Cases Roundup for Father's Day Weekend

Debtor's Earned Income Tax credit is exempt

In re James (11th Cir. 2005)

Federal earned income tax credit payments are a form of public assistance: the fact that such payments can be received in a lump sum oes not prevent debtors from claiming them as exempt. ____________________________ Wholly unsured liens may not be avoided in Chapter 7 any more than undersecured liens

In re Pistritto, (Bkrtcy.D.Del. 2005)

Ruling in Dewsnup v. Timm, 502 U.S. 410 (1992) that an undersecured lien could not be stripped-down in Chapter 7 applies to wholly unsecured liens as well. No meaningfull distinction between undersecured and wholy unsecured liens in this context. _________________________ Debtor's Attorney sanctioned for failure to file supplemental fee disclosure (and lack of candor)

In re Nejedlo (Bkrtcy.E.D. Wis. 2005)

In a Chapter 13 case the Debtor's Attorney took money postpetition from the debtor as a fee in another case in which she represented the debtor and deposited it in her operating account. The Attorney did not file a timely supplemental fee disclosure pursuant to Bankruptcy Rule 2016(b), although she did subsequently make a motion for fee approval. The Attorney presented a deposit slip showing that the funds had been deposited in a trust account the day before the hearing. The court reduced the fee application by $1,000 for the attorney's “lack of candor.” _________________________ Investment annuity payments are non-exempt

in re Payne (Bkrtcy.9th Cir. 2005)

Under California law an annuity arising primarily from a life insurance policy is exempt, but one constituting an investment is not. Where an annuity has both life insurance and investment aspects, the Court must determine which aspects control and judge the status of the annuity accordingly (exempt v non-exempt). The annuity in this case provided the 78-year old debtor with guaranteed monthly payments for 10 years. 9th Cir. BAP held that the risks to the insurer and the insured would be one factor in determining the nature of the subject anjuity.

_________________________ Exemption may be limited where Debtor deliberately under-values their home In re Hannigan (1st Cir. 2005)

Bankruptcy court did not err in refusing to allow a Ch. 7 debtor to amend his homestead exemption from "$135,000" to "the maximum amount allowed by State law" (which was $300,000) where Court found that debtor had initially intentionally undervalued the property and acted in bad faith. If the debtor had accurately reported the true value of the property initially, he would have been entitled to the exemption. His bad faith undervaluation cost him the equity in his homestead.

[Ed. Note I have also represented parties in cases like this -- not only the Debtor, but Heirs and Creditors as well. anyone interested in a local perspective may e-mail me or respond to this posting.]

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Even illegal provisions in a Ch. 13 Plan may be preserved under res judicata In re Brawders (9th Cir. BAP 2005)

Principles of res judicata and finality, as partly codified in Sec. 1327, can make even “illegal” provisions of a Chapter 13 plan binding. Limitations on this general proposition include:

(i) debtor asserting res judicata “has the burden of proof on all elements and bears the risk of non-persuasion"

(ii) plan should clearly state its intended effect on a given issue

(iii) due process requires adequate notice and procedures

Limitations on res judicata arising from plan confirmation are particularly appropriate when secured claims involved.

Here the Bankruptcy Court erred in finding that a taxing agency's secured claim had been reduced through a prior, confirmed Ch. 13 Plan. ________________________ Failure to produce Promissory Note to document loan can result in non-dischargeability of debt In re Cutler (Bankr. E.D. MI 2005)

Debtor/borrower who was unable to produce promissory notes for alleged loans because the loans were effected through cashier's checks and were allegedly from "the mob" was not entitled to a Ch. 7 discharge due to inadequate record keeping.