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Eleventh Circuit Agrees: No-Discharge Lien Strip Is Allowed

The Eleventh Circuit has joined the Fourth Circuit (Branigan v. Davis (In re Davis), 716 F.3d 331 (4th Cir. May 10, 2013) (Niemeyer, Keenan, Diaz)), in holding that a "Chapter 20" debtor can strip off a wholly unsecured junior mortgage notwithstanding that the debtor is not eligible for discharge because of § 1328(f). Wells Fargo Bank, N.A. v. Scantling (In re Scantling), No. 13-10558, 2014 WL 2750349 (11th Cir. June 18, 2014) (Tjoflat, Moore, Schlesinger).

Replacement Value Standard Applies to Surrender

“Replacement value” standard in § 506(a)(2) applies at surrender of recreational vehicle under Chapter 13 plan. BAPCPA arrived after Associates Commercial Corp. v. Rash, 520 U.S. 953, 117 S. Ct. 1879, 138 L. Ed. 2d 148 (June 16, 1997), and plain language of § 506(a)(2) requires replacement value without regard to “disposition or use” by debtor. When replacement value is greater than debt, plan can surrender collateral in full satisfaction of claim. Santander Consumer USA, Inc. v. Brown (In re Brown), No. 13-13013, 2014 WL 1245266 (11th Cir. Mar. 27, 2014) (Wilson, Bucklew, Lazzara).

Filing Fees Go Up on June 1, 2014

The Judicial Conference approved the following increases in bankruptcy fees effective June 1, 2014: the “administrative fee” charged at the filing of every Chapter 7 or Chapter 13 case increases to $75 (from $46); a new fee of $75 will be charged to divide a joint case under Chapter 7 or Chapter 13; the filing fee for an adversary proceeding increases to $350 (from $293).

Carelessness or Inadvertence Upsets Judicial Estoppel

Judicial estoppel does not bar debtor’s disability action because failure to schedule in Chapter 13 case was error by attorney of which debtor was not aware and exemption for disability benefits under state law negates motive to benefit from concealment. Javery v. Lucent Technologies, Inc. Long Term Disability Plan for Mgmt. or LBA Emps., 741 F.3d 686 (6th Cir. Feb. 3, 2014) (Cole, Clay, Bertelsman).

What Happens When Courts Don’t Understand Chapter 13

Bankruptcy court did not clearly err in finding lack of good faith under § 1325(a)(3) and (a)(7) when disabled debtor with limited income from Social Security and no nonexempt assets proposed “attorney-fee-centric” plan that would require 17 months to pay attorney fees; that 36-month plan would pay all allowed unsecured claims in full did not change outcome because “abysmal failure rate” of Chapter 13 cases made it unlikely that debtor would complete plan. Brown v. Gore (In re Brown), No. 13-10260, 2014 WL 563601 (11th Cir. Feb. 14, 2014) (Carnes, Hull, Cox).

Standing Trustee Acts Under Officer of the United States

Standing Chapter 13 Trustee is a “person acting under” an Officer of the United States—the United States Trustee within the Department of Justice—for purposes of removing a discrimination action to federal court under 28 U.S.C. § 1442(a)(1); trustee had “colorable federal defense” that employment action was performance of official duties that included involvement of United States Trustee and of a United States bankruptcy judge after peer review by National Association of Chapter 13 Trustees. Bell v. Thornburg, No. 13-30155, 2013 WL 6850026 (5th Cir. Dec. 30, 2013) (Stewart, King, Prado).

No Benefit to Estate? No Derivative Standing

Assuming derivative standing is possible in a Chapter 13 case, debtor does not have derivative standing to avoid prepetition foreclosure sale when trustee elected not to pursue avoidance because there was no equity in the property to benefit creditors. Weyandt v. Federal Home Loan Mortgage Corp. (In re Weyandt), No. 11-4565, 2013 WL 6052130 (3d Cir. Nov. 18, 2013) (unpublished) (Chagares, Vanaskie, Shwartz).

Lien Stripping Limitation

In a Chapter 13 case filed by only one spouse, plan cannot strip off valueless junior lien on residence owned as tenancy by the entireties. Alvarez v. HSBC Bank USA, N.A. (In re Alvarez), No. 12-1156, 2013 WL 5737704 (4th Cir. Oct. 23, 2013) (Gregory, Davis, Keenan).

Ninth Circuit Finishes Off Kagenveama

A majority of the Ninth Circuit sitting en banc has overruled the surviving part of Maney v. Kagenveama (In re Kagenveama), 521 F.3d 868 (9th Cir. June 23, 2008) (Siler, Bea, Pregerson): the applicable commitment period in § 1325(b) is temporal; even a debtor with no projected disposable income must propose a plan that is at least as long as the 3 or 5 year applicable commitment period. Danielson v. Flores (In re Flores), No. 11-55452, 2013 WL 4566428 (9th Cir. Aug. 29, 2013) (en banc).

Significant Proposed Rules and Forms Changes: Speak Up Now

The Judicial Conference Advisory Committee on Bankruptcy Rules has just published important proposed amendments to the bankruptcy rules and forms. Comments are due by February 15, 2014. These amendments dramatically change the content and timing of proofs of claims and include a new form for the Chapter 13 Plan. The proposed amendments and committee reports are posted at www.uscourts.gov/rulesandpolicies/rules.aspx. The Chapter 13 Plan form is tied to rule changes that would not become effective until December 1, 2015. Most of the other proposed form changes could become effective December 1, 2014. The Advisory Committee through its chair, Gene Wedoff, has reached out robustly to the entire bankruptcy community for comments and suggestions about these important changes. Comments may be submitted electronically at www.uscourts.gov/RulesAndPolicies/rules/proposed-amendments.aspx.

FIRST CIRCUIT BAP: WITHHOLDING ORDER IS PREDICATE TO STAY EXCEPTION IN § 362(b)(2)(C)

State court contempt proceeding and incarceration for failure to pay alimony violated automatic stay when state court order required debtor to pay alimony from postpetition income but there was no garnishment or similar withholding order in effect at the Chapter 13 petition. In re DeSouza, No. 11-40315-MSH, 2013 WL 2991034 (B.A.P. 1st Cir. June 14, 2013) ( Deasy, Kornreich, Tester).

Seventh Joins Tenth: Dewsnup Applies in Chapter 13 Cases

Echoing Woolsey v. Citibank, N.A. (In re Woolsey), 696 F.3d 1266 (10th Cir. Sept. 4, 2012) (Gorsuch, Holmes, Matheson), Dewsnup applies in Chapter 13 cases: § 506(d) does not void unsecured portion of undersecured tax lien. Ryan v. United States (In re Ryan), No. 12-3398, 2013 WL 3380131 (7th Cir. July 8, 2013) (Ripple, Rovner, Williams).

Second Circuit: Car Lender Willfully Violated Stay by Refusing Turnover of Repossessed Car

Car lender willfully violated stay by refusing to return car lawfully repossessed before petition; debtor’s equitable interest under state law became property of Chapter 13 estate and lender exercised control over that property by demanding adequate protection as condition of turnover. Weber v. SEFCU (In re Weber), No. 12-1632-bk, 2013 WL 1891371 (2d Cir. May 8, 2013) (Cabranes, Raggi, Carney).

First Circuit BAP: Untimely Claim Filed by Debtor is Disallowed and Dischargeable

Untimely priority claim filed by debtor on behalf of taxing authority is disallowed on trustee’s objection and will be discharged without payment upon completion of plan. Municipality of Carolina v. Gonzalez (In re Gonzalez), BAP No. PR 12-063, 2013 WL 1629235 (B.A.P. 1st Cir. Apr. 12, 2013) (Haines, Feeney, Hoffman).

Third Circuit: Fesq is Alive and Well Notwithstanding Espinosa

In re Fesq, 153 F.3d 113 (3d Cir. Aug. 18, 1998) (Stapleton, Alito, Shadur), was not overruled by United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 130 S. Ct. 1367, 176 L. Ed. 2d 158 (Mar. 23, 2010); bank cannot challenge confirmation order by Rule 60 motion on any ground except fraud. In re Rodriguez, No. 12-2146, 2013 WL 1716110 (3d Cir. Apr. 22, 2013) (Jordan, Aldisert, Nygaard) (unpublished).

First Circuit: Claim Disallowance Can Bar Collection of Nondischargeable Debt

Allowance of student loan debt “in the amount of $0.00” based on unrebutted evidence that loans were paid in full before petition precludes post-bankruptcy collection of student loan debt without regard to nondischargeability. Hann v. Educational Credit Mgmt. Corp. (In re Hann), 711 F.3d 235 (1st Cir. Mar. 29, 2013) (Torruella, Stahl, Thompson).

Supremes Say "Defalcation" Requires Intentional Wrong

To determine dischargeability under § 523(a)(4), defalcation in a fiduciary capacity requires an intentional wrong: either “conduct that the fiduciary knows is improper . . . [or] reckless conduct of the kind that the criminal law often treats as the equivalent." Bullock v. BankChampaign, N.A., No. 11-1518, 2013 WL 1942393, at *5 (May 13, 2013).

Fourth Circuit: Lien Strip Okay in No-Discharge Cases

BAPCPA did not upset lien-stripping of wholly unsecured mortgage in no-discharge Chapter 20 case; good faith test provides sufficient protection from abuse. Branigan v. Davis (In re Davis), No. 12-1184, 2013 WL 1926407 (4th Cir. May 10, 2013) (Diaz, Niemeyer; Keenan dissenting).

 

 

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