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Cases In Review
April 2012
"Cases In Review" highlights recent cases that may be of particular
interest to consumer bankruptcy practitioners. It is brought to you by
Consumer Bankruptcy Abstracts & Research (www.cbar.pro) and
the National Consumer Bankruptcy Rights Center (www.ncbrc.org).
Chapter 13—Confirmation of plan—Good faith—Fee-only plan: Reversing In re
Puffer, 453 B.R. 14 (D. Mass., July 8, 2011), the First Circuit Court of Appeals said that
a "fee-only" Chapter 13 plan (i.e., a Chapter 13 plan under which the only creditor
receiving significant payment is the debtor's attorney) is not necessarily proposed in
bad faith for the purpose of Code § 1325(a)(3), nor is a Chapter 13 case necessarily
filed in bad faith for the purpose of Code § 1325(a)(7) because the debtor proposes a
fee-only plan. While fee-only plans should not be used as a matter of course, the court
said, there may be special circumstances, albeit relatively rare, in which this type of
odd arrangement is justified. The judge concurring in the judgment said that he would
leave application of the test entirely to bankruptcy judges instead of prescribing a rule
requiring "special circumstances" limited to "relatively rare" instances." In re Puffer, ---
F.3d ----, 2012 WL 954860 (1st Cir., March 22, 2012).
Proof of claim—Class claims: The Fourth Circuit Court of Appeals concluded that
Bankruptcy Rule 3001 should be construed to allow class proofs of claim, at least on a
tentative basis, until the court rejects the class-action process. If the bankruptcy court
approves class representation, the court explained, the approval will function
retroactively to legitimize the class proof of claim, but if the court rejects such
representation, the putative class members will have to file individual proofs of claim.
Gentry v. Siegel, 668 F.3d 83 (4th Cir., Feb. 2, 2012).
Property of the estate—Exemptions—Inherited IRA: The Fifth Circuit Court of
Appeals, the Ninth Circuit BAP, and a district court all held that the debtor may
exempt an inherited IRS under Code § 522(d)(12) or § 522(b)(3)(C). See In re Chilton, - -- F.3d ----, 2012 WL 762924 (5th Cir., March 12, 2012) In re Hamlin,--- B.R. ----, 2012 WL 898790 (9th Cir. B.A.P., Feb. 21, 2012); and In
re Clark, 2012 WL 233990 (W.D. Wis., Jan. 5, 2012) (reversing In re Clark, 450 B.R.
858 (Bankr. W.D. Wis., May 10, 2011).
Chapter 13—Treatment of unsecured claims—Inclusion of "straddling tax claim":
Resolving an issue that has roiled the lower courts in the circuit, the Sixth
Circuit Court of Appeals held that a Chapter 13 debtor may file a protective proof of
claim for a "straddling tax claim," that is, a proof of claim for the debtor's debt for
her prior year's state income taxes, where the debtor filed her bankruptcy petition in
January 2009, before the April 15, 2009, date on which her 2008 taxes were due. In re
Hight, --- F.3d ----, 2012 WL 688526 (6th Cir., March 5, 2012).
Property of the estate—Exemptions—Of "100% of FMV": Three more courts disallowed exemptions claimed by debtors in the form of "100% of the fair market value" of, or "100% of the equity" in, property. See In re Messer, Case No. 11-1505
(9th Cir. B.A.P., March 9, 2012); In re Massey, --- B.R. ----, 2012 WL
616587 (1st Cir. B.A.P., Feb. 27, 2012); and In re Luckham, 464 B.R.
67 (Bankr. D. Mass., Jan. 13, 2012).
Chapter 13—Stripping unsecured lien—Effect of debtor's ineligibility for discharge:
In the continuing judicial conversation on whether a Chapter 13 debtor
may permanently strip a wholly unsecured lien without receiving a discharge, a total of
six courts (three district courts and three bankruptcy courts) allowed a debtor to do
so. See In re Waterman, 2012 WL 872623 (D. Colo., March 13, 2012) (affirming In re Waterman, 447 B.R. 324 (Bankr. D. Colo., April 7, 2011)) ; Frazier v.
Real Time Resolutions, Inc., 2012 WL 812387 (E.D. Cal., March 9, 2012) (affirming In re Frazier, 448 B.R. 803 (Bankr. E.D. Cal., Jan. 10, 2011)); TD Bank,
NA v. Davis, Case No. 8:11-cv-1270 (D. Md., Jan. 12, 2012) (summarily affirming In re Davis, 447 B.R. 738 (Bankr. D. Md., March 30, 2011)); In re Scantling, ---
B.R. ----, 2012 WL 593218 (Bankr. M.D. Fla., Feb. 24, 2012) (Bankruptcy Judge
Michael Williamson); In re Dang, --- B.R. ----, 2012 WL 899620
(Bankr. M.D. Fla., March 12, 2012) (Bankruptcy Judge Paul Glenn);
In re Blendheim, 2011 WL 6779709 (Bankr. W.D. Wash., Dec. 27, 2011) (Bankruptcy Judge Marc Barreca)
One district court and two bankruptcy courts disagreed. See Victorio v. Billingslea, 2012
WL 628310 (S.D. Cal., Feb. 24, 2012) (affirming In re Victorio, 454 B.R. 759 (Bankr.
S.D. Cal., July 8, 2011)); In re Slate, 2012 WL 293591 (Bankr. M.D.
Fla., Feb. 1, 2012) (Bankruptcy Judge Arthur Briskman; adhering to previouslyestablished
position); In re Pierre, --- B.R. ----, 2012 WL 928192 (Bankr. M.D. Fla., March 16, 2012) (Chief Bankruptcy Judge Karen Jennemann).
Chapter 13—Confirmation of plan—Good faith—Contribution of Social
Security income: Two courts reached conflicting resolutions of the question whether a Chapter 13 debtor's failure to contribute the debtor's Social Security income to the debtor's plan payments may support a finding of a lack of good faith under Code § 1325(a)(3). Compare In re Welsh, --- B.R. ----, 2012 WL 603818 (9th Cir. B.A.P., Feb. 17, 2012) (affirming In re Welsh, 440 B.R. 836 (Bankr. D. Mont., Nov. 16, 2010) in a 2- 1 decision, the Bankruptcy Appellate Panel held that the only substantial repayment requirement is that set out in the Code; a debtor's lack of good faith cannot be found based solely on the fact that the debtor is doing what the Code allows) with Mains v. Foley, 2012 WL 612006 (W.D. Mich., Feb. 24, 2012) (affirming In re Mains, 451 B.R. 428 (Bankr. W.D. Mich., May 25, 2011), the district court said
that the Chapter 13 debtors' Social Security income could be taken into account in
assessing whether the debtors' Chapter 13 plan was proposed in good faith for the
purpose of Code § 1325(a)(3), which was a subjective assessment, even though the
income was not considered in applying the objective "disposable income" test of §
1325(b)).
Chapter 13—Eligibility—Debt limits: Denying reconsideration of In re Scotto- DiClemente, 459 B.R. 558 (Bankr. D. N.J., Nov. 18, 2011), and disagreeing with In re Shenas, 2011 WL 3236182 (Bankr. N.D. Cal., July 28, 2011) and Cavaliere v. Sapir, 208 B.R. 784 (D. Conn. 1997), the Bankruptcy Court for the District of New Jersey held that a debt as to which the debtor has only an in rem liability, because the debtor's personal liability was extinguished in a prior Chapter 7 case, counts in determining the debtor's compliance with the Chapter 13 debt limits. In re Scotto-DiClemente, 463 B.R. 308 (Bankr. D. N.J., Jan, 25, 2012)
Proof of claim—Secured claims—Court orders review by mortgage creditor:
After the mortgage creditor acknowledged that, in its proof of claim filed in a Chapter
13 case, it had overstated the costs incurred in a prepetition state-court foreclosure
action by $443.15, the Bankruptcy Court for the Northern District of Ohio, in order
to "determine whether there is a systemic problem that must be independently
addressed," ordered the mortgage creditor's counsel to review the mortgage claims it
had filed on behalf of the creditor in the district between January 1, 2009, and
November 29, 2011, to confirm the accuracy of any foreclosure costs claimed in
mortgage arrearages, and file a report of its review. In re Hasselbach, 2011 WL 6936216
(Bankr. N.D. Ohio, Dec. 29, 2011)
Property of the estate—Avoidance of liens impairing exemptions—Debtor ineligible for discharge: The Bankruptcy Court for the District of New Mexico held that avoidance of a lien under Code § 522(f) does not require that the debtor receive a discharge. In re Mulholland, 2012 WL 601784 (Bankr. D. N.M., Feb. 23, 2012)
Chapter 13—Treatment of unsecured claims—Unfair discrimination: The Bankruptcy Court for the Middle District of Georgia held that, while Code §
1322(b)(5), permitting cure and maintenance of a long-term debt, does not "trump" §
1322(b)(1), which prohibits unfair discrimination in the treatment of unsecured
creditors, a proposed Chapter 13 plan that separately classified the debtor's student
loan debt and proposed to pay more on that debt than to other general unsecured
creditors did not unfairly discriminate against the other unsecured creditors, where
allowing the debtor to separately classify and pay more on her student loan debt
would allow the debtor to participate in a public service loan forgiveness program,
thereby giving her the chance to write off approximately $50,000 of the debt, and the
cost of the discrimination to other unsecured creditors was the difference between a
dividend of 15 and 20 percent, or a total of approximately $5,000. In re Pracht, 464
B.R. 486 (Bankr. M.D. Ga., Jan. 10, 2012)
