types of claims were one
of the fertile sources for post-<i>Stern</i>
confusion. 28 U.S.C. §157(b)(2)(H) identifies all fraudulent transfer claim
determinations as “core”. However, there are federal fraudulent transfer claims
– asserted under 11 U.S.C. §548 – and state fraudulent transfer claims –
asserted under §544(a). Moreover, there are jury trial rights associated with
fraudulent transfer claims, if the transferee had not filed a proof of claim. <i>Granfinanciera,
S.A. v. Nordberg</i>, 492 U.S. 33 (1989); <i>Langenkamp
v. Culp</i>, 498 U.S. 42 (1990).<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
In this
particular case, the transferee had not filed a proof of claim. At the
bankruptcy court level, the court entered summary judgment for the trustee
bringing the claims. The U.S. District Court (W.D. Wash.) treated the
bankruptcy court’s findings and rulings as proposed, reviewed those findings
and rulings <i>de novo</i>, and the matter
proceeded up to the 9<sup>th</sup> Circuit Court of Appeals. After the appellant’s opening brief, the
SCOTUS decided <i>Stern v. Marshall</i>.
Despite the appellant’s argument, based on <i>Stern</i>,
that the bankruptcy court lacked any authority under Article III to rule on the
summary judgment motion, the 9<sup>th</sup> Circuit affirmed the U.S. District
Court. The 9<sup>th</sup> Circuit held
that either the appellant had, in effect, consented to bankruptcy court
jurisdiction below, or the bankruptcy court in this instance issued only
proposed findings and rulings that the U.S. District Court then confirmed. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<i><u>Executive Benefits
Agency v. Arkinson</u></i><u> SCOTUS
Decision</u>: Justice Thomas authored the decision for a unanimous court. The
justices ignored the “consent” issue, and went directly to the issue of whether
the U.S. District Court could have treated the bankruptcy court summary
judgment determinations as “proposed” despite the lack of an indication from the
bankruptcy court regarding whether it issued a “final” or “proposed” summary
judgment order. Justice Thomas, focusing on the statutory scheme in 28 U.S.C.
§157, stated that <i>Stern v. Marshall</i> effectively
invalidated §157(b)(2) as to any “core” matter that Article III prohibited the
bankruptcy court from deciding as a “core” and final matter. The Court noted,
however, that in enacting 28 U.S.C. §157, Congress also enacted a “savings” provision,
as follows:<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal" style="margin-left: .5in;">
“If any provision of this Act or
the application thereof to any person or circumstance is held invalid, the
remainder of this Act, or the application of that provision to persons or
circumstances other than those as to which it is held invalid, is not affected
thereby.” 98 Stat. 344, note following 28 U. S. C. §151.<o:p></o:p></div>
<div class="MsoNormal" style="margin-left: .5in;">
<br /></div>
<div class="MsoNormal">
Using that
savings provision, Justice Thomas held that the invalidation of a matter as “core”
on constitutional grounds threw that matter into the “non-core” bin. As a
result, the bankruptcy court could still issue proposed findings and rulings on
the matters under 28 U.S.C. §157(c)(1). The U.S. District Court’s review of the
bankruptcy court’s summary judgment order on a <i>de novo</i> basis treated that order as “proposed”, and the SCOTUS
affirmed the 9<sup>th</sup> Circuit decision on those narrow grounds. The slip opinion is located here: <a href="http://www.supremecourt.gov/opinions/13pdf/12-1200_2035.pdf">http://www.supremecourt.gov/opinions/13pdf/12-1200_2035.pdf</a><o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<u>What Comes Now?</u> Three thoughts after reviewing the <i>Executive Benefits Agency v. Arkinson</i> decision: <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: 38.8pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]-->The SCOTUS has blessed the creation of three
categories of bankruptcy court matters: “core” matters, “non-core” matters, and
“core” matters treated as non-core per <i>Stern</i>. It also has told us that <i>Stern</i> issues may safely be handled as if they were "non-core" matters instead of "core" matters defined in §157(b)(2).<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 38.8pt; mso-add-space: auto;">
<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 38.8pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]-->Although the SCOTUS ignored the consent issue
raised in the 9<sup>th</sup> Circuit (see Slip Op. at p. 4 fn. 4), its decision
opens the back door to allowing a bankruptcy court’s final determination of a <i>Stern</i> matter “by consent” under 28
U.S.C. §157(c)(2). If the savings provision allows treatment of an invalidated “core”
matter as a matter under §157(c)(1), it also allows it to be treated as a
matter for consent under §157(c)(2), which provides: “Notwithstanding the
provisions of [§157(c)(1)], the district court, with the consent of all the
parties to the proceeding, may refer a proceeding related to a case under title
11 to a bankruptcy court to hear and determine and to enter appropriate orders
and judgments, subject to review [as final orders and judgments under 28 U.S.C.
§158(a)].” Check your local rules and orders of reference from your local U.S.
District Court, as well as any post-<i>Stern</i>
orders and rules adopted. Arguably, in Massachusetts, LR 206 modifies the
general reference in LR 201 and requires proposed findings and ruling on <i>Stern</i> matters; however, who knows what
happens if the bankruptcy court determines that LR 206 does not apply because it
finds that all parties consented to its final determination?<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 38.8pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<br /></div>
<br />
<div class="MsoListParagraphCxSpLast" style="margin-left: 38.8pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]-->The <i>Executive
Benefits Agency v. Arkinson</i> decision,
following <i>Stern v. Marshall</i>, places
the onus on both bankruptcy courts and litigants to confront – early in a case
-- whether a “core” matter is really a <i>Stern</i>
matter, and act accordingly. The hard issues will continue to be in the area of
avoidance recoveries – especially preferences and fraudulent transfers. Note that
the SCOTUS left open – and did not decide – whether a §544 avoidance action is
really a <i>Stern</i> matter (Slip Op. at p.
11). The justices seemed more concerned with straightening out the procedural
morass rather than wrestling with the limits of bankruptcy court jurisdiction
over §544 avoidance actions. Thus trustees, debtors, creditors with proofs of
claim, and transferees without proofs of claim remain free to argue most of the questions set forth above to probe the extent of bankruptcy court jurisdiction over certain matters.<o:p></o:p><br />
<br />
<span style="text-indent: 0px;">©Kevin C. McGee 2014</span></div>
Anonymoushttp://www.blogger.com/profile/14460465787358294185noreply@blogger.com0tag:blogger.com,1999:blog-3113637621001761237.post-79330259056370818402014-05-15T14:34:00.000-07:002014-05-16T06:28:31.460-07:00Sound & Fury & No Hybrid Chapter 13 Plan Decision From The First Circuit<div class="MsoNormal">
In high school, my
English teacher tasked me with memorizing and reciting a monologue from
Shakespeare’s famous "Scottish Play", <i>Macbeth</i>.
The monologue – the title character delivered it -- came from Act V, Scene 5, after
Lady Macbeth’s own guilt catches up with her and takes her own life. Although I sometimes confuse my own children’s
names, I can still recall – and spout out instantly -- the lines I memorized
and recited in front of the class some 42 years ago:<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Tomorrow,
tomorrow and tomorrow<o:p></o:p></div>
<div class="MsoNormal">
Creeps
in this petty pace from day to day<o:p></o:p></div>
<div class="MsoNormal">
To the
last syllable of recorded time<o:p></o:p></div>
<div class="MsoNormal">
And all
our yesterdays have lighted fools<o:p></o:p></div>
<div class="MsoNormal">
The way
to dusty death<o:p></o:p></div>
<div class="MsoNormal">
Out,
out brief candle!<o:p></o:p></div>
<div class="MsoNormal">
Life is
but a walking shadow,<o:p></o:p></div>
<div class="MsoNormal">
A poor
player who struts and frets <o:p></o:p></div>
<div class="MsoNormal" style="text-indent: .5in;">
His hour upon the stage<o:p></o:p></div>
<div class="MsoNormal">
And
then is heard no more. <o:p></o:p></div>
<div class="MsoNormal" style="text-indent: .5in;">
It is a tale told by an idiot<o:p></o:p></div>
<div class="MsoNormal">
Full of
sound and fury<o:p></o:p></div>
<div class="MsoNormal">
Signifying
nothing.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The last half of the
speech well prepared me to be a lawyer. There is much sound and fury (some of
it from me), and much of it does signify very little, if anything at all. I
have also heard many tales told by people of questionable intelligence, and I have
often felt that I am a “poor player” emoting uselessly in a courtroom for my allotted
time.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
That monologue also
sometimes applies to describe decisions from higher courts. Take the case of
Louis B. Bullard, a Chapter 13 debtor with an ambitious Chapter 13 plan (or, at
least, a desperate bankruptcy attorney). Mr. Bullard came into bankruptcy court
with a two unit residence that had more mortgage on it than it had value. After
trying two (failed) Chapter 13 plans, Mr. Bullard proposed a “hybrid” Chapter
13 plan with the following treatment of his mortgagee’s claims (Hyde Park
Savings Bank): the mortgagee’s claims would be bifurcated into a secured claim –
up to the fair market value of the property – and an unsecured claim for the
remaining balance on the mortgage. Mr. Bullard proposed to continue paying this
reduced secured claim with his usual principal and interest mortgage payments, to give the mortgagee whatever pittance his
unsecured creditors would receive for its unsecured claim, and to continue
making his regular mortgage payments after the 5 year period until he paid the (reduced) secured
claim in full (at which point Hyde Park Savings Bank would be compelled to give
him a discharge of its mortgage). <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The bankruptcy court
and the Bankruptcy Appellate Panel for the First Circuit (the “BAP”) both
agreed that the Bankruptcy Code did not permit confirmation of a Chapter 13
plan with these terms. Neither court had an issue with the “modification” of
the secured claim under 11 U.S.C. §1322(b)(2); he rented out one unit in the property
while living in the second unit, so Hyde Park’s mortgage covered more than just
Mr. Bullard’s residence, and thus could be modified. However, both courts also
stated that the Bankruptcy Code presents the debtor with an “all or nothing”
decision regarding secured claims under §1325(a)(5): either Mr. Bullard could have the total, nonbifurcated mortgage claim allowed and continue to make the regular mortgage payments
during the Chapter 13 and after the case for the (30 year) life of the mortgage, or Mr.
Bullard could modify the mortgage claim to limit it to the value of the
property, and pay off that allowed amount in sixty equal payments that also, in
total, equaled the “present value” of the total, nonbifurcated mortgage claim.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
To give you a sense
of the consequences Mr. Bullard tried to avoid: Hyde Park filed a proof of
claim for roughly $345,000.00. The value of the property was either $245,000.00
(per Mr. Bullard) or $285,000.00 (per Hyde Park); in order to “cram down” a
modified secured claim of $265,000.00 (the halfway point between the two
values), Mr. Bullard would have to pay 60 equal payments to Hyde Park over 5 years, and
those payments would either have to equal a present value of $345,000.00 or be
adjusted to approximate that present value (based on my quick calculation, assuming
a 2.3% annual rate of return: the payments would have to total at least $308,000.00,
or $5,133.00 per month over 5 years). <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The bankruptcy court
entered an order denying confirmation of the plan; you can read it here: <a href="https://ecf.mab.uscourts.gov/cgi-bin/show_case_doc?98,393096,,30923265">https://ecf.mab.uscourts.gov/cgi-bin/show_case_doc?98,393096,,30923265</a>.
Mr. Bullard – recognizing that there is
an issue regarding whether an order denying plan confirmation is a “final”
order for purposes of appeal -- chose to appeal the order to the BAP and moved that the BAP permit an interlocutory appeal of the order; the BAP granted that motion, then issued its
own decision affirming the bankruptcy court order (located here: <a href="http://media.bap1.uscourts.gov/cgi-bin/bpgetopn.pl?OPINION=12-054P">http://media.bap1.uscourts.gov/cgi-bin/bpgetopn.pl?OPINION=12-054P</a>).
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Mr. Bullard then
sought to have the First Circuit Court of Appeals (the “First Circuit”) review the
BAP’s decision. After some initial reluctance, and after hearing from Mr.
Bullard regarding why the First Circuit should take the appeal, the First
Circuit ordered the case to be briefed both on the jurisdictional issues and on the merits. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Naturally, this
briefing order caused some excitement in the local bankruptcy bar. Would the
First Circuit blaze a trail allowing Chapter 13 hybrid plans, or quash the idea
of such plans? As the BAP recognized, there was not only a split among
bankruptcy courts in Massachusetts (<i><u>Compare</u></i>
<i>In re Pires</i>, 2011 WL 5330772, at *7 <i><u>and</u></i> <i>In re Fortin</i>, 482 B.R. 35, 43 (Bankr. D. Mass. 2012), <i><u>with</u></i> <i>In re McGregor</i>, 172 B.R. 718 (Bankr. D. Mass. 1994)), but there was also a split among bankruptcy courts elsewhere (<i><u>Compare</u></i>
<i>In re Elibo</i>, 447 B.R. 359, 363
(Bankr. S.D. Fla. 2011) (adopting <i>McGregor</i>);
<i><u>and</u></i> <i>In re Pruett</i>, 178 B.R. 7, 8 (Bankr. N.D. Ala. 1995) (<i><u>Id.</u></i>) <i><u>with</u></i> <i>Enewally v. Washington
Mutual Bank (In re Enewally)</i>, 368 F.3d 1165, 1171-72 (9th Cir. 2004) and bankruptcy
courts in Connecticut, North Carolina, Florida, Ohio, Pennsylvania, Michigan
and Virginia, all of whom rejected hybrid Chapter 13 plans). Could this also lead to a Supreme Court case and
establish a national rule allowing or disallowing hybrid plans? <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
On May 14
2014, the First Circuit demonstrated that all the briefing and oral argument on
the hybrid Chapter 13 plan issues was just sound and fury, signifying … a little
bit of something. In <i>Bullard v. Hyde
Savings Bank</i>, ___ F. 3d ___ (1<sup>st</sup>
Cir. 5/14/14 Case No. 13-9009), the First Circuit ruled that it could not
decide the appeal from the BAP’s order affirming the bankruptcy court because,
if the bankruptcy court’s order was not a final order, the BAP order could not
be a final order and the First Circuit had no jurisdiction to hear the appeal. </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The First Circuit stated that a bankruptcy court order denying confirmation of
a Chapter 13 plan could not be a final order while the bankruptcy case was
still open and while the debtor could still take another shot with an amended
plan. The court also opined that Mr.
Bullard chose the wrong appellate path if he wanted this issue decided on
appeal; he should have either taken his appeal to the U.S. District Court on an
interlocutory appeal (followed by another interlocutory appeal from that court
to the First Circuit), or applied for direct review by the First Circuit
pursuant to 28 U.S.C. §158(d)(2). Because he chose the BAP instead of these
options for appellate review, he lost his right to further review after the BAP
affirmed the bankruptcy court.<br />
<br />
Thus, the
First Circuit dismissed Mr. Bullard’s appeal for lack of jurisdiction, without
ever reaching the merits. In a footnote, the First Circuit did note that it
would be a different story if the bankruptcy court had entered an order
confirming the plan, and then the BAP had reversed the bankruptcy court, as it
had last month in <i>Prudential Insurance
Co. of America v. SW Boston Hotel Venture, LLC (In re SW Boston Hotel Venture,
LLC)</i>, ___ F.3d ___, 2014 WL 1399418 (1st Cir. Apr. 11, 2014)(reversing the
BAP’s decision reversing and remanding a bankruptcy court order confirming a
Chapter 11 plan). <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<u>The Bottom Line</u>: Instead of getting an earth-shaking
game-changer of a decision from the First Circuit that would break open the
floodgates and allow hybrid Chapter 13 plans, we got a dry lesson in bankruptcy appellate
jurisdiction and procedure. While the decision may be interesting to wonks like me
and useful to any attorney who plans to seek an appellate remedy for the
injustice of a bankruptcy court order denying confirmation of his or her client’s
plan of reorganization, we are a small circle of practitioners who care. It does
provide the lesson that if you chose to pursue an interlocutory appeal through the BAP
instead of the U.S. District Court or directly to the First Circuit, that choice may limit your appellate
options beyond the BAP. And now that I
have strutted and fretted my 1,486 words, I am off the stage. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
©Kevin C. McGee 2014<o:p></o:p></div>
Anonymoushttp://www.blogger.com/profile/14460465787358294185noreply@blogger.com0tag:blogger.com,1999:blog-3113637621001761237.post-80606038623867982952014-04-11T07:38:00.002-07:002014-04-11T07:38:56.801-07:00When is a Waiver Not a Waiver? The New Rules of Massachusetts Homesteads <div class="MsoNormal">
Last month, Judge William Hillman of the Boston Bankruptcy
Court, in <i>In re Maria A. D’Italia</i>,
Case No. 13-16051-WCH (March 18, 2014), confronted the following questions: if a debtor signs a waiver of homestead
rights in a guarantee, does that waiver then either: (a) release or subordinate
the debtor's homestead vis-à-vis the creditor’s judgment and execution based on the debtor’s
guarantee liability; or (b) prohibit the
debtor from avoiding the creditor’s execution on her home as a “judicial lien” under 11
U.S.C. §522(f)(1)? <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Judge Hillman answered both questions in the negative. To
understand his answers, let’s review the homestead law in Massachusetts.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<u>Massachusetts Homestead Basics<o:p></o:p></u></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
In 2010, Massachusetts overhauled its homestead laws. Under the revised laws:</div>
<div class="MsoListParagraphCxSpFirst" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<ul>
<li><span style="text-indent: -0.25in;"> A homestead is now automatic without the need to file a declaration of homestead, and protects equity in a
residence up to $125,000.00 in value (M.G.L. c. 188, §§1 & 4).</span></li>
</ul>
</div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<ul>
<li><span style="font-family: Symbol; text-indent: -0.25in;"><span style="font-family: 'Times New Roman'; font-size: 7pt;"> </span></span><span style="text-indent: -0.25in;">If a homeowner records a homestead declaration
in the appropriate registry of deeds signed by all owners of the residence, the
homestead protects up to $500,000.00 in equity in the residence; however, the homestead declaration
must be separate and not included in the deed to the property (M.G.L.. c. 188,
§§1 & 3).</span></li>
</ul>
</div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<ul>
<li><span style="font-family: Symbol; text-indent: -0.25in;"><span style="font-family: 'Times New Roman'; font-size: 7pt;"> </span></span><span style="text-indent: -0.25in;">The homestead (whether automatic or declared,
and except as noted below for elderly and disabled individuals) remains “whole
and unallocated” for joint tenants or tenants by the entirety (i.e., co-owning
spouses) when the tenants are asserting their interests separately against one
of their creditors, but the tenants cannot exceed the applicable homestead limit (i.e., "stack" the homestead amounts) when they
assert the homestead together (M.G.L. c. 188, §1). Tenants in common and
holders of beneficial interests get protection equal to their ownership
percentage multiplied by the homestead amount (i.e., a 30% tenant in common
would have homestead protection of $150,000.00 based on a $500,000.00 total homestead
in the entire property).</span></li>
</ul>
</div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<ul>
<li><span style="font-family: Symbol; text-indent: -0.25in;"><span style="font-family: 'Times New Roman'; font-size: 7pt;"> </span></span><span style="text-indent: -0.25in;">An “elderly” person’s homestead– over 62 years
of age – and a disabled person ‘s homestead applies to their entire ownership
interest asserted separately. In other words, a home owned in a tenancy by the
entirety by two elderly spouses gets up to $1 million of equity in protection for
a declared homestead ($500,000 x 2), because each person can claim up to
$500,000.00 in their separate property interest, and "stack" the homesteads to claim an aggregate exemption of $1 million
together (M.G.L.. c. 188, §§1 & 2).</span></li>
</ul>
</div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<ul>
<li><span style="font-family: Symbol; text-indent: -0.25in;"><span style="font-family: 'Times New Roman'; font-size: 7pt;"> </span></span><span style="text-indent: -0.25in;">Homesteads apply to “homes” owned by sole
owners, joint tenants, tenants by the entirety, tenant in common, life estate
holders, and the holders of beneficial interests in a real estate trust holding title to a residence. A homestead benefits the spouses and minor children (under 21) of any of those owners who live in
the home, whether or not those family members have an ownership interest in the
home. A “home” can be a single family
dwelling, a 2-4 family home, a manufactured home, a condo unit, or a residential coop unit. The homestead
protection also extends to the home’s sale proceeds and to insurance proceeds
from a fire or casualty loss on the home (M.G.L. c. 188, §1).</span></li>
</ul>
</div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<ul>
<li><span style="font-family: Symbol; text-indent: -0.25in;"><span style="font-family: 'Times New Roman'; font-size: 7pt;"> </span></span><span style="text-indent: -0.25in;">The instances in which homesteads are waived, released
or trumped by a debt are more limited than before. Specifically:</span></li>
</ul>
</div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 1.0in; mso-add-space: auto; mso-list: l0 level2 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "Courier New"; mso-fareast-font-family: "Courier New";">o<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]--> Homesteads
are subject to (and ineffective against): (a) liens for federal, state and
local taxes and assessments; (b) a lien recorded prior to the creation of the
homestead; (c) prior recorded mortgages and certain mortgages recorded after
the creation of the homestead (see below); (d) child support and alimony
orders; and (e) an execution to enforce a judgment based on the owner’s fraud,
mistake, duress, undue influence or lack of capacity (M.G.L. c. 188, §3)<o:p></o:p><a href="file:///U:/KMcGee/Seder%20&amp;%20Chandler/Blog%20&amp;%20Marketing/Homestead%20&amp;%20When%20is%20a%20Waiver%20Not%20a%20Waiver.docx#_ftn1" name="_ftnref1" style="text-indent: -0.25in;" title=""><span class="MsoFootnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 11.0pt; line-height: 115%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;"><span class="MsoFootnoteReference"><span style="font-size: 11pt; line-height: 115%;">[1]</span></span></span></span></a><span style="font-family: Calibri, sans-serif; font-size: 11pt; line-height: 115%; text-indent: -0.25in;">.</span><br />
<div>
<div id="ftn1">
</div>
</div>
</div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 1.0in; mso-add-space: auto;">
<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 1.0in; mso-add-space: auto; mso-list: l0 level2 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "Courier New"; mso-fareast-font-family: "Courier New";">o<span style="font-family: 'Times New Roman'; font-size: 7pt;"> </span></span><!--[endif]-->A homestead is subject to a mortgage signed by
all the owners of the property; however, if the mortgage is signed by fewer
than all of the owners of the property, then the mortgage takes priority over only
the homestead of the owner(s) who signed the mortgage. The homestead is subject
to a mortgage on the property regardless of whether the mortgage addresses the subordination or waiver of the homestead. No release or recorded subordination of the homestead is
necessary for the mortgage to prevail over the homestead (M.G.L. c. 188, §9).<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle">
<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 1.0in; mso-add-space: auto; mso-list: l0 level2 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "Courier New"; mso-fareast-font-family: "Courier New";">o<span style="font-family: 'Times New Roman'; font-size: 7pt;"> </span></span><!--[endif]-->Otherwise, there is no subordination of a
homestead to any other lien unless the owner records a release of the homestead
(M.G.L. c. 188, §10(2)).</div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<ul>
<li><span style="font-family: Symbol; text-indent: -0.25in;"><span style="font-family: 'Times New Roman'; font-size: 7pt;"> </span></span><span style="text-indent: -0.25in;">A homestead is terminated or released only if:</span></li>
</ul>
</div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 1.0in; mso-add-space: auto; mso-list: l0 level2 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "Courier New"; mso-fareast-font-family: "Courier New";">o<span style="font-family: 'Times New Roman'; font-size: 7pt;"> </span></span><!--[endif]-->The owners sell the property to a non-family
member (M.G.L. c. 188, §10(1)); however, there is no release or termination(unless
there is an express release) if the deed: (a) is between spouses or former
spouse, or co-owners who jointly hold the homestead; (b) a trustee of a trust holding
the property and a trust beneficiary; or (c) between a life tenant and a
remainderman (M.G.L. c. 188, §10(5)(b)).<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 1.0in; mso-add-space: auto;">
<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 1.0in; mso-add-space: auto; mso-list: l0 level2 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "Courier New"; mso-fareast-font-family: "Courier New";">o<span style="font-family: 'Times New Roman'; font-size: 7pt;"> </span></span><!--[endif]-->There is a recorded release of the homestead signed
by the owner and any non-owner spouse or former spouse living in the home (M.G.L.
c. 188, §10(2)).<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle">
<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 1.0in; mso-add-space: auto; mso-list: l0 level2 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "Courier New"; mso-fareast-font-family: "Courier New";">o<span style="font-family: 'Times New Roman'; font-size: 7pt;"> </span></span><!--[endif]-->The owner abandons the home; however, the
homestead termination applies <span style="text-indent: -0.25in;">only</span><span style="text-indent: -0.25in;"> to those owners and family members who
actually abandon the home, and not to any family member who do <u>not</u> abandon the
home. Also, the owner’s absence from his or her home due to military service cannot constitute “abandonment”
(M.G.L. c. 188, §10(3)).</span><br />
<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle">
<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 1.0in; mso-add-space: auto; mso-list: l0 level2 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "Courier New"; mso-fareast-font-family: "Courier New";">o<span style="font-family: 'Times New Roman'; font-size: 7pt;"> </span></span><!--[endif]-->The trustee of a realty trust or a beneficiary
of the trust records a release of the homestead on the property held in trust, or the beneficiary abandons
the homesteaded property (M.G.L. c. 188, §10(4)).<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle">
<br /></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: 1.0in; mso-add-space: auto; mso-list: l0 level2 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "Courier New"; mso-fareast-font-family: "Courier New";">o<span style="font-family: 'Times New Roman'; font-size: 7pt;"> </span></span><!--[endif]-->The owner records a new declaration of homestead
on other property; however, that new declaration does not affect the homestead
rights of the owner’s spouse, former spouse or minor children still residing in
the old property.</div>
<div class="MsoNormal">
<u><br /></u>
<u>Application of Massachusetts Homestead Law to the Claimed
Homestead Waiver<o:p></o:p></u></div>
<div class="MsoNormal">
<br />
Judge Hillman focused on three statutes: (a) the
Massachusetts homestead law, specifically the release and termination
provisions in c. 188, §10; (b) 11 U.S.C. §522(f)(1), which permits a debtor to
avoid a “judicial lien” (such as an execution) if it impairs a debtor’s claim
of exemption; and (c) 11 U.S.C. §522(e), which states that any exemption waiver
signed by a debtor in favor of an unsecured claimholder is unenforceable in the
debtor’s bankruptcy case, as is any waiver of the debtor’s right to avoid a judicial
lien under §522(f).<o:p></o:p></div>
<div class="MsoNormal">
<br />
The facts of the case were that the debtor had signed a
guarantee of a commercial lease and a loan, in connection with the build-out of
a Dunkin’ Donut franchise. The guarantee stated that the debtor/guarantor “irrevocably
waives, to the fullest extent permitted by law, all defenses which at any time
may be available in respect of the Guarantor’s Obligations hereunder by virtue
of any homestead exemption, statute of limitations, valuation, stay, moratorium
law or other similar law now or hereafter in effect.” The creditor did not
record either the guarantee or any other document reflecting this waiver.<o:p></o:p></div>
<div class="MsoNormal">
<br />
The business deal fell apart, and the creditor holding the guarantee
sued, obtained a $539,000.00 judgment and execution, and recorded the execution
against the residence in Buzzard’s Bay, Massachusetts, owned by the debtor and
her spouse. The debtor's spouse had recorded a homestead declaration on their residence in 2009, and the debtor asserted a
$500,000.00 exemption in the residence in her Chapter 7 bankruptcy case. The
creditor filed a timely objection to the homestead, asserting that the
homestead was invalid as to the creditor because of the waiver in the guarantee.
The debtor responded to the objection, and also filed a motion to avoid the
creditor’s judicial lien under 11 U.S.C. §522(f). <o:p></o:p></div>
<div class="MsoNormal">
<br />
The stakes: if the homestead exemption was good despite the
waiver, the debtor could avoid the creditor’s judicial lien on her residence in
full.<span class="MsoFootnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 11.0pt; line-height: 115%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;"><span class="MsoFootnoteReference"><span style="font-size: 11pt; line-height: 115%;"><a href="file:///U:/KMcGee/Seder%20&amp;%20Chandler/Blog%20&amp;%20Marketing/Homestead%20&amp;%20When%20is%20a%20Waiver%20Not%20a%20Waiver.docx#_ftn1" name="_ftnref1" title="">[2]</a> </span></span></span></span><br />
<br />
Judge Hillman did validate the debtor’s homestead exemption despite the creditor’s objection, based on the lack of a recorded release reflecting the guarantee waiver. He relied on M.G.L. c. 188, §10, which requires such a document to be recorded. He also relied on 11 U.S.C. §522(e), which automatically invalidates any waiver of exemption in favor of an unsecured claim. He considered §522(e) along with §522(f)(1), and held that a judicial lienholder whose lien is avoidable is in essence an “unsecured creditor”. As such, the creditor holding an avoidable judicial lien is subject to§522(e)’s invalidation of any waiver of exemptions (he also noted that if the judicial lien was NOT avoidable, it did not matter whether the debtor had waived his or her exemption on the property).<br />
<br /></div>
<div class="MsoNormal">
The link to Judge
Hillman’s decision is here: <a href="https://ecf.mab.uscourts.gov/cgi-bin/show_case_doc?46,441971,,89110135">https://ecf.mab.uscourts.gov/cgi-bin/show_case_doc?46,441971,,89110135</a>.
Judge Hillman is always a pleasure to read, because he is a writer who
says a lot with a few words. To put it simply (as he would): if the release or
waiver of a Massachusetts homestead is not recorded, there is no release of the homestead. Period.<br />
<br />
<hr align="left" size="1" style="text-indent: -24px;" width="33%" />
<div id="ftn1" style="text-indent: -24px;">
<span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Calibri, sans-serif; font-size: 10pt; line-height: 15.333333015441895px;"> <a href="file:///U:/KMcGee/Seder%20&amp;%20Chandler/Blog%20&amp;%20Marketing/Homestead%20&amp;%20When%20is%20a%20Waiver%20Not%20a%20Waiver.docx#_ftnref1" name="_ftn1" title="">[1]</a></span></span></span> <i><u>But</u> <u>see</u></i> <i>In re Weinstein</i>, 164 F.3d 677 (1<sup>st</sup> Cir. 1999) and <i>Owen v. Owen</i>, 500 U.S. 305(1991), in which state limitations on homesteads were federally pre-empted under 11 U.S.C. §522(f)(1), to the extent that the judicial lien to be avoided would have prevailed over the homestead under state law.</div>
<div id="ftn1" style="text-indent: -24px;">
<br /></div>
<div id="ftn1" style="text-indent: -24px;">
<span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Calibri, sans-serif; font-size: 10pt; line-height: 15.333333015441895px;"> <a href="file:///U:/KMcGee/Seder%20&amp;%20Chandler/Blog%20&amp;%20Marketing/Homestead%20&amp;%20When%20is%20a%20Waiver%20Not%20a%20Waiver.docx#_ftnref1" name="_ftn1" title="">[2]</a></span></span></span> The Court did not address debtor’s first attempt to avoid the creditor’s judicial lien in this decision, because it denied the debtor’s motion (without prejudice) because the debtor had omitted necessary allegations under 11 U.S.C. §522(f)(1). T<o:p></o:p>he debtor refiled the motion with the proper allegations, and the motion is pending (with opposition from the creditor, focused on the debtor’s lack of an appraisal to support her alleged value of her residence). </div>
<div id="ftn1" style="text-indent: -24px;">
<br /></div>
<div id="ftn1" style="text-indent: -24px;">
<br /></div>
<div class="MsoNormal">
©Kevin C. McGee<o:p></o:p></div>
</div>
Anonymoushttp://www.blogger.com/profile/14460465787358294185noreply@blogger.com0tag:blogger.com,1999:blog-3113637621001761237.post-14157315620366324822014-04-03T12:11:00.001-07:002014-04-04T05:40:04.000-07:00CHAPTER 13 FOR BUSINESS DEBTORS IN MASSACHUSETTS <div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;"> Chapter
13 is not just for consumers. An individual in a sole proprietorship (or who is
engaged in some business activity, such as renting properties as a landlord)
has Chapter 13 available to him or her, provided that he or she meets the debt
limits in 11 U.S.C. §109(e) and has regular income (either via the business activities
or from other sources, such as separate employment). Chapter 13 is not
available to partnerships (although individual partners may file), corporations
or LLCs that operate businesses.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;"> Chapter 13 has much to recommend it
over Chapter 11 if the debtor’s goal is reorganization and preservation of his
or her business. For one, a Chapter 13 plan is easier to propose and confirm than
a Chapter 11 plan (fewer confirmation standards, no absolute priority rule, and
no disclosure statement requirement). The debtor also has the ability to
stretch out and pay administrative claims and priority debt over years, rather
than meeting the Chapter 11 requirement to pay such claims in full on confirmation. Other benefits include the (much)
cheaper filing fee; the right to cure mortgage defaults over the life of the
plan; no quarterly U.S. Trustee fee; no monthly operating reports; and no
requirement that the debtor’s attorney be approved under 11 U.S.C. §327. The enhanced
discharge in 11 U.S.C. §1328(a) also applies in business debtor Chapter 13
cases. </span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;"><br /></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;"> One possible disadvantage is the 5 year limit on plan payments; if the debtor needs to "cram down" a secured creditor's claim, the debtor has to do so within the 60 month limit on plans. <i><u>See</u> Bullard v. Hyde Park Savings Bank (In re Bullard)</i>, 494 B.R. 92 (BAP 1st Cir. 2013)(11 U.S.C. §1325 requires that the payments on a cram-down of a secured claim </span><span style="font-family: 'Times New Roman', serif; font-size: 12pt;">equal
the present dollar value of the property as of the confirmation date, and that
distribution on account of the claim must occur within five years).</span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;"><o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;"> The “business” Chapter 13, however,
has several statutes and rules that apply to it and which may be unfamiliar or “traps
for the unwary” for attorneys who ordinarily file consumer Chapter 13 cases, and for individuals in business considering the Chapter 13 option. Here
are the more significant issues, with the applicable statutes and rules:<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoListParagraphCxSpFirst" style="margin-bottom: 0.0001pt; text-indent: -0.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]--><u><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">Debtor Engaged In Business – 11 U.S.C. §1304</span></u><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">: </span></div>
<div class="MsoListParagraphCxSpFirst" style="margin-bottom: 0.0001pt; text-indent: -0.25in;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;"><br /></span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;"> §1304(a) states
that “[a] debtor that [sic] is self-employed and incurs trade credit in the
production of income from such employment is engaged in business”. §1304(b)
allows the debtor, unless the court orders otherwise, to operate his or her
business, and references the debtor’s right to use property in that business,
subject to the limitations on a trustee under §363(c) (cash collateral use
requirements) and §364 (limitations on incurring credit).</span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;"><br /></span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;"> §1304(c) requires the
debtor in business to perform the same duties that a Chapter 7 trustee performs
in §704(a)(8); those duties require the debtor to file with bankruptcy court,
the United States trustee, and any governmental unit that collects or
determines tax arising out of the debtor’s operation, “periodic reports and
summaries of the operation of [the debtor’s] business, including a statement of
receipts and disbursements, and such other information as the United States
trustee or the court requires.” Fed. R. Bankr. P. 2015(c)(1) is more specific;
that rule requires that the debtor;<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "Courier New"; font-size: 12.0pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]--><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">Keep
a record of receipts and the disposition of money and property received;<o:p></o:p></span></div>
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<br /></div>
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<!--[if !supportLists]--><span style="font-family: "Courier New"; font-size: 12.0pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]--><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">Comply
with §704(a)(8) and include a statement, if payments are made to employees, of
the amounts of deductions for all taxes required to be withheld or paid for and
in behalf of employees and the place where such amounts are deposited; and<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "Courier New"; font-size: 12.0pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]--><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">Give
notice of the case, ASAP after the petition date, to every entity known to be
holding money or property subject to withdrawal or order of the debtor,
including any bank, public utility company, landlord with whom the debtor has a
deposit, and every insurance company which has issued a policy to the debtor
having a cash surrender value payable to the debtor. <o:p></o:p></span></div>
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<br /></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;"> MLBR Appx. 1, Rule 13-2(a)(2) also requires
that Massachusetts Chapter 13 debtors in business submit the following to the
Chapter 13 trustee:<o:p></o:p></span></div>
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<br /></div>
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<!--[if !supportLists]--><span style="font-family: "Courier New"; font-size: 12.0pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]--><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">Within
7 days after the petition is filed, both evidence of current and sufficient
business insurance, and evidence that the debtor opened “appropriate debtor-in-possession
checking accounts”.<o:p></o:p></span></div>
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<br /></div>
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<!--[if !supportLists]--><span style="font-family: "Courier New"; font-size: 12.0pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]--><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">Within
14 days after the petition, a profit and loss statement for debtor’s fiscal or
calendar year preceding the year the case is filed, and a profit and loss
statement for the period beginning at the end of the prior year and ending on
the petition date.<o:p></o:p></span></div>
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<br /></div>
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<!--[if !supportLists]--><span style="font-family: "Courier New"; font-size: 12.0pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]--><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">Within
30 days of the close of each quarter, a statement of quarterly income and
expenses incurred. <o:p></o:p></span></div>
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<br /></div>
<div class="MsoListParagraphCxSpLast">
<span style="font-size: 12pt; line-height: 18.399999618530273px;"><span style="font-family: Times New Roman, serif;"> </span></span><span style="font-family: 'Times New Roman', serif; font-size: 12pt;">The United
States Trustee’s Handbook for Standing Chapter 13 Trustees (10/1/12) states that
the Chapter 13 must monitor the debtor and his or her business to “verify that </span><span style="font-family: 'Times New Roman', serif; font-size: 12pt;">the ongoing
business, while in bankruptcy, does not fall in deeper financial difficulty
than at the time of the filing of the case.” According to the handbook (Section
G(3)), monitoring, depending on the nature of the business, might include “the
debtor meeting with the standing trustee’s business case analyst, if
applicable, to review the budget, an evaluation of the debtor’s accounting
systems, an on-site tour of the business premises, the requirement that
periodic operating reports be filed along with bank statements, tax deposits
and payment forms, and monitoring of insurance coverage.”</span></div>
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<br /></div>
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</span></span><!--[endif]--><u><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">Cash Collateral Use</span></u><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">: </span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;"> </span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;"> Cash collateral
does not often come up in a Chapter 13, but if: (a) your debtor is selling
goods and generating accounts receivable subject to a secured claim; or (b)
your debtor is collecting real estate rents from property subject to a
mortgage, and the mortgage contains an assignment of leases and rents, you <u>must</u>
– right after you file the petition -- either get the secured creditor’s/mortgagee’s
permission to use the cash collateral post-petition in a stipulation, or get an
order (after motion and hearing) from the bankruptcy court allowing you to use
the cash collateral. </span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;"><br /></span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;"> To accomplish either task in Massachusetts, you need to be
familiar with §§363(c) & (e) (as well as the definition of “cash collateral”
in §363(a) and what does and does not constitute “adequate protection” for cash
collateral use); §552; Fed. R. Bankr. P. 4001(b) & (d); and MLBR 4001-2. <o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]--><u><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">Limited Powers as Debtor-In-Possession</span></u><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">: </span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;"><br /></span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;"> Unlike Chapter
11, there is always a trustee in a Chapter 13 case. Consequently, the debtor’s
powers over his or her property and in operating his or her business have
limits. <o:p></o:p></span></div>
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<br /></div>
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<!--[if !supportLists]--><span style="font-family: "Courier New"; font-size: 12.0pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]--><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">As
stated above, the debtor can seek to use cash collateral; the debtor also has
the right to incur credit under the terms of 11 U.S.C. §364. This means that the
debtor can “obtain unsecured credit and incur unsecured debt in the ordinary
course of business” without prior court authorization, and that (post-petition)
debt will have administrative claim status. 11 U.S.C. §§364(a), 1304(a). If the
debtor is unable to obtain unsecured trade credit on these terms, the debtor
can file a motion with the bankruptcy court to allow him or her to grant a lien
on property; however, if there is already a lien on the property being offered,
the debtor has to offer the existing lienholder “adequate protection” of that
lien. <o:p></o:p></span></div>
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<br /></div>
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<!--[if !supportLists]--><span style="font-family: "Courier New"; font-size: 12.0pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]--><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">A
business Chapter 13 debtor retains the right under 11 U.S.C. §363(b) to use or
sell his or her assets in the ordinary course of business without prior court
authorization, and to sell those assets outside the ordinary course with court
authorization. <o:p></o:p></span></div>
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<br /></div>
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<!--[if !supportLists]--><span style="font-family: "Courier New"; font-size: 12.0pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]--><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">The
debtor remains in possession of all property in the estate, except as otherwise
provided in a confirmed plan. 11 U.S.C. §1306(b).<o:p></o:p></span></div>
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<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="margin: 0in 0in 0.0001pt 1in; text-indent: -0.25in;">
<!--[if !supportLists]--><span style="font-family: "Courier New"; font-size: 12.0pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]--><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">If
the debtor’s estate has preference, fraudulent transfer or other avoidance
actions, Chapter 13 is silent regarding who brings those actions. The debtor,
however, can provide that he or she will pursue the avoidance actions in the
confirmed plan, as permitted in 11 U.S.C. §§1322(b)(9) & (11). <o:p></o:p></span></div>
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<br /></div>
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<!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]--><u><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">Claims</span></u><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">: </span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;"><br /></span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-bottom: 0.0001pt; text-indent: -0.25in;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;"> The business debtor has all the rights
a consumer debtor has regarding the review of and objection to proofs of claim.
The business debtor, however, needs to look out for administrative claims made
under 11 U.S.C. §503(b)(9), which are claims for the value of goods received by
the debtor within twenty (20) days before the petition date, when the goods
were sold to the debtor in the ordinary course of business. Note that MLBR
3002-1 sets a deadline for such claims in Massachusetts: 60 days after the date of the §341
meeting. Business Chapter 13 debtors also need to be aware of the reclamation
rights of sellers of goods to the debtor, spelled out in 11 U.S.C. §546(c).<o:p></o:p></span></div>
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<br /></div>
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<!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]--><u><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">Debtor in Business Subject to Chapter 13 Trustee
Investigation – 11 U.S.C. §1302(c)</span></u><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">: </span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;"><br /></span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;"> Per §1302(c), the Chapter 13 trustee
must perform the duties specified in §§1106(a)(3) & (4) in a Chapter 13
business case. Specifically, those duties, unless the bankruptcy court orders
otherwise, are to “investigate the acts, conduct, assets, liabilities, and
financial condition of the debtor, the operation of the debtor’s business and
the desirability of the continuance of the business, and any other matter relevant
to the case or to the formulation of a plan.” Once that investigation is done,
the Chapter 13 trustee must “as soon as practicable” file a statement of his or
her investigation with the court (and provide a copy of such statement to any
entity the court designates), “including any fact ascertained pertaining to
fraud, dishonesty, incompetence, misconduct, mismanagement, or irregularity in
the management of the affairs of the debtor, or to a cause of action available
to the debtor.”<o:p></o:p></span></div>
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<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-bottom: 0.0001pt;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;"> Section G(2)(a) of the United States
Trustee’s Handbook for Standing Chapter 13 Trustees (10/1/12) states that the
Chapter 13 trustee, in filling this role, might ask for:<o:p></o:p></span></div>
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<br /></div>
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<!--[if !supportLists]--><span style="font-family: "Courier New"; font-size: 12.0pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]--><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">Copies
of Federal and State tax returns, along with all supporting schedules, for at
least the two years preceding the filing;<o:p></o:p></span></div>
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<br /></div>
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<!--[if !supportLists]--><span style="font-family: "Courier New"; font-size: 12.0pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]--><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">Copies
of financial statements furnished to a third party, such as a trade creditor or
a bank, within the two years preceding the filing of the petition, including
but not limited to the balance sheet, income statement and cash flow statement;<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "Courier New"; font-size: 12.0pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]--><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">Current
books and records of the business, including checks and check registers;<o:p></o:p></span></div>
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<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="margin: 0in 0in 0.0001pt 1in; text-indent: -0.25in;">
<!--[if !supportLists]--><span style="font-family: "Courier New"; font-size: 12.0pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]--><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">Monthly
profit and loss statements for at least the year preceding the filing;<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle">
<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="margin: 0in 0in 0.0001pt 1in; text-indent: -0.25in;">
<!--[if !supportLists]--><span style="font-family: "Courier New"; font-size: 12.0pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]--><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">Current
schedule of accounts receivable and accounts payable;<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle">
<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="margin: 0in 0in 0.0001pt 1in; text-indent: -0.25in;">
<!--[if !supportLists]--><span style="font-family: "Courier New"; font-size: 12.0pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]--><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">Current
insurance policies; and<o:p></o:p></span></div>
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<br /></div>
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<!--[if !supportLists]--><span style="font-family: "Courier New"; font-size: 12.0pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]--><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">Lease
agreements.<o:p></o:p></span></div>
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<span style="font-size: 12pt; line-height: 18.399999618530273px;"><span style="font-family: Times New Roman, serif;"> </span></span><span style="font-family: 'Times New Roman', serif; font-size: 12pt;">The Handbook
also outlines what the investigative report might address, such as: the nature
and location of the business; number of employees; status of federal, state, and
local tax returns and tax delinquencies; insurance; business licenses;
condition of books and records; prior balance sheets and profit/loss
statements; aging of accounts receivable and accounts payable; debts; work in
progress; and turnover actions, if applicable.</span></div>
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<br /></div>
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<!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]--><u><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">Additional Work – Schedules and Statement of
Financial Affairs</span></u><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">: </span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;"><br /></span></div>
<div class="MsoListParagraph" style="margin-bottom: 0.0001pt; text-indent: -0.25in;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;"> Note that there are many types of business property you have to list in Schedule
B, including inventory; accounts receivable; machinery and equipment; office
furniture and fixtures; patents; licenses; copyrights; trade names; customer
lists; and supplies. The new Schedule I, in ¶8a, requires the debtor to state
his or her net income from business operations or rentals, and “attach a
statement for each property and business showing gross receipts, ordinary and
necessary business expenses, and the total monthly net income” (note that the
new Schedule J presumes you identify all of the debtor’s business-related
expenses in this statement and not in Schedule J). The statement of financial affairs has
business-related questions that must be answered by an individual debtor,
located in questions 18-20. Those questions relate to inventories taken,
accountants used, where books and records are kept and by whom, and who
received financial statements from the debtor in the last 2 years. <o:p></o:p></span></div>
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<br /></div>
<br />
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<!--[if !supportLists]--><span style="font-family: Symbol; font-size: 12.0pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]--><u><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">Common Chapter 13 Provisions for Consumers and Business
Debtors</span></u><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">: </span></div>
<div class="MsoListParagraph" style="margin-bottom: 0.0001pt; text-indent: -0.25in;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;"><br /></span></div>
<div class="MsoListParagraph" style="margin-bottom: 0.0001pt; text-indent: -0.25in;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;"> A debtor’s status as a debtor in business does not change the major aspects of
Chapter 13. The debtor still has to take the pre-petition credit counseling
course in order to file the case, and must take the post-petition financial
management course in order to receive a discharge. The plan must be filed and
confirmed pursuant to the standards in §1325, the plan cannot exceed five years
in term, and the concept of “disposable income” still applies – with one twist.
The debtor in business is allowed to deduct from his or her current monthly
income all “amounts reasonably necessary to be expended … for the payment of
expenditures necessary for the continuation, preservation, and operation of
[the debtor’s] business.” 11 U.S.C. §1325(b)(2)(B).</span></div>
<div class="MsoListParagraph" style="margin-bottom: 0.0001pt; text-indent: -0.25in;">
<span class="MsoFootnoteReference" style="text-indent: -0.25in;"><b><span style="font-family: "Times New Roman","serif"; font-size: 14.0pt; line-height: 115%; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;"><span class="MsoFootnoteReference"><b><br /></b></span></span></b></span></div>
<div class="MsoListParagraph" style="margin-bottom: 0.0001pt; text-indent: -0.25in;">
<span style="font-family: Symbol; font-size: 12pt; text-indent: -0.25in;"><span style="font-family: 'Times New Roman'; font-size: 7pt;"> </span></span><u style="text-indent: -0.25in;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">Summary</span></u><span style="font-family: 'Times New Roman', serif; font-size: 12pt; text-indent: -0.25in;">: </span></div>
<div class="MsoListParagraph" style="margin-bottom: 0.0001pt; text-indent: -0.25in;">
<span style="font-family: 'Times New Roman', serif; font-size: 12pt; text-indent: -0.25in;"><br /></span></div>
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<span style="font-family: 'Times New Roman', serif; font-size: 12pt; text-indent: -0.25in;"> If you are individual debtor who runs
even a small side business (like renting out floors in your three-decker
residence), the attorney you choose should have at least some passing
familiarity with the business issues and how to address them (including making a determination whether you are indeed "a debtor in business" under §1304 and if those business issues do apply to your case). You should also
expect to pay the attorney more for a Chapter 13 business case than you would
pay for a Chapter 13 consumer case, given the additional reporting and issues
involved.</span><span style="font-family: 'Times New Roman', serif; font-size: 14pt; line-height: 115%; text-indent: -0.25in;"><span class="MsoFootnoteReference"><span style="font-size: 14pt; line-height: 115%;"><b> </b><a href="file:///U:/KMcGee/Seder%20&amp;%20Chandler/Blog%20&amp;%20Marketing/CHAPTER%2013%20FOR%20BUSINESS%20DEBTORS.docx#_ftn1" name="_ftnref1" style="font-weight: bold; text-indent: -0.25in;" title="">[1]</a></span></span></span></div>
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<a href="file:///U:/KMcGee/Seder%20&amp;%20Chandler/Blog%20&amp;%20Marketing/CHAPTER%2013%20FOR%20BUSINESS%20DEBTORS.docx#_ftnref1" name="_ftn1" title=""><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 11.0pt;"><span class="MsoFootnoteReference"><span style="font-size: 11pt; line-height: 115%;">[1]</span></span></span></span></a><span style="font-family: 'Times New Roman', serif; font-size: 11pt;"> Based on a presentation made to the
Worcester County Bar Association Bankruptcy Section, on April 3, 2014. ©Kevin
C. McGee</span><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">. <o:p></o:p></span></div>
Anonymoushttp://www.blogger.com/profile/14460465787358294185noreply@blogger.com1tag:blogger.com,1999:blog-3113637621001761237.post-75040561366212759952014-04-01T09:44:00.000-07:002014-04-11T07:41:06.523-07:00Now in Play: §506(d) "Strip-Offs" in Chapter 7<div class="MsoNormal">
On March 31, 2014, the Supreme Court of the United States
denied certiorari in <i>Bank of America,
N.A. v. Sinkfield</i>, Petition No. 13-700. To put it in terms appropriate to
Major League Baseball’s opening day, this was the equivalent of Casey’s mighty
whiff at strike three in the ninth inning, with the bases loaded, a full count, and the chance
for a walk-off win. <o:p></o:p><br />
<br /></div>
<div class="MsoNormal">
The elements were all in place; a “rogue” circuit makes a
holding that three other circuits would not dare to make, on an issue that many
debtor lawyers fantasize about revisiting and that many banks dread like a recurring nightmare. The 11<sup>th</sup>
Circuit (albeit summarily, in an order) held that a fully unsecured second
mortgage lien could be “stripped off” a Chapter 7 debtor’s residence in Georgia,
when the value of that residence is only enough to (partially) secure the first
mortgage lien. The 11<sup>th</sup> Circuit based the order on its previous
(unpublished) decision in <i>In re McNeal</i>,
No. 11-11352 (11th Cir. 5/11/12), in which the circuit limited the Supreme Court’s
decision in <i>Dewsnup v. Timm</i>, 502 U.S.
410 (1992) to prohibiting the strip-down of partially secured first
mortgages in Chapter 7. The <i>McNeal</i> court held that fully unsecured second mortgages are fair
game to be stripped off under 11 U.S.C. §506(d), and relied on its own, pre-<i>Dewsnup</i> 1989 decision, <i>Folendore v. United States Small Bus. Admin</i>.,
862 F.2d 1537 (11th Cir. 1989), as precedent for doing so. The 4<sup>th</sup>
Circuit, 6<sup>th</sup> Circuit, and 7<sup>th</sup> Circuit (as well as many
lower courts) all reached opposite results in holding that <i>Dewsnup v. Timm</i> did apply and prohibited any lien stripping in
Chapter 7. Throughout most of the country, the old adage that liens float unaffected through a (Chapter 7) bankruptcy is alive and well.<o:p></o:p><br />
<br />
<br /></div>
<div class="MsoNormal">
<b><u>Bankruptcy 101 on Lien-Stripping (in Chapter 7)</u></b>:<br />
<br />
11 U.S.C. §506(d) seems clear on its face. It states
that:<br />
<br />
<o:p></o:p></div>
<div class="MsoNormal" style="margin-left: .5in;">
To the
extent that a lien secures a claim against the debtor that is not an allowed
secured claim, such lien is void, unless -- <o:p></o:p><br />
<br /></div>
<div class="MsoNormal" style="margin-left: .5in; text-indent: .5in;">
(1) such
claim is disallowed only under section 502(b)(5)[as an unmatured debt for a
domestic support obligation] or 502(e) [as a contingent claim for reimbursement
or contribution] of this title; or<o:p></o:p><br />
<br /></div>
<div class="MsoNormal" style="margin-left: .5in; text-indent: .5in;">
(2) such claim is not an allowed secured claim
due only to the failure of any entity to file a proof of claim under section
501 of this title. <o:p></o:p><br />
<br /></div>
<div class="MsoNormal">
Add to this §506(a)(1), which states that “An allowed claim
of a creditor secured by a lien on property in which the estate has an interest
… is a secured claim to the extent of the value of such creditor’s interest in
the estate’s interest in such property … and is an unsecured claim to the
extent that the value of such creditor’s interest … is less than the amount of
such allowed claim.” <o:p></o:p><br />
<br /></div>
<div class="MsoNormal">
Thus, under recent Supreme Court precedent, it seems like a “no-brainer”
to hold that the statutes say what they say: you determine secured claims according the
value of the debtor’s property (and we can fight about what that “value” is); there
is no secured claim or lien beyond the value of the property; the only exceptions to the lien-voiding rule
in §506(d) are certain unmatured and
contingent secured claims; and a creditor does not have to file a proof of
claim to have its lien determined as an “allowed secured claim”. After all, look at the unanimous decision last
month in <i>Law v. Seigel</i>, in which the
justices solemnly proclaimed that “’whatever equitable powers remain in the
bankruptcy courts must and can only be exercised within the confines of ‘the
Bankruptcy Code” and “We have recognized … that in crafting the provisions of§522, ‘Congress
balanced the difficult choices that exemption limits impose on debtors with the
economic harm that exemptions visit on creditors.’ … The same can be said of the limits imposed
on recovery of administrative expenses by trustees. For the reasons we have
explained, it is not for courts to alter the balance struck by the statute.” <a href="file:///U:/KMcGee/Seder%20&amp;%20Chandler/Blog%20&amp;%20Marketing/SCOTUS%20Lien%20stripping.docx#_ftn1" name="_ftnref1" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 11.0pt; line-height: 115%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[1]</span></span><!--[endif]--></span></a><o:p></o:p><br />
<a href="file:///U:/KMcGee/Seder%20&amp;%20Chandler/Blog%20&amp;%20Marketing/SCOTUS%20Lien%20stripping.docx#_ftn1" name="_ftnref1" title=""><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 11.0pt; line-height: 115%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;"><br /></span></span></span></a></div>
<div class="MsoNormal">
<b><u>But - <i>Dewsnup v. Timm</i></u></b><br />
<br />
As many law school professors will gleefully tell you after you cite this straight-forward analysis –
we have the 1992 precedent of <i>Dewsnup v.
Timm</i>, in which the Supreme Court held that a partially unsecured first
mortgage could not be “stripped down” in Chapter 7 using these two statutes. The
pillars of that decision are as follows:<o:p></o:p><br />
<br /></div>
<div class="MsoNormal" style="margin-left: .5in; text-indent: .5in;">
(a) Congress
could not have meant to change long-standing bankruptcy law that “that liens
pass through bankruptcy unaffected”, and courts do not look at a clean slate (with
no history) when interpreting Bankruptcy Code provisions; <o:p></o:p><br />
<br /></div>
<div class="MsoNormal" style="margin-left: .5in; text-indent: .5in;">
(b) even though §506(a) and §506(d) both use the
term “allowed secured claim”, it is an ambiguous, undefined term, and does not
necessarily mean the same thing in each statute or elsewhere in the Bankruptcy Code; <o:p></o:p><br />
<br /></div>
<div class="MsoNormal" style="margin-left: .5in; text-indent: .5in;">
(c) the function of §506(a) is to determine the
relative interests of secured creditors and debtors in property that is part of
the debtor’s estate, while the function of §506(d) is to void “only liens
corresponding to claims that have not been allowed and secured”; and <o:p></o:p><br />
<br /></div>
<div class="MsoNormal" style="margin-left: .5in; text-indent: .5in;">
(d) if the Court were to hold otherwise, it would
ignore pre-Code bankruptcy practice and “freeze the creditor's secured interest
at the judicially determined valuation. By
this approach, the creditor would lose the benefit of any increase in the value
of the property by the time of the foreclosure sale. The increase would accrue
to the benefit of the debtor, a result some of the parties describe as a ‘windfall.’”<o:p></o:p><br />
<br /></div>
<div class="MsoNormal">
<i> Dewsnup</i> contains a
dissent authored by Judge Scalia, who – unsurprisingly – disagrees with the
majority’s decision because the plain language of both §506(a) and §506(d)
compels the voiding of the unsecured portion of the lien, notwithstanding
pre-Bankruptcy Code practice. Judge Scalia is still on the Supreme Court; one of the justices joining the majority,
Judge Kennedy, is also still on the Supreme Court. The rest of the participants
in the majority opinion – Judge Blackmun (the author of the majority opinion), Judge
O’Connor, Judge White, and Judge Stevens – have been replaced. So has Judge
Souter, who joined in Judge Scalia’s dissent. But Judge Thomas, who did not participate
in the decision and often joins with Judge Scalia, is still on the court. <o:p></o:p><br />
<br /></div>
<div class="MsoNormal">
So, all the conditions seemed right for a revisiting of
§§506(a) & 506(d): a split in the circuits; a (mostly) new cast of
characters on the Supreme Court; and a different perspective in recent
decisions of the Supreme Court on whether the plain language of the Bankruptcy Code or
the historical precedent of bankruptcy practice is more important. Yet, the petition for certiorari is denied,
and mortgagees across the country breathe a sigh of relief -- except, of
course, in Georgia, Alabama, and Florida, where motions and adversary
proceedings for lien-strip offs in Chapter 7 continue unabated<a href="file:///U:/KMcGee/Seder%20&amp;%20Chandler/Blog%20&amp;%20Marketing/SCOTUS%20Lien%20stripping.docx#_ftn2" name="_ftnref2" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 11.0pt; line-height: 115%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[2]</span></span><!--[endif]--></span></a>.
Casey was expecting a fast ball on a 3
and 2 count, and got a curve ball instead, leaving the home crowd unsatisfied.<o:p></o:p><br />
<br /></div>
<div class="MsoNormal">
The practical effect is that a debtor’s attorney in the
First, Second, Fifth, Eighth, Ninth, or Tenth Circuit will have to take the
right case up for an appeal, and obtain a reasoned circuit decision on this
issue. The 11<sup>th</sup> Circuit has the outlier opinion already in <i>In re McNeal</i> – it’s just a matter of
finding an appeal with the right ingredients.<o:p></o:p></div>
<br />
<div>
<!--[if !supportFootnotes]--><br clear="all" />
<hr align="left" size="1" width="33%" />
<!--[endif]-->
<br />
<div id="ftn1">
<div class="MsoFootnoteText">
<a href="file:///U:/KMcGee/Seder%20&amp;%20Chandler/Blog%20&amp;%20Marketing/SCOTUS%20Lien%20stripping.docx#_ftnref1" name="_ftn1" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 10.0pt; line-height: 115%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[1]</span></span><!--[endif]--></span></a> Note also that the justices threw an earlier
Supreme Court case, <i>Marrama v. Citizens
Bank of Mass.</i>, 549 U. S. 365 (2007) under the bus, ignoring that the <i>Marrama</i> court had blessed an equitable
exception to express statutory language, and then finessing the issue by saying
that another statute disqualified the debtor from converting his case to
Chapter 13.<o:p></o:p></div>
</div>
<div id="ftn2">
<div class="MsoFootnoteText">
<a href="file:///U:/KMcGee/Seder%20&amp;%20Chandler/Blog%20&amp;%20Marketing/SCOTUS%20Lien%20stripping.docx#_ftnref2" name="_ftn2" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Calibri","sans-serif"; font-size: 10.0pt; line-height: 115%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[2]</span></span><!--[endif]--></span></a> The NACBA’s amicus brief opposing the
certiorari petition likely gives the real reason for the order denying
certiorari: Bank of America “fast-tracked” the petition by agreeing that the 11
Circuit’s order was final, and deprived the Supreme Court of a “deliberative”
decision by a circuit court setting up a true conflict in the circuits on the
issue.<o:p></o:p><br />
<br />
©Kevin C. McGee</div>
</div>
</div>
Anonymoushttp://www.blogger.com/profile/14460465787358294185noreply@blogger.com0tag:blogger.com,1999:blog-3113637621001761237.post-25088764972885946882014-03-05T08:42:00.002-08:002014-04-11T07:41:22.255-07:00Exemptions, Objections, and Law v. Siegel<div align="center" class="MsoNormal" style="text-align: center;">
<b><i><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;">Law v. Siegel </span></i></b><b><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;"> (U.S. Supreme Court opinion March 4, 2014)<o:p></o:p></span></b></div>
<div align="center" class="MsoNormal" style="text-align: center;">
<b><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;">Exemptions
Safe From Bankruptcy Court’s “Adjustment”<o:p></o:p></span></b></div>
<div align="center" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: center;">
<b><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">Kevin C. McGee,
Esq.<o:p></o:p></span></b></div>
<div align="center" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: center;">
<b><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">Partner<o:p></o:p></span></b></div>
<div align="center" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: center;">
<b><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">Seder &
Chandler, LLP<o:p></o:p></span></b></div>
<div align="center" class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: center;">
<b><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">Worcester, MA<o:p></o:p></span></b></div>
<div align="center" class="MsoNormal" style="text-align: center;">
<br /></div>
<div class="MsoNormal">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;"> On
March 4, 2014, the U.S. Supreme Court decided <i>Law v. Siegel</i>, on an appeal from the Ninth Circuit. The facts were
that the Chapter 7 debtor (Stephan Law), in his bankruptcy schedules, stated
the following: (1) he owned a California residence, which he valued at $363,348.00;
(2) he had two liens on the residence, with a $147,156.52 first mortgage held
by Washington Mutual Bank, and a $156,929.04 second mortgage held by “Lin’s
Mortgage Associates”; and (3) he claimed a $75,000.00 California homestead
exemption in the equity in the residence. <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;"> Law’s
Chapter 7 Trustee (Alfred H. Siegel) did not object to Law’s claimed homestead
within thirty (30) days after Law’s meeting of creditors, as is required under
Fed. R. Bankr. P. 4003(b)(1). However, Siegel did suspect that the second
mortgage was not a legitimate debt, and started investigating. $500,000.00 in
attorneys’ fees later, Siegel obtained an order invalidating the second mortgage
as fraudulent. In addition, he petitioned the bankruptcy court to “surcharge” all
of Law’s $75,000.00 exemption in the residence for Siegel’s attorneys’ fees (as
permitted under 9<sup>th</sup> Circuit precedent). The bankruptcy court did so,
on the basis that Law’s fraudulent and inequitable conduct permitted it to use
11 U.S.C. §105(a) to deny Law the fruits of his bad faith conduct.<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;"> Judge
Scalia delivered the unanimous decision of the Supreme Court justices. In his
opinion, Judge Scalia held that neither the plain language of the bankruptcy
exemption statute (11 U.S.C. §522), or the debtor’s bad faith actions, allowed
a bankruptcy court to invalidate or surcharge an exemption for fees after the
exemption had been allowed. He pointed out that, although several provisions in
§522 either limit or prohibit exemptions in certain circumstances, §522(k) generally
prohibits (with some narrow exceptions) the use of a debtor’s allowed exemptions
for payment of administrative expenses, such as Siegel’s attorneys’ fees. In a
quote sure to be repeated, he discounted the §105(a) argument as follows: "§522
does not give courts discretion to grant or withhold exemptions based on
whatever considerations they deem appropriate.” Finally, he distinguished <i>Marrama v. Citizens Bank of Mass.</i>, 549
U. S. 365 (2007) on its facts. In <i>Marrama</i>,
the Supreme Court upheld a bankruptcy court’s denial of a Chapter 7 debtor’s
motion to convert to Chapter 13. Siegel argued that <i>Marrama</i> supported the idea that a debtor’s bad faith could justify
denying a debtor’s statutory right. Justice Scalia focused instead on whether,
in <i>Marrama</i>, the debtor could have “qualified”
for Chapter 13, and distinguished the case on that basis.<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br /></div>
<div align="center" class="MsoNormal" style="text-align: center;">
<b><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;">What
does <i>Law v. Siegel</i> Mean to Debtors,
Trustees and Bankruptcy Practitioners?</span></b><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;"><o:p></o:p></span></div>
<div align="center" class="MsoNormal" style="text-align: center;">
<b><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;"><br /></span></b></div>
<div class="MsoNormal">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;"> First,
it means that Chapter 7 trustees and creditors will need to make a more
aggressive push, early in the case, either to object to exemptions or file a
motion to extend the time to object to exemptions in order to provide enough
time for investigation. Judge Scalia pinned a lot of his decision on Siegel’s
failure to timely object to Law’s homestead exemption, and held that the
consequence of that failure was that the exemption became ironclad and
protected from future attack.<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;"> <i>Law v. Siegel</i> also reaffirms – again –
that the words and scheme used in the Bankruptcy Code have meaning and cannot
be disregarded merely because a litigant or court wants to reach a result not
intended by those words or that scheme. To this point, Judge Scalia wrote: <o:p></o:p></span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;">We
acknowledge that our ruling forces Siegel to shoulder a heavy financial burden
resulting from Law’s egregious misconduct, and that it may produce inequitable results
for trustees and creditors in other cases. We have recognized, however, that in
crafting the provisions of §522, ‘Congress balanced the difficult choices that
exemption limits impose on debtors with the economic harm that exemptions visit
on creditors.’… The same can be said of the limits imposed on recovery of
administrative expenses by trustees. For the reasons we have explained, it is
not for courts to alter the balance struck by the statute (citations omitted).<o:p></o:p></span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;"><br /></span></div>
<br />
<div class="MsoNormal">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;"> The decision also means that debtors and their attorneys
can rest easy once the exemption deadline passes – with one exception not noted
in the decision. At the tail end of <i>Law
v. Siegel</i>, Judge Scalia lists a variety of alternate means available to
punish or sanction a debtor’s bad behavior: denial of a debtor’s discharge,
sanctions under Fed. R. Bankr. P. 9011, criminal prosecution, and other
unspecified sanction power under 11 U.S.C. §105(a). </span><br />
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;"><br /></span>
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;"> He fails to mention,
however, one path that will be open to trustees after <i>Siegel</i> and after 2008: Fed. R. Bankr. P. 4003(b)(2).
That rule provides that a trustee may still file an objection to a debtor’s claim
of exemption “at any time prior to one year after the closing of the case, if
the debtor fraudulently asserted the claim of exemption.” Trustees who face similar issues as Mr. Siegel have "a second bite of apple" that was unavailable to Mr. Siegel. <o:p></o:p></span><br />
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;"><br /></span>
<br />
<div style="text-align: center;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;"><b>Quick Update</b></span></div>
<div style="text-align: left;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;"><b> </b></span></div>
<div style="text-align: left;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;"><b> </b><i>I exchanged e-mails with Steven T. Gruber, Esq., who argued the case for Mr. Siegel. He pointed out to me that Fed. R. Bankr. P. 4003(b)(2) does not apply to his case, because Mr. Law filed his Chapter 7 case before the enactment of BAPCA and before the change in Rule 4003 (in 2008). He also told me that Mr. Law's discharge had been revoked, multiple civil sanctions had been assessed against him, and that Law moved all his personal property to China before he filed his bankruptcy case. There is also a criminal referral outstanding, but no one knows if it will ever proceed.</i></span></div>
<div style="text-align: left;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;"><i><br /></i></span></div>
<div style="text-align: left;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;"><i> Thanks to Mr. Gruber for taking the time to respond to my e-mails - as you can see, this was a very frustrating case and losing a Supreme Court case must be the equivalent of being on the losing side of the Super Bowl. The feelings are the same, whether you are a quarterback or a lawyer. </i></span></div>
<div style="text-align: left;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 115%;"><b><br /></b></span>
©Kevin C. McGee</div>
</div>
Anonymoushttp://www.blogger.com/profile/14460465787358294185noreply@blogger.com0tag:blogger.com,1999:blog-3113637621001761237.post-37831654494890238282012-12-06T13:43:00.001-08:002014-04-11T07:41:53.638-07:00STERN V. MARSHALL SEMINAR MATERIALS PRESENTED 12/6/12 TO WORCESTER COUNTY BAR ASS'N BANKRUPTCY SECTION<br />
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<b><i>STERN v. <st1:place w:st="on"><st1:city w:st="on">MARSHALL</st1:city></st1:place></i>, 131 S.Ct. 2594 (2011):<o:p></o:p></b></div>
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<b>WHY SHOULD YOU CARE?<o:p></o:p></b></div>
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<br /></div>
<div align="center" class="MsoNormal" style="text-align: center;">
<b>Kevin C. McGee, Partner<o:p></o:p></b></div>
<div align="center" class="MsoNormal" style="text-align: center;">
<b><span style="font-variant: small-caps;">Seder & Chandler, LLP</span><o:p></o:p></b></div>
<div align="center" class="MsoNormal" style="text-align: center;">
<st1:street w:st="on"><st1:address w:st="on"><b>339 Main Street</b></st1:address></st1:street><b>, 3<sup>rd</sup> Floor<o:p></o:p></b></div>
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<st1:place w:st="on"><st1:city w:st="on"><b>Worcester</b></st1:city><b>, <st1:state w:st="on">MA</st1:state> <st1:postalcode w:st="on">01608</st1:postalcode></b></st1:place><b><o:p></o:p></b><br />
<st1:place w:st="on"><span style="text-align: start;"><b>©Kevin C. McGee</b></span></st1:place></div>
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<br /></div>
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<br /></div>
<ul style="margin-top: 0in;" type="disc">
<li class="MsoNormal"><u>The<i> Stern v. Marshall</i> Facts</u>:</li>
</ul>
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<br /></div>
<ul style="margin-top: 0in;" type="disc">
<ul style="margin-top: 0in;" type="circle">
<li class="MsoNormal">Former
Playmate of the Year Anna Nicole Smith (real name: Vickie Lynn Marshall) (“Smith”)
marries J. Howard Marshall II (“Howard”), who is very old and very rich.</li>
</ul>
</ul>
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<ul style="margin-top: 0in;" type="disc">
<ul style="margin-top: 0in;" type="circle">
<ul style="margin-top: 0in;" type="square">
<li class="MsoNormal">One
year later – Howard dies & leaves Smith out of his will. Before his
death, Smith files suit in <st1:state w:st="on">Texas</st1:state>
and accuses Howard’s son – E. Pierce Marshall (“Pierce”) – of shenanigans
to keep her out of the will. </li>
</ul>
</ul>
</ul>
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<br /></div>
<ul style="margin-top: 0in;" type="disc">
<ul style="margin-top: 0in;" type="circle">
<ul style="margin-top: 0in;" type="square">
<li class="MsoNormal">Smith
files bankruptcy after Howard’s death, with her claims against Howard’s
estate –separate litigation (up and down the federal court system and
the <st1:state w:st="on">Texas</st1:state>
court system) ensues.</li>
</ul>
</ul>
</ul>
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<br /></div>
<ul style="margin-top: 0in;" type="disc">
<ul style="margin-top: 0in;" type="circle">
<ul style="margin-top: 0in;" type="square">
<li class="MsoNormal">In
the Smith bankruptcy, Pierce files a non-dischargeability complaint and
a proof of claim based upon his allegations that Smith defamed him
through having her lawyers publicize (through the press) that Pierce
defrauded Smith to gain control of Howard’s assets and estate (the
“Pierce Proof of Claim”). </li>
</ul>
</ul>
</ul>
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<ul style="margin-top: 0in;" type="disc">
<ul style="margin-top: 0in;" type="circle">
<ul style="margin-top: 0in;" type="square">
<li class="MsoNormal">Smith
objects to the Pierce Proof of Claim and asserts a counterclaim against Pierce
on the theory of his tortious interference with the gift she expected to
get from Howard.</li>
</ul>
</ul>
</ul>
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<br /></div>
<ul style="margin-top: 0in;" type="disc">
<ul style="margin-top: 0in;" type="circle">
<ul style="margin-top: 0in;" type="square">
<li class="MsoNormal">Determinations
in the <st1:state w:st="on">California</st1:state>
bankruptcy court on both claims – Pierce expresses no issue or problem
with the bankruptcy court hearing issues on the Pierce Proof of Claim,
but objects to the hearing on the Smith counterclaim. Smith gets summary
judgment (in 1999) on the Smith
Proof of Claim, and judgment (after a 2000 bench trial) in her favor on
her counterclaim -- $400 million in compensatory damages & $25
million in punitive damages. </li>
</ul>
</ul>
</ul>
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<br /></div>
<ul style="margin-top: 0in;" type="disc">
<ul style="margin-top: 0in;" type="circle">
<ul style="margin-top: 0in;" type="square">
<li class="MsoNormal">Post-trial
– Pierce argues that Smith’s counterclaim was not a “core proceeding”
& that the bankruptcy court had no authority to issue final findings
of fact and rulings of law (“Final Rulings”) on the counterclaim. Smith
argues that the counterclaim was “core” under 28 U.S.C. §157(b)(2)(C)<a href="file:///U:/KMcGee/Seminar%20Materials/Stern%20v%20Marshall%20WCBA%2012-6-12.doc#_ftn1" name="_ftnref1" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 12pt;">[1]</span></span><!--[endif]--></span></a>
(as the bankruptcy court had determined in issuing its final judgment). </li>
</ul>
</ul>
</ul>
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<br /></div>
<ul style="margin-top: 0in;" type="disc">
<ul style="margin-top: 0in;" type="circle">
<ul style="margin-top: 0in;" type="square">
<li class="MsoNormal">The
California US District Court agreed with Pierce that the counterclaim
was not “core”, notwithstanding §157(b)(2)(C), because (in essence) it
was not a “mandatory” counterclaim to the Pierce Proof of Claim (i.e.,
arose from different facts and occurrences), & treated the
bankruptcy court findings and judgment as “proposed”<a href="file:///U:/KMcGee/Seminar%20Materials/Stern%20v%20Marshall%20WCBA%2012-6-12.doc#_ftn2" name="_ftnref2" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 12pt;">[2]</span></span><!--[endif]--></span></a>.
The District Court then confirmed the bankruptcy court rulings and
issued its own judgment in favor of Smith, in the amount of
$44,292,767.33 (combining compensatory & punitive damages). </li>
</ul>
</ul>
</ul>
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<br /></div>
<ul style="margin-top: 0in;" type="disc">
<ul style="margin-top: 0in;" type="circle">
<ul style="margin-top: 0in;" type="square">
<li class="MsoNormal">A
procedural mess followed, with the case going up to the 9<sup>th</sup>
Circuit, then up to the SCOTUS (on the issue of a bankruptcy court’s
power to decide probate matters), then back to the 9<sup>th</sup>
Circuit. In the end, the 9<sup>th</sup> Circuit concluded that the
District Court should have given the <st1:state w:st="on">Texas</st1:state> jury verdict preclusive effect,
and ruled in favor of Pierce. Another writ of certiorari followed and
the SCOTUS granted it. </li>
</ul>
</ul>
</ul>
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<br /></div>
<ul style="margin-top: 0in;" type="disc">
<ul style="margin-top: 0in;" type="circle">
<ul style="margin-top: 0in;" type="square">
<li class="MsoNormal">By
the time the SCOTUS decided the case in 2011, both Smith and Pierce were
dead, and their respective estates were carrying on the fight. </li>
</ul>
</ul>
</ul>
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<br /></div>
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<br /></div>
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<br /></div>
<div align="center" class="MsoNormal" style="text-align: center;">
<br /></div>
<ul style="margin-top: 0in;" type="disc">
<li class="MsoNormal"><u>The<i> Stern v. Marshall</i> Majority Rulings
(Roberts, CJ, with Scalia, Kennedy, Thomas & Alioto, JJ joining)</u>:<u><o:p></o:p></u></li>
</ul>
<div class="MsoNormal">
<br /></div>
<ul style="margin-top: 0in;" type="disc">
<ul style="margin-top: 0in;" type="circle">
<li class="MsoNormal"><u>“Core”
or “Noncore” under 28 U.S.C. §157(b)</u>? <u><o:p></o:p></u></li>
</ul>
</ul>
<div class="MsoNormal">
<br /></div>
<ul style="margin-top: 0in;" type="disc">
<ul style="margin-top: 0in;" type="circle">
<ul style="margin-top: 0in;" type="square">
<li class="MsoNormal">Under
the terms of §157(b)(2)(C), the bankruptcy court had statutory authority
to enter Final Rulings on the Smith counterclaim to the Pierce Proof of
Claim.<u><o:p></o:p></u></li>
</ul>
</ul>
</ul>
<div class="MsoNormal">
<br /></div>
<ul style="margin-top: 0in;" type="disc">
<ul style="margin-top: 0in;" type="circle">
<ul style="margin-top: 0in;" type="square">
<li class="MsoNormal">The
bankruptcy court could also enter Final Rulings on the Pierce Proof of
Claim because: (i) although Pierce claimed that the Pierce Proof of
Claim involved a “personal injury tort” which the bankruptcy court
lacked jurisdiction to hear under 28 U.S.C. §157(b)(5), that statute is not
jurisdictional; and (ii) Pierce’s expressions of consent to the
bankruptcy court determination of the Pierce Proof of Claim waived his objection
to such determination based on §157(b)(5). Justice Roberts noted that Pierce
did consent to the determination of the Pierce Proof of Claim by filing
the proof of claim and then affirmatively stating on other occasions
that he had no problem with the bankruptcy court's determination of the
Pierce Proof of Claim. 131 S.Ct. at 2607-08.<u><o:p></o:p></u></li>
</ul>
</ul>
</ul>
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<br /></div>
<ul style="margin-top: 0in;" type="disc">
<ul style="margin-top: 0in;" type="circle">
<ul style="margin-top: 0in;" type="square">
<li class="MsoNormal">On
the latter point, Justice Roberts wrote: “If Pierce believed that the
Bankruptcy Court lacked the authority to decide his claim for
defamation, then he should have said so -- and said so promptly. <i><u>See</u> United States v. Olano</i>,
507 <st1:country-region w:st="on">U.S.</st1:country-region>
725, 731 (1993)(‘”no procedural principle is more familiar to this Court
than that a constitutional right,” or a right of any other sort, “may be
forfeited ... by the failure to make timely assertion of the right
before a tribunal having jurisdiction to determine it.”’)[.]” 131 S.Ct.
at 2608. <u><o:p></o:p></u></li>
</ul>
</ul>
</ul>
<div class="MsoNormal">
<br /></div>
<ul style="margin-top: 0in;" type="disc">
<ul style="margin-top: 0in;" type="circle">
<li class="MsoNormal"><u>Does
the Bankruptcy Court have Authority to Determine Smith’s State Law
Counterclaim</u>? <u><o:p></o:p></u></li>
</ul>
</ul>
<div class="MsoNormal">
<br /></div>
<ul style="margin-top: 0in;" type="disc">
<ul style="margin-top: 0in;" type="circle">
<ul style="margin-top: 0in;" type="square">
<li class="MsoNormal">Despite
its conclusion that the Smith counterclaim was a “core” proceeding as
defined by the statute, the majority opinion went on to examine the
bankruptcy court’s authority to issue Final Rulings under Article III of
the U.S. Constitution.<u><o:p></o:p></u></li>
</ul>
</ul>
</ul>
<div class="MsoNormal">
<br /></div>
<ul style="margin-top: 0in;" type="disc">
<ul style="margin-top: 0in;" type="circle">
<ul style="margin-top: 0in;" type="square">
<li class="MsoNormal">Justice
Roberts first trots out the plurality opinion in <a href="http://scholar.google.com/scholar_case?case=17768408304219861886&hl=en&as_sdt=2,22&as_vis=1"><i><span style="background: white; color: windowtext; text-decoration: none; text-underline: none;">Northern Pipeline Constr. Co. v. Marathon Pipe Line
Co.,</span></i><span class="apple-converted-space"><span style="background: white; color: windowtext; text-decoration: none; text-underline: none;"> </span></span><span style="background: white; color: windowtext; text-decoration: none; text-underline: none;">458 U.S. 50, 102 S.Ct. 2858 (1982) and the idea
that Congress cannot delegate, through legislation, either the Article
III judicial power or the right of litigants to have state law claims
heard by an Article III court. 131 S.Ct. at 2608-10.</span></a> </li>
</ul>
</ul>
</ul>
<div class="MsoNormal">
<br /></div>
<ul style="margin-top: 0in;" type="disc">
<ul style="margin-top: 0in;" type="circle">
<ul style="margin-top: 0in;" type="square">
<li class="MsoNormal">The
majority then goes on to examine whether the core/non-core distinction
in 28 U.S.C. §157, with the bankruptcy courts operating as “adjuncts” of
the district courts, fits within the “public rights” exception to
Article III jurisdiction permitting legislatively-created adjudicators
to necessarily determine state law claims. </li>
</ul>
</ul>
</ul>
<div class="MsoNormal">
<br /></div>
<ul style="margin-top: 0in;" type="disc">
<ul style="margin-top: 0in;" type="circle">
<ul style="margin-top: 0in;" type="square">
<li class="MsoNormal">In
teasing out the “public rights” exception, Justice Roberts notes that
the following situations qualify for the exception: (1) actions in which
the U.S. Government is a party to the litigation; and (2) actions in
which the <span style="background-color: white; background-position: initial initial; background-repeat: initial initial;">rights involved are
“integrally related to particular federal government action” or a
federal regulatory scheme. 131 S.Ct. at 2611-13. </span></li>
</ul>
</ul>
</ul>
<div class="MsoNormal">
<br /></div>
<ul style="margin-top: 0in;" type="disc">
<ul style="margin-top: 0in;" type="circle">
<ul style="margin-top: 0in;" type="square">
<li class="MsoNormal"><span style="background-color: white; background-position: initial initial; background-repeat: initial initial;">Justice Roberts and the majority
cite the circumstances in <i>Commodity Futures Trading Commission v.
Schor</i><span class="apple-converted-space">, 478 <st1:place w:st="on"><st1:country-region w:st="on">U.S.</st1:country-region></st1:place> 833, 106 S.Ct. 3245
(1986) as a situation in which a state law claim could be determined
under the “public rights” exception to Article III jurisdiction:
specifically, when a mandatory state law counterclaim, arising from the
same facts and occurrences, is asserted in response to a claim that
falls within the determination authority of an agency acting within a
“specific and limited regulatory scheme.”</span> 131 S.Ct. at 2613-14.</span></li>
</ul>
</ul>
</ul>
<div class="MsoNormal">
<br /></div>
<ul style="margin-top: 0in;" type="disc">
<ul style="margin-top: 0in;" type="circle">
<ul style="margin-top: 0in;" type="square">
<li class="MsoNormal"><span style="background-color: white; background-position: initial initial; background-repeat: initial initial;">The majority contrasts the <i>Schor</i> circumstances with a
trustee’s pursuit of fraudulent transfer claims in <i>Granfinanceria S.A. v. Nordberg</i>, 492 U.S. 33, 109 S.Ct. 2782
(1989), in which the SCOTUS held such claims, asserted against a
noncreditor, were “private rights” as opposed to “public rights,” even
if a statute granted the right to pursue the fraudulent transfer action.
131 S.Ct. at 2614.</span></li>
</ul>
</ul>
</ul>
<div class="MsoNormal">
<br /></div>
<ul style="margin-top: 0in;" type="disc">
<ul style="margin-top: 0in;" type="circle">
<ul style="margin-top: 0in;" type="square">
<li class="MsoNormal"><span style="background-color: white; background-position: initial initial; background-repeat: initial initial;">After this review, Justice Roberts
concludes that the Smith counterclaim is more like the fraudulent
transfer claim than it is the counterclaim in <i>Schor</i>, and concludes that the Smith counterclaim neither
falls within the public rights exception nor “flows from a federal
statutory scheme …[in which the counterclaim’s adjudication] is completely
dependent upon ‘adjudication of a claim created by federal law’”.<i><u>Id</u></i>.</span></li>
</ul>
</ul>
</ul>
<div class="MsoNormal">
<br /></div>
<ul style="margin-top: 0in;" type="disc">
<ul style="margin-top: 0in;" type="circle">
<ul style="margin-top: 0in;" type="square">
<li class="MsoNormal">Accordingly,
the majority concludes that the California bankruptcy court lacked
constitutional authority, under Article III, to make Final Rulings on
Smith’s counterclaim to the Pierce Proof of Claim, notwithstanding its
“core” nature under 28 U.S.C. §157. In making this conclusion, the
majority dismisses: (1) any “implied” consent to the determination of
the Smith Counterclaim through the filing of the Pierce Proof of Claim –
because of the lack of factual connection between the Pierce Proof of
Claim and the Smith Counterclaim, and the need for separate findings for
each claim, <span style="background-color: white; background-position: initial initial; background-repeat: initial initial;">131 S.Ct. at 2615-18</span>;
(2) the bankruptcy court’s “adjunct” status to the district court, since
such status is not accompanied by an appropriate limitation as to the
areas that a bankruptcy court can decide, <span style="background-color: white; background-position: initial initial; background-repeat: initial initial;">131 S.Ct. at 2618-19</span>; and (3) the concern that
a two-tier adjudication of state law claims, with the need to confirm and approve
proposed findings and rulings through <i>de novo</i> review, does not justify overriding Article III
constitutional concerns even if the process is inefficient, expensive or
impractical, <span style="background-color: white; background-position: initial initial; background-repeat: initial initial;">131 S.Ct. at 2620</span>.</li>
</ul>
</ul>
</ul>
<div class="MsoNormal">
<br /></div>
<ul style="margin-top: 0in;" type="disc">
<ul style="margin-top: 0in;" type="circle">
<ul style="margin-top: 0in;" type="square">
<li class="MsoNormal">On
the latter point, the majority does appear to backtrack a little on the
scope of its decision: “[W]<span style="background-color: white; background-position: initial initial; background-repeat: initial initial;">e
are not convinced that the practical consequences of such limitations on
the authority of bankruptcy courts to enter final judgments are as
significant as [Smith] and the dissent suggest…As described above, the
current bankruptcy system also requires the district court to review<span class="apple-converted-space"> </span><i>de novo</i><span class="apple-converted-space"> </span>and enter final judgment on any
matters that are "related to" the bankruptcy proceedings, §
157(c)(1), and permits the district court to withdraw from the
bankruptcy court any referred case, proceeding, or part thereof, §
157(d). Pierce has not argued that the bankruptcy courts ‘are barred from
`hearing' all counterclaims’ or proposing findings of fact and
conclusions of law on those matters, but rather that it must be the
district court that ‘finally decide[s]’ them.... We do not think the
removal of counterclaims such as Vickie's from core bankruptcy
jurisdiction meaningfully changes the division of labor in the current
statute; we agree with the <st1:place w:st="on"><st1:country-region w:st="on">United States</st1:country-region></st1:place> that the
question presented here is a "narrow" one.” 131 S.Ct. at 2620</span>.</li>
</ul>
</ul>
</ul>
<div class="MsoNormal" style="margin-left: 1.25in;">
<br /></div>
<div align="center" class="MsoNormal" style="text-align: center;">
<br /></div>
<ul style="margin-top: 0in;" type="disc">
<li class="MsoNormal"><u>Is
the<i> Stern v. Marshall</i> Effect on
Bankruptcy Litigation Broad or Narrow</u>?<u><o:p></o:p></u></li>
</ul>
<div class="MsoNormal">
<br /></div>
<ul style="margin-top: 0in;" type="disc">
<ul style="margin-top: 0in;" type="circle">
<li class="MsoNormal"><u>Answers
from Circuit Courts</u>:<u><o:p></o:p></u></li>
</ul>
</ul>
<div class="MsoNormal">
<br /></div>
<ul style="margin-top: 0in;" type="disc">
<ul style="margin-top: 0in;" type="circle">
<ul style="margin-top: 0in;" type="square">
<li class="MsoNormal"> <u>Yes, It is Narrow</u>: <u><o:p></o:p></u></li>
</ul>
</ul>
</ul>
<div class="MsoNormal">
<br /></div>
<ul style="margin-top: 0in;" type="disc">
<ul style="margin-top: 0in;" type="circle">
<ul style="margin-top: 0in;" type="square">
<ul style="margin-top: 0in;" type="disc">
<li class="MsoNormal"><u>11<sup>th</sup>
Circuit</u>: <i>Stern v. <st1:city w:st="on"><st1:place w:st="on">Marshall</st1:place></st1:city></i> involved a “permissive”
state law counterclaim to a proof of claim, and has no application when
the counterclaim is “mandatory”, i.e. arising from the same facts and
occurrences, as in loan payment recoupment claims asserted in response
to a secured creditor’s action to determine the validity, extent and
priority of its lien. <i>Sundale,
Ltd. v. <st1:place w:st="on"><st1:state w:st="on">Florida</st1:state></st1:place>
Associates Capital Enterprises, LLC (In re Sundale, Ltd)</i>, __ F 3d
__ (Case No. 12-11450 11<sup>th</sup> Cir. 11/29/12).<u><o:p></o:p></u></li>
</ul>
</ul>
</ul>
</ul>
<div class="MsoNormal">
<br /></div>
<ul style="margin-top: 0in;" type="disc">
<ul style="margin-top: 0in;" type="circle">
<ul style="margin-top: 0in;" type="square">
<ul style="margin-top: 0in;" type="disc">
<li class="MsoNormal"><u>2<sup>nd</sup>
Circuit</u>: <i>Stern v. <st1:city w:st="on"><st1:place w:st="on">Marshall</st1:place></st1:city></i>
holding is narrow and has no application to a bankruptcy court
injunction issued to stay asbestos litigation against the debtor’s
parent company, in aid of the
automatic stay. <i>Pfizer, Inc. v.
Law Offices of Peter G. Angelos (In re Quigley Co., Inc.)</i>, 676 F.3d
45 (2<sup>nd</sup> Cir. 2012). <u><o:p></o:p></u></li>
</ul>
</ul>
</ul>
</ul>
<div class="MsoNormal">
<br /></div>
<ul style="margin-top: 0in;" type="disc">
<ul style="margin-top: 0in;" type="circle">
<ul style="margin-top: 0in;" type="square">
<ul style="margin-top: 0in;" type="disc">
<li class="MsoNormal"><u>1<sup>st</sup>
Circuit</u>: <i>Stern v. <st1:city w:st="on"><st1:place w:st="on">Marshall</st1:place></st1:city></i> is
limited in scope and inapplicable to a Truth in Lending rescission
action, when the bankruptcy court’s resolution of that action was
necessary to its determination of the secured creditor’s motion for
relief from stay. <i>DiVittorio v.
HSBC Bank <st1:country-region w:st="on"><st1:place w:st="on">USA</st1:place></st1:country-region>
(In re DiVittorio)</i>, 670 F.3d 273, 282 n.4 (1st Cir. 2012)<u><o:p></o:p></u></li>
</ul>
</ul>
</ul>
</ul>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br /></div>
<ul style="margin-top: 0in;" type="disc">
<ul style="margin-top: 0in;" type="circle">
<ul style="margin-top: 0in;" type="square">
<li class="MsoNormal"><u>“It
Depends”</u>: <u><o:p></o:p></u></li>
</ul>
</ul>
</ul>
<div class="MsoNormal">
<br /></div>
<ul style="margin-top: 0in;" type="disc">
<ul style="margin-top: 0in;" type="circle">
<ul style="margin-top: 0in;" type="square">
<ul style="margin-top: 0in;" type="disc">
<li class="MsoNormal"><u>9<sup>th</sup>
Circuit</u>: Although <i>Stern v.
Marshall</i> certainly applied to a bankruptcy court’s determination of
a fraudulent transfer case under 11 U.S.C. §548 against a noncreditor,
the right to a hearing in an Article III court can be waived by a
party, and the bankruptcy court could still issue final findings of
fact and rulings of law on the claim when the defendant had failed to
object or indicate a lack of consent to such hearing, until the final
judgment was challenged on appeal. <i>Executive
Benefits Insurance Agency v. Arkison (In re Bellingham Insurance
Agency, Inc.)</i>, ___ F.3d ___ (Case No. 11-35162 9<sup>th</sup> Cir.
12/4/12).<u> <o:p></o:p></u></li>
</ul>
</ul>
</ul>
</ul>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br /></div>
<ul style="margin-top: 0in;" type="disc">
<ul style="margin-top: 0in;" type="circle">
<ul style="margin-top: 0in;" type="square">
<li class="MsoNormal"><u>No,
It is Broad and Far-Reaching</u>: <u><o:p></o:p></u></li>
</ul>
</ul>
</ul>
<div class="MsoNormal">
<br /></div>
<ul style="margin-top: 0in;" type="disc">
<ul style="margin-top: 0in;" type="circle">
<ul style="margin-top: 0in;" type="square">
<ul style="margin-top: 0in;" type="disc">
<li class="MsoNormal"><u>6<sup>th</sup>
Circuit</u>: In determining a debtor’s state law fraud counterclaim
against a secured creditor in the context of the debtor’s declaratory
judgment action to disallow and discharge the creditor’s secured and
unsecured claims, the Sixth Circuit stated: <i><span style="background-color: white; background-position: initial initial; background-repeat: initial initial;">“ Stern</span></i><span class="apple-converted-space"><span style="background-color: white; background-position: initial initial; background-repeat: initial initial;"> thus provides a summary of
the law in this area: When a debtor pleads an action under federal
bankruptcy law and seeks disallowance of a creditor's proof of claim
against the estate—as in </span><i>Katchen</i>—<b>the bankruptcy court's authority is at its
constitutional maximum</b>.(my emphasis – KCM) 131 S. Ct. at 2617-18.
But when a debtor pleads an action arising only under state-law, as
in <i>Northern Pipeline;</i> or when the debtor pleads an
action that would augment the bankrupt estate, but not ‘necessarily be
resolved in the claims allowance process[,]’ 131 <st1:place w:st="on">S.
Ct.</st1:place> at 2618; then the bankruptcy court is constitutionally
prohibited from entering final judgment. <st1:state w:st="on"><st1:place w:st="on">Id.</st1:place></st1:state> at
2614.”</span><span style="background-color: white; background-position: initial initial; background-repeat: initial initial;">
</span><em><span style="background-color: white; background-position: initial initial; background-repeat: initial initial;">Waldman
v</span></em><span style="background: white; color: #222222; mso-bidi-font-family: Arial;">.<span class="apple-converted-space"> </span></span><em><span style="background-color: white; background-position: initial initial; background-repeat: initial initial;">Stone</span></em><span style="background: white; color: #222222; mso-bidi-font-family: Arial;">, ___ F.3d ___, ___ , 2012 WL 5275241 (</span><em><span style="background-color: white; background-position: initial initial; background-repeat: initial initial; font-style: normal;">6th Cir</span></em><i><span style="background: white; color: #222222; mso-bidi-font-family: Arial;">.</span></i><span style="background: white; color: #222222; mso-bidi-font-family: Arial;"> Oct.
26, 2012). </span><u><o:p></o:p></u></li>
</ul>
</ul>
</ul>
</ul>
<div class="MsoNormal" style="margin-left: 1.25in;">
<br /></div>
<div align="center" class="MsoNormal" style="text-align: center;">
<br /></div>
<ul style="margin-top: 0in;" type="disc">
<li class="MsoNormal"><u>What
Are the Courts Doing to Accommodate <i>Stern
v. <st1:place w:st="on"><st1:city w:st="on">Marshall</st1:city></st1:place></i>
in Practice</u>?<u><o:p></o:p></u></li>
</ul>
<div class="MsoNormal">
<br /></div>
<ul style="margin-top: 0in;" type="disc">
<ul style="margin-top: 0in;" type="circle">
<li class="MsoNormal"><u>National
Rulemaking</u>: In September 2012, <span style="background-color: white; background-position: initial initial; background-repeat: initial initial;">the Advisory Committee on Bankruptcy Rules for the Judicial
Conference of the <st1:place w:st="on"><st1:country-region w:st="on">United
States</st1:country-region></st1:place> proposed amendments to Bankruptcy Rules
7008, 7012, 7016, 9027, and 9033 to address the “inefficiencies” of </span><i>Stern v. Marshall</i>. The common
theme in each rule is to require each party to state whether or not the
party consents to the bankruptcy court’s final determination of facts and
final rulings, with opportunities at the pleading stage (proposed Fed. R.
Bankr. P. 7008 & 7012), if the case is removed from another court
(proposed Fed. R. Bankr. P. 9027), and at pre-trial conferences (proposed
Fed. R. Bankr. P. 7016). The proposed rules also eliminate any
requirement that the parties state whether each count is “core” or
“non-core”<a href="file:///U:/KMcGee/Seminar%20Materials/Stern%20v%20Marshall%20WCBA%2012-6-12.doc#_ftn3" name="_ftnref3" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 12pt;">[3]</span></span><!--[endif]--></span></a>. Proposed
Fed. R. Bankr. P. 9033 follows this trend in eliminating any reference to
28 U.S.C. §157(c)(1) with respect to proposed findings and rulings issued
by a bankruptcy court, thus acknowledging that proposed findings and
rulings may be required in “core” matters as well as “non-core” matters.</li>
</ul>
</ul>
<div class="MsoNormal">
<br /></div>
<ul style="margin-top: 0in;" type="disc">
<ul style="margin-top: 0in;" type="circle">
<li class="MsoNormal"><u>Local
Rulemaking</u>: At least one bankruptcy court, has adopted the “get
consent to everything first” approach taken up by the Advisory Committee
to the Judicial Conference. Bankr. SDNY Local Bankruptcy Rule 7008.1
(adopted 4/16/12); <i><u>see</u> <u>also</u>
</i>Local Rule 7012-1 (Bankr. D. Md.) (requiring statement of consent in
pleadings); Local Rule 7008 (Bankr. W.D. Mich.)(same). U.S. District Courts
have mostly reacted by reaffirming the referral of bankruptcy matters to
bankruptcy courts, and requiring that all determinations under <i>Stern v. Marshall</i> be made, in the
first instance, by the bankruptcy court (as opposed to through a motion
to withdraw reference addressed to the district court). Amended Standing
Order or Reference (D. <st1:state w:st="on">Del.</st1:state> 2/29/12);
Standing Order of Ref. 6:12-MC-26-ORL-22 (M.D. Fla. 2/22/12); L.R. 206
(D. Mass. effective 6/5/12); Amended Standing Order of Reference
(S.D.N.Y. 1/31/12); General Order No. 2011-12 (S.D. Tex. 11/29/11)<a href="file:///U:/KMcGee/Seminar%20Materials/Stern%20v%20Marshall%20WCBA%2012-6-12.doc#_ftn4" name="_ftnref4" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 12pt;">[4]</span></span><!--[endif]--></span></a>.
</li>
</ul>
</ul>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br />
<!--[if !supportLineBreakNewLine]--><br />
<!--[endif]--></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal" style="margin-left: 1.25in;">
<br /></div>
<div class="MsoNormal">
<br /></div>
<div>
<!--[if !supportFootnotes]--><br clear="all" />
<hr align="left" size="1" width="33%" />
<!--[endif]-->
<br />
<div id="ftn1">
<div class="MsoFootnoteText">
<a href="file:///U:/KMcGee/Seminar%20Materials/Stern%20v%20Marshall%20WCBA%2012-6-12.doc#_ftnref1" name="_ftn1" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 10pt;">[1]</span></span><!--[endif]--></span></a> §157(b)(2)(C) provides that “Core proceedings
include, but are not limited to, …counterclaims by the estate against persons
filing claims against the estate[.]” Pursuant to §157(b)(1), bankruptcy courts
“may hear and [finally] determine” all core proceedings arising under title 11,
and enter orders and judgments subject to appellate review as a final order,
judgment or decree under 28 U.S.C. §158. <i><u>Cf</u></i>.
28 U.S.C. §157(c)(1) “A bankruptcy court may hear a proceeding that is not a
core proceeding but that is otherwise related to a case under title 11. In such
proceeding, the bankruptcy court shall submit proposed findings of fact and
conclusions of law to the district court, and any final order or judgment shall
be entered by the district court after considering the bankruptcy judge’s
proposed findings and conclusions and after reviewing de novo those matters to
which any party has timely and specifically objected.”</div>
<div class="MsoFootnoteText">
<br /></div>
</div>
<div id="ftn2">
<div class="MsoFootnoteText">
<a href="file:///U:/KMcGee/Seminar%20Materials/Stern%20v%20Marshall%20WCBA%2012-6-12.doc#_ftnref2" name="_ftn2" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 10pt;">[2]</span></span><!--[endif]--></span></a>
Interestingly, the <st1:place w:st="on">Texas</st1:place>
state court had conducted a separate jury trial on the parties’ dispute and
rendered a verdict in Pierce’s favor; however, the District Court declined to give
that verdict preclusive effect. </div>
</div>
<div id="ftn3">
<div class="MsoFootnoteText">
<a href="file:///U:/KMcGee/Seminar%20Materials/Stern%20v%20Marshall%20WCBA%2012-6-12.doc#_ftnref3" name="_ftn3" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 10pt;">[3]</span></span><!--[endif]--></span></a> <i><u>But</u> <u>see</u></i> 28 U.S.C.
§157(b)(3) – “The bankruptcy judge shall determine, on the judge’s own motion
or on timely motion of a party, whether a proceeding is a core proceeding … or
is a proceeding that is otherwise related to a case under Title 11. A
determination that a proceeding is not a core proceeding shall not be made
solely on the basis that its resolution may be affected by State law.” One can
assume that the Advisory Committee wants to avoid messy pleadings that state
that a matter is “core” under §157, but is otherwise “non-core” for the
purposes of the bankruptcy judge’s authority to enter final findings and
rulings.</div>
</div>
<div id="ftn4">
<div class="MsoFootnoteText">
<a href="file:///U:/KMcGee/Seminar%20Materials/Stern%20v%20Marshall%20WCBA%2012-6-12.doc#_ftnref4" name="_ftn4" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 10pt;">[4]</span></span><!--[endif]--></span></a> In
citing all these rules, I acknowledge the work done by David Mawhinney, law
clerk to Judge Frank Bailey of the Massachusetts Bankruptcy Court; he collected
these rules in materials presented to the district court judges for <st1:state w:st="on">Massachusetts</st1:state> and was a
driving force in proposing Local Rule 206 to them. </div>
</div>
</div>
Anonymoushttp://www.blogger.com/profile/14460465787358294185noreply@blogger.com2tag:blogger.com,1999:blog-3113637621001761237.post-69903899156749388722012-07-27T13:40:00.000-07:002014-04-11T07:42:13.203-07:00<br />
<b><span style="font-size: 12pt;"><span style="background-color: white;"><br /></span></span></b>
<br />
<div class="MsoNormal" style="text-indent: .5in;">
<u><span style="background-color: white;">FIRST LESSON: “A” is for “Avoidance” and “Abandonment” </span></u><span style="background-color: white;"><o:p></o:p></span><br />
<u><span style="background-color: white;"><br /></span></u>
<b style="text-indent: 0px;"><span style="font-size: 12pt;">DISCLAIMER: <span style="background-color: white;"> Nothing on this blog is intended to be specific or complete legal advice and is for general informational purposes only. In other words, you are only getting the tip of the iceberg in this blog – call and schedule a consultation with me at (508) 757-7721 ext. 112 if you think what you read here might apply to you and your situation. </span></span></b>
</div>
<div class="MsoNormal" style="text-indent: .5in;">
<br /></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="background-color: white;">First, know that the bankruptcy law and Webster’s Dictionary
have different definitions of “avoidance” and “abandonment”. The two terms also
describe very different powers that a trustee in bankruptcy may use in your
case. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<br /></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="background-color: white;">A trustee’s “avoidance” powers are something that most
debtors and creditors want to – well, to be honest, avoid. The <st1:personname w:st="on">Bankruptcy</st1:personname>
Code gives a trustee the right to bring a lawsuit to:<o:p></o:p></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 1.0in; mso-list: l0 level1 lfo1; tab-stops: list 1.0in; text-indent: -.5in;">
1.<span style="font-size: 7pt;">
</span><span style="background-color: white;">Avoid
and recover payments a debtor made to any creditor on outstanding debts in the
period <b>ninety days</b> <a href="http://www.blogger.com/blogger.g?blogID=3113637621001761237" name="OLE_LINK2"></a><a href="http://www.blogger.com/blogger.g?blogID=3113637621001761237" name="OLE_LINK1">prior
to the date of the bankruptcy filing. </a>These are called
“preferences”, and can be hard for a creditor to fight, although there are some
defenses available. A preference in a consumer bankruptcy case must be $600.00
or more (made in a single payment or as a total of multiple payments made during
the 90 day period) before a trustee can bring a lawsuit to recover the
preference; for businesses, the minimum ante is $5,850.00 or more.. One example for consumers: big paydowns on a credit card debt in the 90 day
period, especially if the credit card company has stopped any new charges on
the card. Businesses know all too well that money that comes in from a troubled account receivable is money that may just be making a brief visit to their bank accounts. There are defenses a creditor can raise -- but that's a separate post.<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal" style="margin-left: 1.0in; mso-list: l0 level1 lfo1; tab-stops: list 1.0in; text-indent: -.5in;">
2.<span style="font-size: 7pt;">
</span><span style="background-color: white;">Avoid
and recover payments a debtor made to his or her “insiders” on outstanding debt
in the period <b>one year</b> prior to the
date of the bankruptcy filing. These are called “insider preferences”. Who is
an “insider”? The usual suspects are your spouse, your parents, your kids, your
brothers or sisters, aunts and uncles, grandparents, your in-laws – pretty much
anyone related to you by blood or by marriage. Your good friends and your
employer are also possible insiders, depending on the closeness of your
relationship with them. If you are in business, insiders include anyone who is
your partner or who has a significant investment in your business. If you are a corporation or an LLP, the insider category includes the members, directors, officers, and any person who controls 20% or more of the shares or voting power in the business. <o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal" style="margin-left: 1.0in;">
<span style="background-color: white;"> One quirk is
that, if the payment is made within the year but before the three month period
prior to a bankruptcy filing, the trustee has to prove that the debtor was “insolvent” at the time of payment – i.e., that the amount of your debts due
and owing exceeded the fair value of your assets. In the ninety day period
prior to the bankruptcy filing, you are “presumed” to be insolvent, and the
trustee does not have to provide evidence on this issue unless the preference
defendant comes up with evidence to the contrary. A typical example of a consumer “insider preference” is repaying Mom and Dad for the loans they gave you to
help you get over the hump. <o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal" style="margin-left: 1.0in; mso-list: l0 level1 lfo1; tab-stops: list 1.0in; text-indent: -.5in;">
3.<span style="font-size: 7pt;">
</span><span style="background-color: white;">Avoid
and recover transfers of your property made for less than a fair payment for
the value of the property, if you were “insolvent” at the time (see definition
of “insolvency” above). These are called “fraudulent transfers,” and can be
very simple or very complicated to try. Simple cases include transferring your
house to your spouse or a relative in a deed that recites “for consideration of
less than $100.00” – always a bad idea (even for “estate planning” purposes)
and usually can be undone by a trustee, if the trustee proves you were
insolvent at the time. Suppose you
weren’t insolvent at the time, but you were expecting a big judgment against
you or planned to take on a lot of debt in the near future – this is still a
“fraudulent transfer” of the “intentional” variety, because you were deeding
over the property with the idea of protecting it from your present and future
creditors. And the trustee can still get it back. <o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal" style="margin-left: 1.0in; mso-list: l0 level1 lfo1; tab-stops: list 1.0in; text-indent: -.5in;">
4.<span style="font-size: 7pt;">
</span><span style="background-color: white;">Avoid
defective liens on your property. If you have a mortgagee or other lien
creditor who failed to cross all the “t”s and dot all the “i”s when that
creditor took a lien on your property, the trustee can step into the shoes of
an imaginary judgment lien creditor or a bona fide purchaser of your property,
avoid the bad lien, and take the place of that creditor in the “priority” of
distribution on that property – if the defective mortgage would have been first
in line for the proceeds of the property’s sale, the trustee takes the place of
that mortgagee. One illustration – your mortgage lender records a mortgage on
your property with the wrong description of the property attached – the trustee
can pretend that he or she is a judgment lien creditor on your property, get
rid of the mortgage, and take the mortgage’s place on the property (leaving
your mortgage lender with only a general claim in the case and no lien). <o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal" style="margin-left: .5in; text-indent: .5in;">
<span style="background-color: white;">Let’s leave the unpleasant topic of
“avoidance” and move on to another subject: “abandonment”. In general, a debtor's bankruptcy estate includes all of his, her or its property of whatever kind, wherever
located, in whatever manner the debtor holds it (i.e., in the debtor's own name or through a
trust), and whether or not the debtor lists it in the schedule of assets filed with
the bankruptcy court. If you are a debtor, listing all of your property in your asset schedules is
important for many reasons, not the least of which is that listing the property
gives the trustee the opportunity to look over the property and decide whether
or not the trustee wants to sell the property. Listing all property owned also
allows the debtor to claim “<a href="http://www.blogger.com/blogger.g?blogID=3113637621001761237" name="OLE_LINK4"></a><a href="http://www.blogger.com/blogger.g?blogID=3113637621001761237" name="OLE_LINK3">exemptions</a>” in certain property,
which will prevent the trustee from selling or taking all of the sale proceeds
of that property. <o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: .5in; text-indent: .5in;">
<br /></div>
<div class="MsoNormal" style="margin-left: .5in; text-indent: .5in;">
<span style="background-color: white;"> If
the trustee decides that he or she cannot sell certain property, that the
property is worthless, or decides that he or she does not want the burden of
maintaining and insuring the property, the trustee has two options:<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-left: .5in; text-indent: .5in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 1.5in; mso-list: l0 level2 lfo1; tab-stops: list 1.5in; text-indent: -.5in;">
A.<span style="font-size: 7pt;">
</span><span style="background-color: white;">The
trustee can decide to take the property out of the bankruptcy estate
immediately, and file a “notice of abandonment” with the bankruptcy court. If
enough time passes and there is no objection, the debtor will get back control
of the abandoned property; however, the automatic stay also stops protecting
the property.<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal" style="margin-left: 1.5in; mso-list: l0 level2 lfo1; tab-stops: list 1.5in; text-indent: -.5in;">
B.<span style="font-size: 7pt;">
</span><span style="background-color: white;">The
trustee can hold onto the property until he or she decides to make a final
distribution to your creditors and close the case. The legal effect of closing
the case is to abandon all property not otherwise sold or previously abandoned
back to the debtor. The closing of the case also ends the automatic stay
as to all property abandoned. <o:p></o:p></span></div>
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<span style="background-color: white;">Important point to remember: if the debtor doesn’t disclose something he, she or it owns (like a lawsuit for injury) and the trustee closes the case, the
property is not really “abandoned” because the trustee never had a chance to
decide whether or not to turn that property into cash for creditors. There are
many consequences – civil and criminal -- coming to the debtor who hides
property from a trustee, but one sure consequence is that a case can be
“reopened” to deal with newly discovered property that should have been
disclosed when the case was originally open. When in doubt, disclose!<o:p></o:p></span></div>
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<u><span style="background-color: white;">Vocabulary
Words and Quick Definitions from an Impudent Lawyer </span></u><span style="background-color: white;">: <o:p></o:p></span></div>
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<span style="background-color: white;">“Trustee in <st1:personname w:st="on">Bankruptcy</st1:personname>” – All powerful being whose sole purpose
is to locate property in your case to turn into cash and pay it out to your
creditors. <o:p></o:p></span></div>
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<span style="background-color: white;">“Avoidance
Power” -- A trustee’s right to take back what is yours,
even though you gave it to someone else. Also, a trustee’s right to jump on any
mistake a creditor made in putting a lien on your property, and take advantage
of that creditor’s misfortune.<o:p></o:p></span></div>
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<span style="background-color: white;">“Preference” – A
payment you make with a three month string on it, attached to a trustee’s
fishing line. <o:p></o:p></span></div>
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<span style="background-color: white;">“Insider” – People
you know and love, in whom the trustee takes an unnatural interest.<o:p></o:p></span></div>
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<span style="background-color: white;">“Insider
Preference” – A payment with a one year string on it, sitting in the pocket of
someone you know and love. <o:p></o:p></span></div>
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<span style="background-color: white;">“Insolvency” – Owing
champagne debt and having only beer money to pay for it.<o:p></o:p></span></div>
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<span style="background-color: white;">“Presumption” – A
fact known to be absolutely true unless and until it is shown to be completely false.
<o:p></o:p></span></div>
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<span style="background-color: white;">“Fraudulent Transfer”
– Giving someone much, much more than you ever get back from them.<o:p></o:p></span></div>
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<span style="background-color: white;">“Intentional
Fraudulent Transfer” – Giving someone much, much more than you ever get back
from them, and liking it that way. <o:p></o:p></span></div>
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<span style="background-color: white;">“Priority” – Your
creditors’ grown-up version of “King of the Hill,” using your property as the
hill.<o:p></o:p></span></div>
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<span style="background-color: white;">“Abandonment” –
The trustee’s rejection of unloved property. <o:p></o:p></span></div>
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<span style="background-color: white;">“Exemption” –
Limited protection for your house, your car, and for any of your property that
a trustee probably couldn’t sell anyway. <o:p></o:p></span><br />
<span style="background-color: white;"><br /></span>
<span style="background-color: white;">©Kevin C. McGee</span></div>
Anonymoushttp://www.blogger.com/profile/14460465787358294185noreply@blogger.com0tag:blogger.com,1999:blog-3113637621001761237.post-47453103847714076362008-06-12T11:28:00.000-07:002015-02-25T06:37:28.455-08:00Starting My BlogAn introduction: I am a 53 year old attorney who lives and works in Worcester and Central Massachusetts. I concentrate my practice on bankruptcy (commercial and small business bankruptcy, as well as consumer bankruptcy), with a litigation focus.<br />
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My interests outside of my practice include: being (an older) father to my two sons; playing volleyball; performing on the community theater stage; and reading and watching sci-fi and fantasy (in my spare time). Big Game of Thrones fan here, way back to 1996. I can discourse on the BoSox, the Pats, or the Celts and seem like I know what I'm talking about. I also enjoy good food, good wine, good beer, and good company -- you may see a restaurant review or two posted here.<br />
<br />
My goals here are to post on bankruptcy legal topics that interest me. <b style="background-color: white;"><span style="background-color: white;">Nothing in this blog is intended to be specific or complete legal advice and is for general informational purposes
only. In other words, you are only getting the tip of the iceberg here –
call and schedule a consultation with me if you
think what you read here might apply to you and your situation.</span></b><br />
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Because I'm a lawyer, there has to be at least <strong>ONE</strong> final disclaimer -- nothing in this blog represents the view of any person or organization--except me. I (and I alone) am responsible for the content and views of this blog. Attribute my bonehead comments and musings to no one else out there.<br />
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©Kevin C. McGeeAnonymoushttp://www.blogger.com/profile/14460465787358294185noreply@blogger.com0