Supreme Court Update

The U.S. Supreme Court has  granted cert in the case of Hamilton v.  Lanning, No. 08-998, which addresses the question of whether a court should  apply the “mechanical” or the “forward-looking” approach to projected  disposable income for purposes of a Chapter 13 plan.  NACBA will be filing an amicus brief in the  case and is represented by Jonathan Marcus of Covington Burling.

On November 3, the Supreme  Court heard arguments in the case of Schwab  v. Reilly, No. 08-538, a case involving the time limitation for the trustee  to object to an exemption.

On December 1, the Supreme  Court also heard arguments in United  Student Aid Funds v. Espinosa, No. 08-1134 and United States v. Milavetz, No. 08-1225.

The issue in Espinosa is whether a student loan  creditor can attack a debtor's chapter 13 plan 10 years after it was confirmed  and five years after the debtor completed his payments. The case was brought by  the creditor who filed a "Rule 60 motion" arguing that the plan's  term permitting discharge of interest on his student loan was "void"  because the discharge was not sought by an adversary proceeding. The debtor  argued that allowing such a challenge would eviscerate the finality that all  parties in every chapter of the Code rely upon when a plan is confirmed, and  that Rule 9024 (incorporating Rule 60 for most purposes) does not permit a  creditor to seek plan revocation except as permitted in Code section 1330. It  also addresses the argument made by the creditor and numerous student loan  creditor amici that they are too inundated by mail to be bothered by reading  every notice they get from bankruptcy courts. NACBA filed an amicus brief in  that case which was written by Geoff Walsh of the National Consumer Law Center.

In Milavetz case  addresses whether attorneys are “debt relief agencies” within the  meaning of section 101(12A) and whether the constraints on attorney  advice and advertising provided for in sections 526 and 528 of the  BAPCPA are unconstitutional as applied to attorneys. 

Transcripts of all the arguments can be found at http://www.supremecourtus.gov/oral_arguments/argument_transcripts.html

NACBA is a party plaintiff in a case out of the Second Circuit which addresses the same issues.  Connecticut Bar Ass’n v. Holder, No. 08-4797.  That case was argued on September 24.

Negative Equity

The case of In re Penrod, No. 08-60037 (9th Cir.) was argued on November 5.  NACBA assisted with the debtor’s brief in that case.  The debtor’s position was argued by Prof. Ken Klee from UCLA Law School.

On December 3, the negative equity case of In re Westfall, No. 08-4530, was argued in the Sixth Circuit.  The Sixth Circuit case of In re Shockley, No. 08-3954, which addressed the same issue, was dismissed as moot on December 1.

MERS Fails to Prove its Status as Real Party in Interest in Motion for Lift of Stay

On December 4, 2009, an en banc panel of judges from the District Court of Nevada affirmed the  bankruptcy court’s denial of MERS’ motion for lift of stay in the case  of MERS v. Chong, No. 09-661 (D. Nev.) and seventeen other  consolidated cases. Because of the individual facts of each case, the  opinions differ slightly but each ultimately concludes that MERS failed  to sustain its burden of proof to show that it was the real party in  interest pursuant to the requirements of Bankruptcy Rule 7017.  The court in Chong stated that: “Since MERS admits that it does not actually receive or  forfeit money when borrowers fail to make their payments, MERS must at  least provide evidence of its alleged agency relationship with the real  party in interest in order to have standing to seek relief from stay.”  NACBA’s Amicus Project and the Center for Responsible Lending filed an amicus brief in the case.  Click below for the opinions in MERS v. Chong and MERS v. Zeigler., No. 2:09-cv-0676.¹

Amicus Project Files Two Briefs

Tara Twomey, Director of NACBA’s Amicus Project has filed two important amicus briefs this month.²

In the Eleventh Circuit case of Tennyson v. Whaley, No. 09-14628, the above-median debtor showed a negative disposable income on Form 22C  based upon expenses that he was permitted to deduct from the means test  but that he did not have to the extent allowable.  Based upon his actual expenses, the debtor showed a positive disposable income figure on Schedules I and J.  The  trustee argued that, as an above-median debtor with positive actual  income, the debtor was required to enter into a 60 month chapter 13  plan.  The amicus brief argues that “When Debtors have no  ‘disposable income,’ artificially extending chapter 13 plans makes  little sense and, in fact, punishes debtors for spending less.  Where  no disposable income is available to ‘be received’ by unsecured  creditors, debtor should be permitted to propose chapter 13 plans  shorter than 60 months.” Amicus further argues that the “mechanical”  approach as set forth in Maney v. Kagenveama, 541 F.3d 868 (9th  Cir. 2008) is “the only reading of [section 1325(b)] that gives meaning  and purpose to all the statutory language,” and that application of the  “forward looking” approach would eviscerate the statutory definition of  disposable income.

In Wells Fargo v. Wilborn, No. 09-20415 (5th Cir.), the bankruptcy court certified a class of  debtors who sought injunctive relief against Wells Fargo to enjoin its  continued charging and collecting of fees in which such fees were  undisclosed to both the court and to the debtors and were not,  therefore, included in the chapter 13 plans. In its brief NACBA argues  that the court properly exercised jurisdiction over the case as one  “arising under” or “arising in” a bankruptcy case under title 11.  Next,  amicus argues that the class was necessary to prosecute small claims  which debtors would have been unable to pursue in individual cases.  The  class of plaintiffs serves the important function of representing  debtors who would be deprived of their congressionally mandated “fresh  start” by the improper allocation of chapter 13 payments to fees which  were not contemplated in the plan, thereby causing debtors to come out  of their chapter 13 cases with mortgages that were still in arrears.

On December 8, NACBA Amicus Committee member David Yen argued the case of Salta Group Inc. v. McKinney, No. 08-1271, in the Seventh Circuit Court of Appeals.  That  case involved the interplay between 11 U.S.C. §§ 108(b) and 1322 in the  case of a property tax debtor in Illinois whose tax debt was the  subject of a tax sale. Illinois law allows the debtor to redeem within  a specified period of time before the tax buyer is entitled to obtain  the tax deed.  Section 108(b) provides for a 60 day extension of time to allow a debtor to cure a default or perform a similar act.  The  debtor argued that section 1322 allows the court to confirm a plan in  which the debtor pays off the tax debt over the course of the five year  plan without regard to the state law expiration of the redemption  period.  The case also raised jurisdictional issues  related to whether the denial of the creditor’s objection to the plan  was an appealable final order.