Cramdown calculation must use "replacement value" of collateral In re Stembridge (5th Cir. 2004) HELD: Bankruptcy Court erred in its valuation of collateral for confirmation of a cram down plan when it used the foreclosure value of the collateral as of the Petition date. The Supreme Court's Rash decision requires use of replacement value in this context. The Supreme Court's decision in Rash does not address the appropriate "as of" date on which collateral should be valued for purposes of Plan confirmation. The appropriate date is the Petition date, not the effective date of the Plan. In order to confirm a Plan, the value of the collateral should be determined as of the filing of the Petition, and the Plan should provide the replacement value less any adequate protection payments already made. _______________________ Bar to refiling may be invalid without a hearing In re Tennant (9th Cir. BAP 2004) The BAP has "serious doubts" as to whether a Local Rule providing for an automatic 180-day bar to refiling after dismissal for failure to file schedules is enforceable in the absence of a motion, hearing and finding of willful failure.

Institute of Consumer Financial Education

Credit card debt hit $800 Billion this year ... SOURCE: CBSNews.com/Associated Press Half of Americans say they worry about their overall level of debt, and about 2 in 10 say they stay worried most or all the time. These results came out of an AP poll. Those debts can come from home and car loans as well as credit cards - even more so with holiday buying sprees. 3/4 of those polled have credit cards. Most people who have credit cards say they work to keep control of them, but 1 in 6 don't trust themselves. Young adults and those who make less than $25,000 a year were most likely to doubt their own ability to manage credit cards. Total revolving credit debt in the U.S. was just over $600 Billion five years ago and is almost $800 Billion now, according to the Federal Reserve. In the survey, about 10% of those with credit cards said they have missed making their minimum payment during the past 6 months. _________________________ But bankruptcy filings are down ... Bankruptcy cases filed for the 12 month period ending September 30, 2004 dropped 2.6% from the same time period in 2003. 1,618,987 case were filed, down from 1,661,996. (Bankruptcies first broke the 1 million mark for a 12 month period June 30, 1996.) Business bankruptcies also dropped 3.8% from 36,183 in 2003 to 34,817 in 2004.

The Yukos Bankruptcy: from Russia with love On December 14, 2004 Yukos Oil Company, the parent of Yukos subsidiaries charged with massive unpaid tax debts in Russia, filed a voluntary Chapter 11 Petition in the Southern District of Texas in Houston. Yukos is the largest oil and gas production company in Russia and among the largest in the world. The Debtor's largest creditor is the nation of Russia, which claims billions in tax debts. A tax sale auctioning the Yukos crown jewel is scheduled to occur in Russia on December 19, 2004. In first day pleadings, the company sought a Bankruptcy Court injunction against Russia to stop the tax sale and a funding injunction against the banks that previously announced that they will provide financing to bidders. The Debtor also seeks enforcement of a "worldwide automatic stay." First day hearings took place in Houston on December 15, 2004. Bases for Bankruptcy Court jurisdiction in the US include: (i) the fact that the company's CFO has a house in Houston, (ii) the fact that representatives of the company have given speeches in Houston, (iii) the fact that the banks that will finance the tax sale have US offices, (iv) the fact that the company intends to list securities on US exchanges and(v) the fact the some of the company's equity interest holders include US citizens. Russia thumbs its nose at the Order fot he Bankruptcy Court Auction to be held despite U.S. ruling; oil giant also cancels shareholders meeting on liquidation. MOSCOW (Reuters) - Russia said on Friday it would go ahead and sell Yuganskneftegaz, the main oil production unit of Yukos, despite a U.S. Bankruptcy Court order seeking to block Sunday's auction for 10-days. "We are selling Yugansk by order of a bailiff and so far we haven't received any order to cancel the auction (on Sunday). Therefore, we are still planning to continue," a spokesman for the Federal Property Fund said. The Houston Bankruptcy Court issued a temporary restraining order on Thursday after Yukos filed for Chapter 11 protection. But Russian Foreign Minister Sergei Lavrov said his nation's courts would have the final say. Yukos is facing ruin from a $27.5 billion back tax claim and the state's plans to sell its main production unit, Yuganskneftegaz, on Sunday to recover the debt. Yukos filed for Bankruptcy protection this week, which together with the shareholders meeting is designed to prevent the state from selling Yugansk. _______________________ U.S. workers losing health benefits according to San Francisco Chronicle: in a related story, residents of San Francisco agree that meat is murder and capitalism is theft. Pundits shocked to hear liberal leaning new reports coming out of the Bay Area ... SOURCE: San Francisco Chronicle 8% of employers interviewed said they had eliminated subsidized health benefits for future retirees this year and an additional 11% said they are likely to do so next year, according to a survey of 333 large firms by the Henry J. Kaiser Family Foundation and the consulting firm Hewitt Associates. Last year only 10% of firms surveyed said they dropped coverage for future retirees. The latest survey, the groups' third annual study of health benefits for former employees, also found that companies are passing on to their retirees an increasing share of medical costs, just as they are doing with benefits for active workers.

Schedules not dispositive of amount of, or liability for, a debt for purposes of 109(e)

In re Moomand (Bankr. N.D. TX 2004)

Debtors' Chapter 13 was subject to dismissal on the basis that total liquidated debts as of the date of filing exceeded the limits of Sec. 109(e) of the Code. Debtors' Schedules indicate that they were sole owners of a business and owed unsecured debts of $379,807.25. Debtors scheduled two separate debts to the Texas Comptroller: $248,678.20 for the period beginning October 1, 1999 and ending September 30, 2002, and another debt listed as unknown in amount and no date or range of dates is specified to indicate when the debt arose. Both debts are listed as disputed, but none of the unsecured debts, including both ones to the Comptroller, are denominated as contingent or unliquidated. On September 3, 2004 the Comptroller filed a motion seeking dismissal of the case on the basis that Debtors were ineligible under 109(e). The Comptroller argued that the Court needed to look no further than Debtors' Schedules. The Court had previously declined to adopt a per se rule that debts which were merely disputed must be included in the 109(e) analysis, stating that unless the equities of the case required a different result, a debt denominated as "disputed" should be included in the 109(e) eligibility analysis if, on its face, it was a legally enforceable debt as of the date of the Petition. Conversely, where the "dispute" required a creditor to establish the debtor's liability, the debt should not count for 109(e) purposes. Hatzenbuehler, 282 B.R. at 832 (citations omitted). [In re Hatzenbuehler, 282 B.R. 828, 833 (Bankr. N.D. Tex. 2002)]

(Ed. Note: although the Court in this case acknowledged that some "disputed" debts should not be included in the 109(e) analysis where the nature of the dispute goes to the liability for the debt, in this case it found on the evidence that as a matter of law the debtor was liable for the tax debt, and hence the claims were included, resulting in dismissal of the case.)

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Post-Petition crop disaster aid not property of the Estate

In re Burgess (5th Cir. 2004)

A crop disaster payment from the Federal Government to a farmer who was the debtor in a closed Bankruptcy case should not have been treated as property of the Estate where the legislation authorizing the payment did not exist at the time of the Bankruptcy.

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Court may award fees under 330 where terms of engagement approved under 328

Factual Background Airspect Air, Inc./Nischwitz v. Miskovic (In re Airspect Air, Inc.), 385 F.3d 915 (6th Cir. 2004).

United States Court of Appeals for the Sixth Circuit considered whether the Bankruptcy Court abused its discretion in declining to award Attorneys fees to Debtor's counsel under Sec. 328 notwithstanding the Bankruptcy Court's approval of the terms of that professional's engagement, and instead awarding fees in a substantially reduced amount under Sec. 330. The Sixth Circuit held that a determination of whether a fee arrangement like the one at issue has been pre-approved under Sec. 328 should be judged by the "totality of the circumstances." Having applied this standard, the Sixth Circuit concluded that the Attorney's contingency fee agreement had not been pre-approved by the Bankruptcy Court and conditions of employment of any professionals engaged under Sec. 327 must be "reasonable," including an engagement entered into on a retainer or contingency fee basis. Sec. 330(a) provides that, subject to Sec. 328, the Court shall allow reasonable compensation for actual, necessary services rendered by professionals. A court that has approved the terms and conditions of a professional's employment under Sec. 328 may authorize fees under an arrangement, under Sec. 330(a), other than that previously approved under Sec. 328 if the Court finds that the arrangement under Sec. 328 proves to be "improvident" under the circumstances.

IRS Website

IRS has begun potentially widespread rejection of nonprofit status for credit counselling agencies Source: Coalition for Responsible Credit Practices This past year, the IRS began tightening its scrutiny of the nonprofit tax status of credit counseling agencies. In some recently made public letters rejecting the nonprofit tax status of particular agencies the IRS makes it clear that it doesn't buy the argument that using credit counseling to collect debts for creditors is a legitimate "nonprofit" activity, and could wipe out the "nonprofit" tax-exempt status of virtually the entire industry. In the letters, the IRS essentially makes the case that the creditor funding and the creditor benefits of debt management plans (DMPs) effectively make credit counseling agencies debt collectors, not charities. The members of the largest credit counseling association, the National Foundation for Credit Counseling (NFCC), for example, collectively receive two-thirds of their funding from creditors. That funding, as determined by the IRS in these letters, is essentially payment for debt collection services, which it does not consider to be a tax-exempt activity. If the principles spelled out in the IRS letter were applied industry- wide, it could have the effect of wiping out virtually the entire credit counseling industry. That's because virtually the entire industry is composed of nonprofit, tax-exempt CCAs which rely heavily on creditor "fair share" funding provided in exchange for servicing DMPs. _____________________ Credit Card use trumpts check use for the first time ever SOURCE: AP For the first time, Americans' use of credit cards, debit cards and other electronic bill paying has eclipsed paper checks. The number of electronic payment transactions last year totaled 44.5 billion - exceeding the number of checks paid, 36.7 billion, according to Federal Reserve studies released Monday. The shift seen in 2003 toward more electronic payments reflects the expanding role of technology in the retail, financial and banking businesss, private economists said.

Law.com Blog

And you thought blogging was a fad ...

For those who doubted the legitimacy of our experiment in blogging, behold! No less auspicious a site than Law.com is now blogging away. Party on fellow bloggers. Party on, indeed.

Plaintiff in suit for violation of FCRA must prove damages Sarver v. Experian Information Solutions (7th Cir. 2004) To prevail against a credit reporting agency on an FCRA claim based upon an inaccurate report of a Bankruptcy filing an individual must prove damages (e.g. a denial of credit) after he notified the credit reporting agency of the error. A denial of credit arising before such notification does not constitute "damages" under the FCRA.

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Supreme Court rules that TILA caps damages individual may recover

Koons Buick Pontiac GMC, Inc. v. Nigh, certiorari from Fourth Circuit, November 30, 2004

On November 30 the Supreme Court held that the most recent changes by Congress to the Truth in Lending Act (“TILA”) resulted in a cap on the damages an individual could recover for consumer loan violations. Several Circuits had interpreted that new language to mean that damages to personal-property loans should be twice the amount of the finance charge with no limitation, while closed-end mortgages were subject to a $200 minimum and $2,000 maximum.

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Fraud finding in State Court is res judicata in Bankruptcy Court

In re Shore (10th Cir. 2004)

Where a prepetition State Court fraudulent transfer judgment articulated that the Court had found by clear and convincing evidence that a transferee was liable under the UFTA's so-called "actual fraud" provisions for "willful conduct and fraud," and where the Court had imposed punitive damages, that judgment collaterally established liability in a later 523(a)(6) dischargeability action in the transferee/Debtor's Bankruptcy.

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Hotel expense in Fee Application disallowed

In re Fibermark, Inc. (Bankr. VT 2004)

A one-night New York City hotel expense reimbursement request of $770 is not allowable in the absence of an explanation for why the expense was out of line with other lodging expenses on the same Fee Application.

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Property held by Tenancy-by-the-Entirety is not property of the Estate

In re Musolino (11th Cir 2004)

Property owned by a Chapter 13 Debtor in tenancy-by-the-entirety with a non-debtor under Florida law is not part of the Estate and therefore cannot be reached by creditors.

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Attorney sanctioned for electronically filing without Debtor's original signature

In re Phillips (8th Cir. BAP 2004)

The 8th Circuit Bankruptcy Appellate Panel held that the Bankruptcy Court did not err in imposing Rule 9011 sanctions against an Attorney who electronically filed a Petition that the Debtor had not signed. After having her first Petition filed by a particular firm, on December 5, 2003 an Attorney from that same firm electronically filed a second Chapter 13 Petition for the Debtor. The Debtor did not sign that second Petition, did not give that Attorney permission to file it and, in fact, had never even spoken to that particular Attorney. After receiving the signed Petition from the first case, the Attorney decided that he had authority for a second filing. That Attorney later acknowledged that no Petition bearing the Debtor's original signature existed for that second case, but that he had filed the second Petition believing time was of the essence because of a pending foreclosure sale of the Debtor's home. The Debtor never attended the Meeting of Creditors in the second case because she was unaware of the second filing. On December 29, 2003, while the second case was still pending, the Debtor retained an Attorney for a different firm and filed what turned out to be her third Petition. Ed. Note: Upon the filing of the 3rd Petition, hilarity ensued.

9th Circuit Split? Both sides weigh in

Commercial Law League of America

The U.S. Court of Appeals for the 9th Circuit is the largest and most diverse Federal Circuit Court, encompassing both Silicon Valley and Hollywood as well as the wilds of Idaho, Montana, and Nevada. Right before the Nov. 2 election, the House of Representatives approved an amendment offered by Rep. Mike Simpson of Idaho to split the 9th Circuit into 3 smaller circuits. In an Op-Ed in The Recorder, 9th Circuit Justices Alex Kozinski and Sidney Thomas argued that such a split is unnecessary and that the costs, $130 million upfront and $22 million each year, are too high. California Governor Arnold Schwarzenegger as well as Washington and Arizona Governors Gary Locke and Janet Napolitano, oppose the split. The American Bar Association, Federal Bar Association and many State bars are also against the split.

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Woman Charged with Fraud for Drafting Phony Court Order

Beth HundsdorferBelleville News Democrat

An Edwardsville, Missouri woman was charged with Bankruptcy fraud for creating a false Order in order to keep a commercial vehicle. In this case, the Debtor bought a truck and financed it through a company in Pennsylvania. The Debtor's business later filed for reorganization but the case failed because she missed payments. Once the Stay was lifted the finance compapny told the Debtor that it intended to repossess the truck. In order to keep the finance company at bay, the Debtor created and faxed a phony Order to the finance company's Attorneys to the effect that she was to remain in possession of the truck and that the finance company could not take action to repossess it. Lawyers for the finance company got suspicious and brought the matter to light with the Court.

Ed. Note: Our thanks to Ms. Gloria Norton for this one High Court Considers Shielding IRAs From Creditors Hope Yen, The Associated Press, 12-02-2004 The U.S. Supreme Court considered Wednesday how much retirement savings people can shield when they file for bankruptcy, an important question as more Americans go into debt. The justices heard arguments in the case of a bankrupt Arkansas couple seeking to keep their two individual retirement accounts. Bankruptcy law already protects pensions, 401(k)s, Social Security and other benefits tied to age, illness or disability. Most justices appeared reluctant to allow the seizure of all the money in IRAs, a nest egg used by millions of people, though Justice Sandra Day O'Connor offered that some accounts might be taken to repay debts. IRAs, which can be opened by anyone regardless of employment, allow investors to contribute up to $3,000 annually to a fund that grows tax-free until withdrawals. It is the only retirement plan available to the self-employed, small business owners and workers between jobs. Unlike many other retirement plans, IRAs permit cash withdrawals for any reason at any time so long as holders 59 1/2 and younger pay a 10 percent penalty tax. "The statute says the right to receive payment is on 'account of age,'" Justice Anthony Kennedy said. "If a client can take the money out at any time, why is it on account of age?" But Justice Stephen Breyer, backed by Justices David H. Souter, Ruth Bader Ginsburg, John Paul Stevens and O'Connor, noted more than 98 percent of IRA investors do not make withdrawals until age 60. "It's called an Individual RETIREMENT Account," Breyer said. "It's based on retirement, which is clearly on account of age." The stakes in the case are high. Last year, more than 1.6 million people filed for personal bankruptcy, compared with 875,000 a decade earlier. Experts say much of that is being driven by people 55 and older who lose their jobs and cannot pay off debts. "Older Americans who lose their IRAs in bankruptcy will have a sharply reduced ability to support themselves in their retirement years," AARP wrote in its friend-of-the-court filing seeking IRA protection. "Rebuilding retirement savings is a daunting task for anyone, and it is particularly difficult for older Americans." The case involves Richard and Betty Jo Rousey of Berryville, Ark., who accumulated $55,000 in company-sponsored pension and 401(k) plans at Northrop Grumman Corp. before he took early retirement in 1998. When Betty Jo Rousey was laid off a month later, they rolled the funds over to IRAs. The Rouseys have been unable to hold down new jobs, in part due to his chronic back pain, according to their lawyers. Richard, 60, and Betty Jo, 57, now live on $2,000 a month. The couple filed for bankruptcy in 2001 and claimed an exemption for their IRAs. Lower courts disagreed, ruling the couple's ability to withdraw funds at any time made the IRAs more like a "readily accessible savings account" that isn't subject to protection. Several justices pressed Colli C. McKiever, who represents the trustee overseeing the couple's bankruptcy, on why IRAs should be treated differently from pensions and 401(k)s. They noted the couple had no choice but roll funds into IRAs after Betty Jo Rousey was laid off. When McKiever responded that no other retirement plan covered in the statute allows withdrawal "at any time, for any reason," O'Connor disagreed. "Typically, plans like 401(k) plans allow hardship withdrawals. Others allow for medical reasons," she said. "So it seems like a hard line to draw. We would have endless cases to litigate." O'Connor then suggested a solution that would give protection to IRAs in Rouseys' case and others, but only to the extent the money is "reasonably necessary for the support of the debtor and any dependent." That provision is stated separately in the bankruptcy code. Pamela Karlan, a Stanford University law professor who represented the Rouseys, embraced O'Connor's proposal. She argued that IRAs should not be viewed as savings accounts because the tax penalty deters most investors from early withdrawals. "Congress put in a tax penalty because in the holistic sense, it is designed to protect retirement savings," Karlan said. "If the Rouseys have an old age to live in that is in any reasonable kind of circumstance at all, they'll need this money." The case is Rousey v. Jacoway, 03-1407. A ruling is expected by July.