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Other Hot and Not-so-Easy Issues in Consumer Cases

Other Hot and Not-so-Easy Issues in Consumer Cases. Consumer Bankruptcy in Practice: A Webinar Series Explore current developments with experts in consumer bankruptcy. Chapters 7 and 13 Discharges *Generally*. See sections I.A., B. and C. in materials

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Other Hot and Not-so-Easy Issues in Consumer Cases

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  1. Other Hot and Not-so-Easy Issues in Consumer Cases Consumer Bankruptcy in Practice:A Webinar Series Explore current developments with experts in consumer bankruptcy.

  2. Chapters 7 and 13 Discharges*Generally* • See sections I.A., B. and C. in materials • Chapter 13 discharge is not “super” any more • 523(a)(1) - tax or customs duty • 523(a)(2) - money, property, etc. obtained by fraud, false statements, etc. • 523(a)(3) - unscheduled debt • 523(a)(4) - fiduciary fraud, embezzlement or larceny • 523(a)(5) - domestic support obligation • 523(a)(6) - willful and malicious injury • 523(a)(7) - governmental fine, penalty, etc. • 523(a)(8) - educational loan

  3. Chapters 7 and 13 Discharges*Generally* • See sections I.A., B. and C. in materials • 523(a)(9) – death or personal injury because of intoxicated operation of vehicle • 523(a)(10) – debt from previous case with no discharge • 523(a)(11) – final judgment, etc. by Federal depository institutions regulatory agency • 523(a)(12) – malicious or reckless failure to fulfill commitment to Federal depository institutions regulatory agency • 523(a)(13) – restitution • 523(a)(14) – debt incurred to pay nondischargeable federal tax

  4. Chapters 7 and 13 Discharges*Generally* • See sections I.A., B. and C. in materials • 523(a)(14B) – Federal election fines or penalties • 523(a)(15) – non-DSO debt from divorce or separation • 523(a)(16) – post-petition membership association fee or assessment • 523(a)(17) – filing fee or expense imposed on prisoner • 523(a)(18) – ERISA or TSP loan • 523(a)(19) – securities law violation or fraud

  5. Chapters 7 and 13 Debtor Discharges*Time Limits* • Chapter 7 to Chapter 7 • See section I.D.1. in materials • Eight years • Filing to filing • Chapter 7 to Chapter 13 • See section I.D.2. in materials • Four years • “Filed under” apply to original or converted case? Probably converted

  6. Chapters 7 and 13 Debtor Discharges*Time Limits* • Chapter 13 to Chapter 7 • See section I.D.3. in materials • Six years • Meaning of “payments under the plan” – probably means just that, not payments to unsecured creditors • Chapter 13 to Chapter 13 • See Section I.D.4. in materials • Two years • Filing to filing even though unlikely event • Can still file, but cannot get discharge (same with chapter 7 to 13)

  7. Chapter 13 Discharge Requirements • See section I.F. in materials • 1328(a) – debtor certification that all DSOs due on or before date of certification (including pre-petition, as provided in the plan) have been paid • 1328(g) – debtor education certificate • 1328(h) – finding of no reasonable cause to believe 522(q)(1) is applicable or that there is pending proceeding charging such a felony or liability for such kind of debt

  8. Effect of Audit on Chapter 7 Discharge • See section I.G. in materials • 727(d)(4)(A) – revocation of discharge if debtor has failed to explain satisfactorily a material misstatement in audit • 727(d)(4)(B) – revocation of discharge if debtor has failed to explain satisfactorily his failure to make requested audit documents and information available for inspection • USTP has currently suspended audits due to budgetary constraints • First USTP public report on debtor audits issued in April • http://www.usdoj.gov/ust/eo/public_affairs/reports_studies/docs/Debtor_Audit_Report_FY2007.pdf

  9. Paying Debtor’s Counsel in Chapter 13 • See section II.A. in materials • How much? • See section II.A.2. in materials • Southern District of Texas • $3,085 max (plus filing fee) • $2,700 max if dismissed before or w/i 120 days of confirmation • National range $2,500 - $3,750 • When? • See section II.A.3. in materials • Southern District of Texas • Secured and/or adequate protection payments first? (see In re DeSardi, 340 B.R. 790 (Bankr. S.D. Tex. 2006))

  10. Paying Creditor’s Counsel in Chapter 13 • See section II.B. in materials • State law allows, and Bankruptcy Code contemplates, payment of attorney’s fees of mortgagee’s counsel • How? • 2016? (see In re Padilla, 379 B.R. 643 (Bankr. S.D. Tex. 2007)) • Notice? • Invoice to debtor?

  11. Credit Counseling*General* • 109(h)(1) – an individual may not be a debtor unless he receives credit counseling from an approved provider within 180-day period preceding date of filing • Does not apply in involuntary cases • In re Allen, 378 B.R. 151 (Bankr. N.D. Tex. 2007) • In re Diloreto, 2008 WL 141922 (Bankr. E.D. Pa. Jan. 11, 2008)

  12. Credit Counseling*General* • See section III.A. in materials • UST (bankruptcy administrator) approves counselors • http://www.usdoj.gov.ust/eo/bapcpa/ccde/cc_approved.htm • UST interim final rule – 28 C.F.R. 58.15-17 • UST proposed final rule – comment period ended April 1

  13. Credit Counseling*Curriculum* • See section III.A. in materials • 109(h)(1) - “opportunities available for credit counseling” and assistance in “performing a related budget analysis” • 111(c)(2)(E) – “provide adequate counseling with respect to a client’s credit problems that includes an analysis of such client’s current financial condition, factors that caused such financial condition, and how such client can develop a plan to respond to the problems without incurring negative amortization of debt” • Further guidance from UST final rule?

  14. Credit Counseling*Timing* • 180 Days • See section III.B.1. in materials • Does court have discretion not to dismiss/strike if this issue is raised? Probably not • In re Dyer, 381 B.R. 200 (Bankr. W.D.N.C. 2007) • In re Giles, 361 B.R. 212 (Bankr. D. Utah 2007) • But see In re Bricksin, 346 B.R. 497 (Bankr. N.D. Cal. 2006); In re Enloe, 373 B.R. 123 (Bankr. D. Colo. 2007) • UST and chapter 13 trustee have discretion • Repeat Filers • See section III.B.2. in materials • No distinction in statute or reported decisions • Timely certificate may serve repeat filings but stale certificate could not

  15. Credit Counseling*Timing* • On the Petition Date or One Day Prior • See section III.B.3. in materials • Courts go both ways • On Petition Date • One Day Prior • Again, UST and chapter 13 trustee have discretion

  16. Credit Counseling*Eligibility and the Effect of Ineligibility* • Jurisdictional? • See section III.C.1. in materials • Majority rule is that it is not jurisdictional • Application of stay? • See section III.C.2. of materials • Split • Southern District of Texas – not applicable (see In re Salazar, 339 B.R. 622 (Bankr. S.D. Tex. 2006))

  17. Credit Counseling*Eligibility and the Effect of Ineligibility* • Strike petition or dismiss case? • See section III.D. of materials • Another split • 362(c)(3): if petition filed within 1 year of dismissal of prior case, stay limited to 30 days • Southern District of Texas – striking petition and annulling stay (see Wyttenback v. C.I.R., 382 B.R. 726 (S.D. Tex. 2008)) • See also In re Hubbard, 333 B.R. 377 (Bankr. S.D. Tex. 2005) • UST position, however, is for dismissal, and majority appears to be headed to dismissal (see In re Jones, 352 B.R. 813 (S.D. Tex. 2006))

  18. Credit Counseling*109(h)(2) Exemption by UST* • See section III.E.1. of materials • 109(h)(2) – UST determines that the approved agencies in a district are not “reasonably able to provide adequate services to the additional individuals” as a result of this bankruptcy requirement • Four districts in Louisiana and Mississippi had waivers due to Hurricane Katrina, but now only Eastern District of Louisiana still has a waiver

  19. Credit Counseling*109(h)(3) Extension-Exigent Circumstances* • See section III.E.2. of materials • Certification • Written? • Verified? • Majority holds that unsworn statements are insufficient (see In re Hubbard, 333 B.R. 377 (Bankr. S.D. Tex. 2005)) • By debtor? Counsel? • Debtor must personally verity • Specific facts as to particular debtor • In re Mingueta, 338 B.R. 833 (Bank. C.D. Cal. 2006) (debtor must substantiate and specify circumstances or steps taken to attempt to obtain credit counseling before filing) • In re Rodriguez, 336 B.R. 462 (Bankr. D. Idaho 2005) (facts must distinguish debtor from those generally expected to comply with counseling requirement)

  20. Credit Counseling*109(h)(3) Extension-Exigent Circumstances* • See section III.E.2. of materials • Exigent Circumstances • Foreclosure? Depend if state has nonjudicial foreclosure, like Texas? • In re Henderson, 364 B.R. 906 (Bankr. N.D. Tex. 2007) (court was persuaded that in Texas, where non-judicial foreclosure sales are permitted on short notice to borrower, foreclosure on family home is itself “exigent circumstance”) • Cf. In re Hedquist, 342 B.R. 295 (B.A.P. 8th Cir. 2006) (delay until eve of foreclosure, despite ample notice, not “exigent circumstance”) • Debtor must timely seek counseling • In re Wilson, 346 B.R. 59 (Bankr. N.D.N.Y. 2006) (debtor must request counseling prepetition) • In re Randolph, 342 B.R. 633 (Bankr. M.D. Fla. 2005) (exigent circumstances exception does not extend to debtor who “simply fails to prioritize the counseling requirement”)

  21. Credit Counseling*109(h)(3) Extension-Exigent Circumstances* • See section III.E.2. of materials • Could not obtain during five days of request made • Certification must be satisfactory to court • Proposed new rule would deem certificate satisfactory unless court orders otherwise • Again, UST and chapter 13 trustee have discretion

  22. Credit Counseling*109(h)(4) Permanent Waiver* • See section III.E.3. of materials • Disability – debtor is so physically impaired as to be unable, after reasonable effort, to participate in required briefing • Incapacity – debtor is impaired by reason of mental illness or mental deficiency so as to be incapable of realizing and making rational decisions with respect to financial responsibilities • Active military duty in a military combat zone • Incarcerated debtors disabled or incapacitated? • In re Latovljevic, 343 B.R. 817 (Bank. N.D. W.Va. 2006) (no) • In re Vollmer, 361 B.R. 811 (Bankr. E.D. Va. 2007) (yes)

  23. Credit Counseling*109(h)(4) Permanent Waiver* • See section III.E.3. of materials • Dead debtors disabled or incapacitated? • In re Trembulak, 2007 WL 420188 (Bankr. D.N.J. 2007) • Other Disabilities? • In re Jarrell, 364 B.R. 899 (Bankr. M.D. Tenn. 2007) (mental illness) • In re Howard, 359 B.R. 589 (Bankr. E.D.N.C. 2007) (physical disability) • In re Tulper, 345 B.R. 322 (Bankr. D. Colo. 2006) (physical disability) • Sword or Shield? • In re Mendez, 367 B.R. 109 (B.A.P. 9th Cir. 2007) (debtor waived strict compliance with 109) • In re Lilliefors, 379 B.R. 608 (Bank. E.D. Va. 2007) (debtor judicially estopped from denying he completed counseling)

  24. Debtor Education • Timing • Bankruptcy Rule 1007(b)(7) • Chapter 7 – 45 days of date “first set” for 341 • Chapter 13 – no later than last plan payment made or 1328(b) motion for discharge • Noncompliance results in closing of case with no discharge • Majority rule is that debtor must pay filing fee to reopen – see section III.G. of materials

  25. Application of 707(b) to Converted Case • See section IV. of materials • Does it apply? • If so, as of what date?

  26. Chapter 13 Plan Modifications • See section V. of materials • What is the standard? Does the means test apply?

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