Committee Member Jan Watson Weighs in on Wage Deduction Orders

I have always treated the wage deduction question this way:

The wage deduction affidavit and order are not the same things. Once the employer is served with the affidavit they must respond with information regarding wages and withholdings by the "return date". The employer must also begin immediately deducting the appropriate amount from the employees wages, but does not turn it over to the creditor until an order is entered. The creditor must motion up the case to have the order entered after they receive the employer's answer, then serve a copy (preferably certified) of the order on the employer.

When I'm representing a debtor who files after the wage garnishment is served on the employer but before the order is entered, I treat the property as part of the debtor's estate. If appropriate the debtor can exempt the withheld wages then ask the Court to avoid the judgment lien and order turnover of the withheld wages. Once the "order" is entered, however and the wages are actually turned over I haven't found a way to get them back - the trustee can avoid the turnover as a preferential transfer if they are moved.

Follow up Question: who gets the withheld wages when the debtor doesn't exempt them and doesn't move for lien avoidance? Seems like they are forever in limbo.

Ed. Note: Good Question

Return of the Case Roundup

If at first you don't succeed, dissolve and try again

Fowler v. Shadel (7th Cir. 2005) Dbtor/sole shareholder's equitable interest in property owned by corporation cannot be exempted, though it would have been if the corporation had been dissolved prior to filing (ouch!).

______________________

Libelous statement is "malicious"

In re Sicroff (9th Cir. 2005)

A libelous statement is "malicious" for purposes of non-ischargeability under 523(a)(6) regardless of whether the author had a socially legitimate rationale for publishing it (whatever that means).

___________________

Adjudication of hardship res judicata

In re Woodcock (8th Cir. BAP 2005)

Debtor who litigated and lost an undue hardship discharge dispute cannot reopen the case years later to prove that the Bankruptcy court's original ruling that Debtor could potentially earn enough to pay his student loans had turned out to be inaccurate.

_________________________

Bankruptcy Code preempts State law with respect to lien priorities

In re Brinley (6th Cir. 2005)

A taking affected by 522(f) is not unconstitutional where the lien arose after the enactment of 522(f), thereby placing the lien holder on notice that its lien could be impacted.

_________________________

Arbitration clause does not require Trustee to arbitrate

In re Oakwood Homes Corp. (Bankr. De. 2005)

An avoidance defendant was not entitled to arbitration of 544(b), 548 and 547 claims asserted by a Trustee regardless of the fact that a Pre-Petition agreement between the Debtor and the defendant compelled arbitration of disputes.

_______________________

Mortgage secured by rents and escrow protected from modification only with resepct to primary residence

In re Fernados (3rd CIr. 2005)

Mortgagge on a primary residence secured by: (i) rents [part of the real property under applicable State law] and (ii) an escrow fund for insurance and taxes [not property of the debtor once put in escrow] is secured "only by a security interest in real property that is the debtor's principal residence" and protected against modification in Chapter 13.

________________________

Probate proceeding might deprive Bankruptcy Court of jurisdiction

In re Litzinger (8th Cir. BAP 2005)

A Bankruptcy Appellate Pannel held that the lower Bankruptcy Court erred in deciding issues centrally related to a probate proceeding without first determining whether the probate exception jurisdiction applied.

________________________

Un-Earned Pre-Petition Attorneys' Fees Property of the Estate

In re On-Line Services Ltd. (2005)

Un-earned portions of the advance given to a Debtor's Attorney in a Chapter 7 case were held to be property of the Estate.While applicable State law recognized a a security retainer lien in favor of the Attorney, that lien did not secure future (i.e. Post-Petition) services. While the Court had authority to review the reasonableness of Pre-Petition legal fees, the issue was not the benefit to the Estate but the the reasonable value of the services.

Case Roundup

In re CZ Liquidation Corp. (1st Cir. BAP 2005)

Rule 9011 sanctions warranted by argument of a party in interest that DIP and committee professionals should disgorge ther fees because they were creditors of the estate (thus not "disinterested") on account of their fee claims.

_______________________

In re Barber (10th Cir. BAP 2005)

No requirement to itemize damages in Adversary Complaint under §523(a)(2) that only seeks a determination as to dischargeability.

_______________________

In re Tama Beef Packaging, Inc. (8th Cir. BAP 2005)

An unsuccessful bidder who establishes a right to a substantial contribution claim under section §503(b)(1) for increasing the purchase price of an estate asset through participation in an auction of that property is not entitled to a break-up fee (i.e. a percentage of the purchase price), but rather to reimbursement of its Attorneys Fees.

__________________________

In re Northwestern Corp. (Bankr. DE 2005)

Where a post-confirmation settlement would upset expectations under a confirmed Plan, the settlement cannot be approved absent the consent of the affected classes of creditors.

_________________________

In re US Interactive, Inc. (Bankr. DE 2005)

Where a few pre-petition transactions between a debtor and a preference defendant are found to exist, the ordinary course of business in the industry plays a more prominent role in an "ordinary course defense" analysis than the business between the parties themselves. The defendant must establish an industry standard by proof of an agreed practice and manner of payment among the debtor's competitors. Where the pre-petition relationship between the debtor and defendant was short, adherence to a bright line industry standard is required, but the longer the term of the relationship the more latitude is recognized in industry terms. Generalized evidence of an industry standard is not sufficient. The evidence must be objective, definitive and supported by specific data.

___________________________

In re Urban Broadcasting Corporation (4th Cir. 2005)

To have standing to appeal, the appellant must be a "person aggrieved" by the bankruptcy order. A person aggrieved is "a party directly and adversely affected pecuniarily." Defining standing by whether a party waives or forfeits rights misconstrues the standing requirement. Defining standing by whether an appellant has objected to an order or attended a hearing conflates basic notions of standing with notions of waiver and forfeiture.

House Judiciary Committee Clears Reform Bill

On March 17 2005 the House Judiciary Committee passed the Bankruptcy Reform bill by a vote of 22 to 13. No amendments were added. The legislation is expected to go to the floor of the House of Representatives the first week after the Spring recess. The House is scheduled to reconvene Tuesday, April 5th.

The above information provided by:

David P. Goch

Washington Legislative Counsel

Commercial Law League of America

Full Text of the Bankruptcy Fraud and Abuse Prevention Act of 2005

Click here to see the full text of the Bankruptcy Fraud and Abuse Prevention Act of 2005 as passed by the United States Senate on March 10, 2005 [PDF format, about 513 pages -- a big one].

Our thanks to Mike Davis as well for providing a marked-up copy courtesy of Davis Polk & Wardell (no relation I believe). That copy is available as a PDF from Mike Davis.

I will also try to have something manageable by the time of the Seminar on April 13, 2005. In the meantime, the full text is also published on my other website at http://mhalaw.justia.net/articles-1017149.html.

Happy Easter and Passover

Happy Easter and Passover to our Members. For those of you who are Greek Orthodox this is a little early but I hope you take it in the spirit in which it is intended.

Member Question -- new law, other issues

A member asks the following questions: Does anyone have an itemization of the provisions of the possible new law that would be effective immediately upon its becoming law?

Also, does anyone have an asset search source that they like to use? Please respond to me at mhedayat@mha-law.com with your thoughts.

Responses to our Member's Question

To remind our readers, the question from our Member was:

Is an "Affidavit for Wage Deduction Order" the same as a "Wage Deduction Order"? Is the debtor's employer allowed to garnish his wages prior to the return date specified? If not, I assume we can demand the employer to return the monies garnished back to the Debtor.

Our Members responded:

The employer withholds the wages and then files the affidavit with the court. Accordingly, employee cannot demand that employer return the return of the garnished wages without a court order so directing.

John Houlihan

==================

The employer is required to make the deductions pursuant to the served WDO. The employer holds the funds until a judgment is entered on the WDO. When the employer is notifed of the BK filing, withholding must stop, but employer must hold any funds already deducted. When the Ch 7 is filed the state court must be notified. Then the WDO is STAYED, not quashed. It takes an order from the BK court to have any funds held by the employer remitted the BK estate. That is how I think it should be done.

James B. Cavenagh

Thank you to all who took part in this exchange. Q&A like this is one of the seminal justifications for committees like ours, and is part of being a member of our community. I appreciate everyone's willingness to help out.

Feel free to submit any other questions, comments or items for consideration by the Committee by e-mail to me at mhedayat@mha-law.com or via the DCBA Bankruptcy listserve at bankruptcylawls@dcba.org.

Question from Member: Wage Deduction Orders

A Committee Member writes the following:

I am representing a debtor who is in the process of filing a Chapter 7. We plan on filing it by the end of the March. In the meantime, a default judgment was entered against him on Feb 3, 2005. Thereafter, the debtor and his employer received a "Wage Deduction Notice" with an "Affidavit for Wage Deduction Order" attached to it. Both have a return date of April 7, 2005. My question: Is an "Affidavit for Wage Deduction Order" the same as a "Wage Deduction Order"? Is the debtor's employer allowed to garnish his wages prior to the return date specified? If not, I assume we can demand the employer to return the monies garnished back to the Debtor.

I have given my opinion to the inquiring party, so now it's time to open it up to the memberhsip. If you have any thoughts please e-mail me at mhedayat@mha-law.com and I will pass on your pearls of wisdom accordingly.

And as always, thank you for playing Bankruptcy Jeopardy. Please remember to phrase your answer in the form of a question.

Debtor's Attorneys See Red in Senate Bill

March 16, 2005

Marcia CoyleThe National Law Journal

Sweeping bankruptcy legislation passed by the Senate last week would impose new requirements and new liability on debtor's attorneys, many of whom will decide that handling consumer bankruptcies is no longer worth the risk, said practitioners and legal scholars. Key provisions, they added, would interfere with the attorney-client relationship, will increase malpractice premiums and overhead costs, and ultimately will leave many low-income clients without bankruptcy representation. The bill's harsh treatment of debtor's attorneys, said unhappy practitioners and others, is just part of its primary goal of making Chapter 7 bankruptcies -- in which debtors seek discharge of their debts -- as difficult as possible. "This is not a bankruptcy bill; this is a gift to a special interest group -- the credit card industry. There is not a credible bankruptcy organization in the country that supports this bill," said David P. Goch of Washington's Webster, Chamberlain & Bean, representing the Commercial Law League of America. (The league is the oldest and largest organization of attorneys and other professionals who represent the credit industry.) The bill is expected to sail through the House of Representatives and be signed by President Bush quickly. Bankruptcy judges too may soon re-evaluate their own jobs as the legislation increases their workload, fails to provide the necessary number of additional judges and draws them into the sometimes tedious application of a new means test for filers, said bankruptcy scholars. "It wouldn't surprise me if in a few years we see a wave of bankruptcy judges stepping down to pursue other things," said bankruptcy scholar Robert Lawless of the William S. Boyd School of Law at the University of Nevada, Las Vegas. But to the bill's proponents, chief among them Sens. Charles Grassley, R-Iowa, and Orrin Hatch, R-Utah, the attorney provisions are needed to reduce fraud and abuse within the bankruptcy system. "It is simply too easy for some mostly high-income debtors to simply wipe away their debts by filing for bankruptcy," Hatch said during last week's Senate debate. But opponents and proponents would agree that S. 256, sought by banks and credit card issuers for the last eight years, will change the landscape of bankruptcy law for all involved. The proposed new law has at its core a "means test" to separate those bankruptcy filers who can pay back a portion of their debts from those who cannot. Under the test, Chapter 7 filers earning more than the state median income would be presumed to have made an abusive filing. Those filers earning less than the median income would face extensive disclosure requirements to prove lack of income. Last week the American Bar Association and 16 state bars from around the country lobbied intensely, and unsuccessfully, to amend three provisions in S. 256 that they felt would be particularly damaging to lawyers and their representation of financially strapped consumers. Sens. Jeff Bingaman, D-N.M., and Russell Feingold, D-Wis., offered amendments to the three provisions, but as was the case with virtually every Democratic amendment offered, their changes were defeated or withdrawn. The unamended provisions would: Require the debtor's attorney to certify the accuracy of all factual allegations in the debtor's bankruptcy petitions and schedules. Attorneys would be subject to sanctions if any factual inaccuracies resulted in the dismissal of the client's Chapter 7 petition or in its conversion to a Chapter 13 petition, which requires some repayment of debt. The attorney could also be responsible for lawyer fees of the trustee or bankruptcy administrator who contested the Chapter 7 discharge. Under Bankruptcy Rule 9011, bankruptcy attorneys, like all lawyers in federal court, must certify that pleadings and other items filed are supported by the facts. But the rule does not apply to bankruptcy schedules listing a debtor's financial information because those are prepared almost entirely from information supplied by the debtor, according to bankruptcy attorneys. The debtor bears responsibility for such schedules. S. 256 does not have a parallel requirement on creditor attorneys. The bankruptcy bill also would require debtor's attorneys to certify the debtor's ability to make payments under a reaffirmation agreement. Debtors now do not have to discharge all outstanding debts. They can choose to "reaffirm" -- maintain liability for -- certain debts. Before a reaffirmation agreement can be approved, the debtor's attorney currently must only certify that the reaffirmation is voluntary and will not impose an undue hardship on the debtor. And, finally, the bill contains provisions labeling any "person" who assists debtors with their bankruptcies in return for compensation a "debt relief agency." This section of the bill would impose a number of disclosure requirements on those assisting debtors and would require attorneys to include in their advertising and official communications a statement that "We are a debt relief agency." ANTI-LAWYER? Grassley and the bill's proponents say the certification requirements are necessary to improve the accuracy of bankruptcy petitions and schedules and to crack down on lawyers who abuse the system by filing frivolous and false petitions. The "debt relief agency" provisions, proponents say, are aimed at so-called bankruptcy mills, where large volumes of cases are handled and where lawyers allegedly don't see their clients until a court hearing. There have been problems with inaccurate petitions and schedules, said bankruptcy scholar Lawless. But he added, "You could say that for a lot of areas of law. We probably could improve the accuracy of criminal defendants at trials if we had a lawyer vouch for them. That's not the system we have," he said. A number of debtor and creditor attorneys said that the proposed certification requirements would force them to hire private investigators, appraisers and auditors to verify the value of client assets. The certification requirements will hit particularly hard those attorneys who do pro bono bankruptcies -- a substantial group, according to the ABA. They will be unwilling to bear the increased costs, debtor attorneys warned. Sen. Bingaman noted during last week's debate that the University of New Mexico School of Law informed him that it would no longer be able to handle bankruptcy cases in its clinics if the certification requirements become law. Marc Stern, a Seattle debtor's attorney, warned that the certification requirements will drive up the cost of filing a bankruptcy with a lawyer. And reaffirmation agreements will become a thing of the past, he added. "No lawyer is going to certify the client has the ability to make payments," he said. "How do you know? I won't do them." Stern added, "I can't wait for the first case where there is certification and the debtor doesn't make the payments. You have a creditor saying, 'I relied upon that certification and wouldn't have agreed otherwise. Guess what, Mr. Lawyer -- you guaranteed and I detrimentally relied on your certification. Therefore I want you to make the payments.' " Another Seattle attorney, Chuck Helm of Helm, Helm & Lovejoy, who does only unsecured collections work, agreed, saying, "I wouldn't represent a debtor if I had to sign a declaration. These cases don't generate enough fees to justify putting my butt on the line. "The downside is too high and I'm sure my malpractice carrier would agree and I'm sure my rates would reflect that," he added. Bingaman also noted on the Senate floor that one malpractice insurer -- Attorneys Liability Protection Society Inc., which insures 15,000 lawyers in 27 jurisdictions -- had estimated the certification requirements could result in immediate premium increases of 10 percent to 20 percent. Some scholars indicated the "debt relief agency" requirements could violate the First Amendment because they compel speech. But the more immediate problem, said many lawyers, is the sweep of the provisions. Any lawyer -- tax, divorce, estate, real estate -- who provides "even a kernel" of bankruptcy advice in the course of representing a client would come under the debt relief agency requirements, they said. That could even include creditor lawyers. The combination of all three requirements will reduce representation for low-income people, said John Rao, staff attorney for the National Consumer Law Center. "What we fear will happen is there will be a real cottage industry of bankruptcy petition preparers," he said. "There already are too many out there and there've been so many abuses by these companies. It may be the only affordable way to file bankruptcy after the bill or at least for some consumers." The bankruptcy bill would provide some relief for bankruptcy courts by authorizing and funding 28 new judgeships. Those courts have not had new judgeships since 1992, and yet bankruptcy filings have skyrocketed in the intervening years. But even these new judgeships, say bankruptcy scholars and others close to those courts, are too few. The Judicial Conference of the United States has requested 47. However, its own statistics would justify 100 new bankruptcy judgeships, it said. If the bill becomes law, each bankruptcy case will take more time because of the means test, said Lawless and others. Judges will spend more time in Chapter 7 than they currently do and will be more heavily involved in minor consumer household budgeting issues, they added. "I think there's going to be countervailing pressure," said Lawless. "The bill is going to make it impossible for a lot of people to get effective relief. There will be fewer bankruptcy petitions," he said. "The first effect is going to swallow the second," he added. "Spending more time on cases is going to swamp any effect the bill will have on deterring filings." There's "no question" there will be more work for the courts, agreed Rao, adding that this will come at a time when the courts already have reduced staffing because of budget problems. All of these effects will make it "less attractive" to be a bankruptcy judge, said Lawless, adding, "Not because of the amount of work but the nature of the work is going to change. Judges are going to spend a lot more time on whether someone's expense fits into one category or another. "The intellectual challenge and satisfaction of being a bankruptcy judge is going to diminish," he predicted. "Many bankruptcy judges could earn a lot more in the private sector. Part of the reason they give it up is public service, but also it's the intellectual rewards the job brings."

President Neal Cerne -- doing the right thing

The following letter was just faxed to Rep. Hyde concerning Bankruptcy legislation (S. 256). The letter is consistent with the DCBA Board's policy statement adopted in March 2002. -----------------------------------------

Dear Representative Hyde:

The DuPage County Bar Association respectfully requests that you sponsor three amendments to correct three problems in S. 256 when the House Judiciary Committee considers this legislation.

S. 256 would require debtors' attorneys to: (1) certify the accuracy of the debtor's bankruptcy schedules under penalty of harsh court sanctions; (2) certify the debtor's ability to make payments under a reaffirmation agreement; and (3) identify, advertise, and conduct themselves as "debt relief agencies" subject to a host of new intrusive regulations. These attorney liability provisions would be a disaster for the nation's bankruptcy system for many reasons.

* By holding debtors' attorneys personally liable for the accuracy of their clients' schedules, the measure would force the attorney to hire private investigators and appraisers to independently verify the existence and value of all the client's assets, adding thousands of dollars to the cost of representing a debtor in bankruptcy. Most individual debtors will not be able to afford these new expenses, resulting in many thousands of pro se debtors clogging up the court system. * These provisions will create a harsh new liability standard for debtors' attorneys who do not conduct a lengthy investigation and appraisal of the client's assets. If these costly steps are not taken and the Chapter 7 petition is dismissed or converted to a Chapter 13, the court could then impose harsh sanctions and civil penalties on the attorney personally. In addition, most malpractice carriers are expected to exclude this new liability from coverage under their policies. * As a result of these harsh new liability provisions, many attorneys will no longer agree to represent debtors in bankruptcy. In addition, because the new certification standards apply to all debtors' attorneys whether or not they charge a fee, these provisions will strongly discourage lawyers from providing essential pro bono bankruptcy services to the very debtors who need them most.

We appreciate your consideration. Thank you.

Respectfully, Neal W. Cerne President

Needless to say, keep April 13 free

While we probably don't need to mention it, all Members should keep the afternoon of April 13, 2005 from 3:00 to 5:00 P.M. free. Why? You didn't just ask why, did you? Of course not. You already know that April 13 from 3:00 to 5:00 P.M. is our annual Seminar, generously sponsored once again by Westlaw/Findlaw. This year, not only will we be taking an in-depth look at CM/ECF, but we will be doing so with an expanded, all-star lineup including:

• Honorable Eugene Wedoff, Chief Judge of the Court for the Northern District, Eastern Division
• Honorable Kenneth Gardner, Chief Clerk of the Court for the Northern District, Eastern Division
• Even more software companies than before
• More goodies, good food and good fellowship

What more could you want from your Committee? We will be updating you closer to the date, but in the meantime I am again requesting that all interested parties, and everyone else for that matter, please do 3 things:

• RSVP for yourselves and members of your firm (we need a head count)
• Tell your friends and colleagues, wherever they practice
• Ask your friends and colleagues to RSVP too

As a reminder, all RSVP's should go to me at mhedayat@mha-law.com.

We look forward to seeing you all there!

Another site that provides house values

This web site predicts the future value of a home by taking account of real estate trends. While useful, the site is clearly a lead-generator for real estate brokers, promising "confidentiality" while soliciting personal information. In any event, if you need a second opinion on the value of your Client's house, try this site.

Fear not gentle landlord, for Bankruptcy reform has arrived

Under the Bankruptcy Reform Bill, homeowners who file within 40 months of buying a home could protect no more than $125,000 of equity from creditors, and after 40 months State homestead limits would apply. "This provision prevents a debtor from shielding assets by purchasing a home in a state with an unlimited homestead exemption, while also recognizing that states should have the ability to set homestead exemptions at levels they deem appropriate," the National Association of Home Builders noted in an announcement.

Also, the proposed legislation contains provisions that would provide more protections to the owner of a rental property in the event a tenant declares bankruptcy. "The legislation strikes a fair balance between the rights of tenants and property owners, and it also provides sufficient safeguards for home owners to protect their property in the event of a bankruptcy filing," said David Wilson, president of the association and a custom-home builder from Ketchum, Idaho. Under current law, delinquent tenants facing eviction can file for bankruptcy, which requires the property owner to stop eviction proceedings. Also, tenants can remain in a rental property for months without paying rent until a bankruptcy judge lifts this stay, according to the home builders' announcement. The Mortgage Bankers Association stated that under the current code, commercial and multifamily lenders "are vulnerable to abuses in single asset real estate bankruptcy cases where the asset was valued at more than $4 million," and the proposed legislation would help to protect lenders from damages and expenses associated with foreclosure delays related to these bankruptcy cases.

Heads Up on Cases (as if it mattered)

Alienation of Affections Judgment not res judicata

In re Stage (8th Cir. BAP 2005)

A pre-petition State court judgment for alienation of affection did not establish that the debtor willfully and maliciously injured the creditor for purposes of 11 U.S.C.§ 523(a)(6), and the creditor was not entitled to summary judgment on collateral estoppel grounds.

===================================================================================

Trustee standing to assert alter ego claims

In re OODC, LLC (Bankr. De 2005)

The majority view is that a Trustee has standing to assert successor liability and alter ego claims on behalf of a Debtor. A claim to collapse an LBO is such a claim. In deciding whether to collapse a series of transactions, the issue is not whether there is common ownership or whether the transaction constituted a stock sale or an asset sale, but rather whether there was an overall scheme to defraud creditors by depleting assets.

Let's see now, 6 months after April would be ...

Senate Republican leadership worked to keep the Bankruptcy Reform Act largely free of amendments because the House Republican leadership vowed quick action on the legislation if it was passed in a form that reflected previous consensus on key issues. In January 2004 the House approved similar legislation. A vote is most probable in early April shortly after Congress returns from recess. This would clear the way for President Bush to sign the measure. It will become law six months thereafter.

(Ed. Note: Consumer Bankruptcy practitioners should find another job by October 2005. Applications are now being taken by credit counselling agencies. Starting pay is minimum wage, but you get dental if you stay for 6 months. Good luck everybody!)

ABA Applauds Bankruptcy Reform

Yes, supporters of the bill at the American Bankers' Association or ABA say the plan's tougher regulations would apply only to people who make more than the median income in their State, allowing low-income earners free to declare themselves broke."The bill keeps the courthouse door open, but also holds people accountable for their debts," said Laura Fisher, spokeswoman. But critics point out that the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 is not intended to protect lower-end economic groups either."Consumers are not out there lobbying Congress to obtain more favorable treatment for consumers," said Paul Sweeney, partner at Linowes and Blocher in Bethesda,Md. "You have very well-financed credit card companies pushing to have this legislation passed."

More good news ...

The Senate conducted its final vote on the Bankruptcy Reform Bill, S. 256. As expected, the bill passed with a vote of 74-25 without objection. Senator Feingold's amendment 92 to the credit counseling provisions was accepted with the agreement that he would withdraw all other amendments, including Feingold amendment 93. The House Judiciary Committee is expected to consider the Senate-passed bill next Wednesday.

Reform Bill requires Attorneys to call themselves Debt Relief Agencies

The Bankruptcy Abuse Prevention & Consumer Protection Act of 2005 requires any professional who assists or represents consumers in filing bankruptcy to advertise him or herself as a “Debt Relief Agency.” See Act, ¶ ¶ 226(a)(3), 229. It is not clear how this requirement will be implemented or enforced. BankruptcyMedia owns the rights to the domain name DebtReliefAgencies.com and the address for a future online directory will be accessible by that name.

And Senator Obama as well ...

Not to be forgotten, the prior letter should go to Senator O'Bama as well:

Senator Barak Obama, United States Senate Washington, D.C. 20510

A lesson for the rest of us ...

Hats off to Tony Mankus for making a difference. I suggest that each of us send a version of this letter to Dick Durbin. Who's with me? Senator Richard J. Durbin

United States Senate

Washington, D.C. 20510

RE: Bankruptcy Attorney Liability Provisions in S. 256, the “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005”

Dear Senator Durbin:

As the Senate considers S. 256, the “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005,” I urge you to support the two separate amendments sponsored by Sen. Jeff Bingaman (D-NM) and Sen. Russ Feingold (D-WI), respectively, that would remove the three harmful attorney liability provisions from the bill. These amendments—which are supported by the American Bar Association and over 15 state bars around the country—would delete the provisions in the bill requiring debtor bankruptcy attorneys to: (1) certify the accuracy of the debtor’s bankruptcy schedules, under penalty of harsh court sanctions; (2) certify the ability of the debtor to make future payments under a reaffirmation agreement; and (3) identify and advertise themselves as “debt relief agencies” subject to a host of new intrusive regulations that would interfere with the confidential attorney-client relationship.

These attorney liability provisions in S. 256 would be a disaster for the nation’s bankruptcy system for many reasons, including the following:

By holding debtors’ attorneys personally liable for the accuracy of their clients’ schedules, the measure would force the attorney to hire private investigators and appraisers to independently verify the existence and value of all the client’s assets, adding thousands of dollars to the cost of representing a debtor in bankruptcy. Most individual debtors will not be able to afford these new expenses, resulting in many thousands of pro se debtors clogging up the court system.

These provisions will create a harsh new liability standard for debtors’ attorneys who do not conduct a lengthy investigation and appraisal of the client’s assets. If these costly steps are not taken and the Chapter 7 petition is dismissed or converted to a Chapter 13, the court could then impose harsh sanctions and civil penalties on the attorney personally. In addition, most malpractice carriers are expected to exclude this new liability from coverage under their policies. As a result of these harsh new liability provisions, many attorneys will no longer agree to represent debtors in bankruptcy. In addition, because the new certification standards apply to all debtors’ attorneys, whether or not they charge a fee, these provisions will strongly discourage lawyers from providing essential pro bono bankruptcy services to the very debtors who need them most. In order to avoid these problems, I urge you to cosponsor and/or vote for the Bingaman Amendment and the Feingold Amendment.

Thank you for your consideration.

Sincerely,

Tony Mankus, Esq.

cc: Julie M. Strandlie, Director, Grassroots Operations/Legislative Counsel, ABA

Nancy Ann Peterman, Chairman, Bankruptcy Committee, CBA

M. Hedayat, Chairman, Bankruptcy Committee, DCBA

Urgent Action Required

Thanks to Glenda Berg-Sharp of the DECEIVE for this one:

Subject: URGENT ACTION ALERT re Bankruptcy Legislation

Good morning -- we have been successful in obtaining cosponsors for our bankruptcy amendments. But we urgently need a Republican co-sponsor to increase the likelihood that the amendments will be successful. Virtually all amendments offered by Democrats thus far have been defeated. Please contact your Senators (Democrats and Republicans) now to urge them to cosponsor the Benjamin and fangled amendments. Should your Senators be interested in cosponsor the amendments, ask them to contact the Senators' respective counsels: Mr. Smalley Stewart (counsel to Senator Benjamin) at: 202 224-3523; and Bob Schwab (counsel to Senator Feingold) at 202 224-5573. For the latest developments, log on to the ABA homepage at www.abanet.org. Scroll to the bottom of the page and click on the link: "Senate Prepares to Vote on Bankruptcy Attorney Liability Legislation." Please let Larson Frisby or me know if you need any additional information or if you have information to report back. Larson can be reached at 202 662-1098; my information is below. Thank you very much for your help!

Senate Prepares to Vote on Bankruptcy Attorney Liability Legislation.

As early as March 8, the Senate will consider separate amendments by Senator Jeff Bingaman (D-NM) and by Senator Russ Feingold (D-WI) that would remove three harmful attorney liability provisions from the pending bankruptcy legislation, S. 256. The bill's provisions holding the debtors' attorneys personally liable for the accuracy of their clients' schedules would force the attorney to hire private investigators and appraisers to verify this information, adding thousands of dollars to the cost of representing a debtor in bankruptcy. Any attorney who fails to take these costly steps--including pro bono attorneys--would be subject to harsh sanctions and civil penalties. Unless these and other related provisions are removed, bankruptcy representation will become unaffordable for most debtors and essential pro bono bankruptcy services will be greatly diminished, resulting in thousands of pro se debtors clogging up the court system.

URGENT ACTION is necessary now. Please call your two Senators or fax them a short letter today to urge them to cosponsor and/or vote for the Bingaman Amendment and the Feingold Amendment regarding bankruptcy attorney liability. Phone numbers and fax numbers for your Senators are located on the ABA's Grassroots Legislative Action Center. Please also forward this Legislative Action Alert to your members and colleagues urging them to contact their Senators as well.

For more information, please see: the ABA Fact Sheet; sample constituent letter to Senators; the ABA's March 1, 2005 letter to all Senators expressing strong opposition to the attorney liability provisions in S. 256; and the text of the Bingaman Amendment (dealing with attorney certification of schedules/reaffirmation agreements and attorney sanctions) and the Feingold Amendment (dealing with "debt relief agency" regulations on attorneys.)

So that we may better coordinate our efforts, please fax copies of any letters you send to (202) 662-1770. For questions, please contact R. Larson Frisby, Legislative Counsel for bankruptcy issues, by phone at (202) 662-1098 or by e-mail.

Julie M. Strandlie, Director

Grassroots Operations/Legislative Counsel

American Bar Association

740 15th Street NW

Washington, D.C. 20005

(202) 662-1764

(202) 662-1770 (fax)

www.abanet.org/poladv

Ye who read this post, abandon all hope

Voting will resume on Monday March 7 in the Senate with respect to the Reform Bill. How will the Bill fare? If these comments from Senators are any indication, we suggest that you brace for impact now:

March 4 /U.S. Newswire/ -- House Majority Leader Tom DeLay (R-Texas) and House Judiciary Committee Chairman F. James Sensenbrenner Jr. (R-Wis.) today commended the Senate's continuing floor consideration of legislation curbing abuse of our bankruptcy laws. The two issued the following statement:"We agree with the overwhelming majority of our Senate colleagues that we must overhaul our bankruptcy laws to prevent abuse of them. For too long, some have used our bankruptcy laws as a financial planning tool rather than a course of last resort."We fully support the current version of Senate bankruptcy reform legislation. Should the Senate avoid any further substantive amendments to S. 256, we will promptly take it up in the House. Given strong, bipartisan House support for bankruptcy reform for the past eight years, we no doubt will pass it so it can be sent to President Bush for his signature.

Recent Cases

Complaint for "emotional distress due to violation of Stay dismissed

In re L'Heureux, (8th Cir. BAP 2005)

Held: Bankruptcy Court did not err in dismissing adversary proceeding seeking emotional distress damages based on creditor's failure to remove a publicly-posted notice of sale where the sale itself was discontinued.

====================================================================================

Collateral for credit may be property of Estate

In re Kaiser Group Internal Inc. (3rd Cir. 2005)

Although the "independence principle" establishes that a letter if credit is not property of the Estate, where Debtor has posted collateral to secure the letter of credit disputes pertaining to loss of such collateral are deemd to pertain to property of the Estate and may be subject to jurisdiction of the Bankruptcy Court.

====================================================================================

Debtor's Attorney without authority to bind Debtor to settlement (yikes)

In re Grayson (9th Cir. 2005)

Held: Authority to negotiate with the opposing party does not by itself imply authority to enter into a binding settlement. Court did not err in finding that the Debtor's Attorney had neither actual nor apparent authority to bind the Debtor to a negotiated settlement.

====================================================================================

Mistaken standard used in educational-loan hardship action

In re Howe (9th Cir. BAP 2005)

Held: Bankruptcy Court erred by applying an incorrect standard in evaluating whether a Debtor seeking an undue hardship discharge of her student loan could maintain a minimal standard of living. While the Federal poverty level standard is too strict -- a middle class living is too liberal. The Court erred in applying IRS guidelines rather than examining the individual facts of the case to make its determination.