NACBA Live Blog: Caselaw Update

10.58

John Rao.  Slight glitch, we’re back now.  Now on 1st Circuit case.  In Pratt case, creditor wouldn’t take back car in spite of surrender.  Debtor’s counsel won.

Now we’ve got the issue of the mortgagee who won’t foreclose.  Same attorney, Jim Molleur, takes up the issue on the same theory.  Bank cancels state foreclosure action, sends notices to debtor demanding payment post-discharge, Bankruptcy court and BAP says unlike in car situation whether there is always depreciation, that’s not the case with homes.  Homes may appreciate in the future.

Collateral makes a difference.

Henry says there may be something to do in a Chapter 13 with respect to Plan language.

Questions taken, session ends.

10.12

Chilton and Hanlon cases both dealt with inherited IRAs.  Lower courts claimed that inherited IRAs are not the same as IRAs.

Under federal rules, inherited IRAs maintain their status.  The only difference is the mandatory withdrawals begin earlier.

Trustees argued differently.  BAPs said the inherited IRAs retain their character and can be exempted.

10.08

Seafort.  6th Circuit decision.  Repayment of 401k loan.  Once loan ended, debtor wasnted to continues making those payments as a contribution.  Bankruptcy court agreed based on 541b7 which excludes contributions to pensions.  BAP said you can contribute only the same amount you’ve been making pre-petition.  You can maintain the status quo only.

Question was whether debtor would need to contribute the extra money to the Plan or could put the funds into 401k.  6th Circuit went way overboard and said debtors can’t contribute to 401k even if they were making contributions pre-petition.  669 F3rd 662.

10.01

Henry.  Why would someone say they’re surrendering a property in a Chapter 7?  Hope springs eternal.  Surrender intent invites trouble with the means test.

09.59

Tara Twomey.  Quigley.  Debtor is co-owner of vehicle with boyfriend.  They split, he takes the car and makes all payments.  She files Chapter 13, wants to deduct secured payments.  She also has two ATVs that she’s surrendering, tries to deduct those as well.  Cite is 673 F3rd 269.

At bankruptcy level, judge held that debtor was entitled to deduct the payments on the ATV though she was surrendering.  Could not take deductions on truck in possession of ex-boyfriend.  District court affirms.

Court relies on Lanning to disallow the payments she wasn’t making.

09.54

In Hight has to do with when a tax claim accrues – when the tax year passes, or when the return is due (9th says it accrues 12/31).  6th Circuit adopted the position that the claim accrues as of December 31, though they got there oddly through 502i.

Debtor wanted to include tax in Plan.  If it had been post-petition and wanted it included then it’s up to the taxing authority whether to accept treatment in Plan.

 

09.51

Counter the McCoy issue by filing a 1620a return (you go to the IRS and you fill it out together).

09.50

Henry:  McCoy is a bad and dangerous decision.  New language in 2005 that was added to the end of 523(a) so 1620b tax return doesn’t count as a timely-filed return.  Case lays out IRS takes the position that this does not mean every return must be timely to be considered under the 2-year rule, but states have maintained the other way.  So basically if you did not file a timely return then you can never get a discharge.

09.46

In Miller, bankruptcy court held that the creditor was the real party in interest.  10th Circuit reversed.  Held that an endorsed copy is not enough, there needs to be some proof of actual possession of the note.  There will be a panel on standing later, so John deferred to that.

09.44

John Rao.  Miller.  Garden variety case involving a home.  Colorado case (judicial foreclosure).  Debtors appeared in statement foreclosure proceeding and brings a “show the note” defense.  State court overrules the objection because creditor showed up with an endorsed copy.

Debtor files for bankruptcy, MFRS filed, same defense brought up.  Creditor brings up Rooker-Feldman (if there was a final judgment entered in a state court proceeding, federal court cannot allow parties to relitigate).  Lesson is the know your state court proceedings so you can argue whether it was or was not a final judgment.

Filing of a bankruptcy is a request for injunctive relief, so here there was no final judgment and R-F does not apply.

09.40

Biggest impact of Stern is in fraudulent transfer arena.  FT can be brought under state law as well as under 548.  Majority of courts have said that final judgment needs to be entered by district court.

9th Circuit BAP decided whether bankruptcy court can liquidate state court action in connection with non-dischargeability complaint.  Deitz case.  By 2-to-1 BAP held that bankruptcy judge could enter final judgment but only because there was binding precedent; Martell said that in the absence of such precedent, he would have ruled the other way.  Henry says this is the right result.

 

09.37

Henry Sommer.  Only one Ct of Appeals case about Stern.  Ortiz case in 7th Circuit.  No really about Stern.  Odd case because none of the parties wanted bankruptcy court to enter the order, but it did.  Class action about disclosure of patient information in contravention of Wisconsin law.7th Circuit got the direct appeal from bankruptcy court.  7th said bankruptcy court had no jurisdiction to enter final order because it was essentially a state law cause of action.  Sent it back to district court.

09.33

John Rao.  On the national front, bankruptcy rules committee just came back from a March meeting where there were several recommendations on what to do about the rules.  Feeling was that courts should handle the issue in their rules.  Ultimately, Rule 7008 should be fixed.  Proposal was to amend 7008 to get rid of core v. non-core, now plead whether the parties consent to entry of final judgment.  Problem is that there’s no way to know what the judge will do, so John Rao recommended that the parties make a timely motion to the court on the subject.

09.30

Most important thing about Stern is that it is not about bankruptcy litigation.  It’s all about who gets to enter the final judgment, bankruptcy judge or district judge.  It revealed a gap in FRBP, which were set up improperly.  Core v. non-core.  Stern says there are core proceedings where bankruptcy judges cannot enter final judgment.  SDNY changed standing order of reference in response to this.

09.29

How many times has Stern come up in litigation?  6 people stood up in the entire room.  In business cases there is more of an impact than in consumer cases.

09.28

Stern v. Marshall update.  When it came out, most people thought it was the end of the bankruptcy world, but that was greatly exaggerated.  There is a good report in the materials.

09.26

Henry Sommer speaking.  Judge Brown couldn’t make it due to personal reasons.  We’ve got some stand-ins.  Questions will be taken by the groups at the end of each session.  Bring questions to the front of the room and they will handle them at the end of the sessions.