As many readers are aware, individuals whose income exceeds the median income in New York State are required to do "means testing" to determine if they qualify for chapter 7 personal bankruptcy.In New York State the median income for a family of 1, 2 or  3 is listed below and if a Debtor’s income exceeds the state’s median income they must do means testing. Household Size Monthly Income Annual Income1 $5,058.00 $60,696.002 $6,429.92 $77,159.003 $7,709.00 $92,508.00 If an individual wants to file for chapter 7 bankruptcy and they do not pass the means test, then there is a "presumption of abuse" and they are not allowed to file for chapter 7 bankruptcy.The means test is an 8-page test and it is the most complicated test or calculation in the law!Shenwick & Associates is often referred complex bankruptcy cases and we do means testing on a regular basis. We are often asked whether non-dischargeable student loan payments are an  allowed deduction for means-testing. Interestingly,  the test itself does not allow a  deduct for non dischargeable  student loan payments. However there is a deduction for " special circumstances"  and many bankruptcy attorneys believe that non-deductible student loan payments should be a special circumstance deduction. There is a case on point from the Western District of New York (it is not a case from the Southern or Eastern Districts), but it holds that non-deductible student loan debt can be deducted when doing means testing  and the logic of that case may be persuasive to judges in this District. The name of that case is in re Howell  477 B.R. 314 (2012).  In the Howell case, the United States Trustee has moved to dismiss this Chapter 7 case on grounds that the granting of a bankruptcy discharge would constitute an abuse. The central issue in the case was  whether the obligation to pay a non-dischargeable student loan can serve as a special circumstance that will overcome a statutory presumption of abuse under 11 U.S.C. § 707(b)(2). Section 707(b)(1) of the Bankruptcy Code establishes the general rule, that the Court may dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts if the filing would be an abuse. In the Howell case, the debtor had student loan payments of $658.00 per month and if this deduction  were treated as an allowable expense, their current monthly income would fall to a level that avoids a presumption of abuse.  Section 707(b)(2)(B)(i) of the Bankruptcy Code states that in any proceeding to dismiss a case for abuse, "the presumption of abuse may only be rebutted by demonstrating special circumstances.The Court found that there was no evidence that the Debtors lead an extravagant lifestyle. The Debtors had three outstanding student loans. In sworn affidavits, the Debtors stated that they were not eligible for any further extensions and that as presently constituted, the loans require monthly payments through dates that range between 16 and 24 years after the filing of their bankruptcy petition. The Judge held that the totality of evidence supports the absence of an abusive filing and that Section 707(b)(2)(B)(i) provides that special circumstances" may rebut the presumption of abuse. The Court stated that the non-dischargeable character of the debtors' student loans will necessitate expenses for which the debtors have no reasonable alternative. The Judge further found that the magnitude of the student loans will further compel substantial payments over an extended period of time, without hope for any deferral.The Judge held that based on the debtor’s student loans and non extravagant lifestyle the bankruptcy filing was  non-abusive and the Debtor’s were granted their chapter 7 discharge.We should note that the debtors were not attempting to discharge their student loans in their chapter 7 bankruptcy filing. Individuals that have questions about Personal Bankruptcy or the Means Test should contact Jim Shenwick 212 541 6224 or jshenwick@gmail.com      

 In a case involving multiple parties and proceedings, the Fifth Circuit has affirmed lower court rulings which prohibited one non-debtor from suing a second non-debtor and awarded sanctions against a party that told a state court to disregard the Bankruptcy Court's orders. In the Matter of PFO Global, Incorporated, Case No. 20-10885 (5th Cir. 2/9/22), which can be found here. While the result may sound extreme, it appears to be an unintended consequence of an agreed order entered years earlier.A Procedural Muddle Key to understanding the opinion is understanding the relationship between three groups of parties. Pro Fix Optical (PFO) had a contract with VSP Labs, Inc. (VSP). VSP sued PFO in state court in California and PFO counterclaimed. Before the case could make it to trial, PFO filed bankruptcy.  In the bankruptcy, Hillair Capital Investments, Inc. and Hillair Capital Management, LLC (Hillair)purchased the assets of the Debtor, including the counterclaims. Hillair was a major lender to the Debtor. At this point, VSP had claims against PFO, the Debtor, and Hillair had counter-claims against VSP. Hillair asked the California state court to sever its counterclaims from claims that were subject to the automatic stay. VSP then asked the bankruptcy court to lift the stay to allow it to offset its claims against the counterclaims. The parties submitted an agreed order. The agreed order said that VSP could liquidate its claims against PFO in state court. If VSP was to prevail, it had two rights. First, it could offset its claims against the Hillair counterclaims. To the extent that VSP's claims exceeded the Hillair claims, it could assert the excess by filing a proof of claim in the PFO bankruptcy case. The critical language in the order stated "no money damages or other amounts of any kind may be recovered from Hillair under any circumstances on account of any claims that have been or could have been asserted in the California Action."The order made sense in the context of a sale free and clear of liens where Hillair had acquired the counterclaims while PFO remained liable on the original VSP claims. Things became more complicated when VSP concluded during discovery that Hillair had directed PFO to breach its agreement with VSP. VSP asked the California state court for leave to amend its claims to assert new claims against both PFO and Hillair. Hillair then went to the Bankruptcy Court and asked for an order prohibiting VSP from asserting direct claims against it in the California State Court action. The Bankruptcy Court granted this relief and entered what was known as the Enforcement Order. The Enforcement Order found that the original agreed order lifting the stay prohibited VSP from asserting direct claims against Hillair.The California State Court then asked for briefing on the effect of the Enforcement Order. VSP filed a supplemental brief asserting that the Enforcement Order had no effect on its proposed claims. Hillair then moved for sanctions against VSP in Bankruptcy Court asserting that VSP had ignored the Bankruptcy Court's orders (which it clearly had). The Bankruptcy Court awarded sanctions.  VSP moved for reconsideration and lost. At that point, VSP appealed the Bankruptcy Court's orders interpreting the Lift Stay Order and awarding sanctions. The District Court affirmed and VSP appealed to the Fifth Circuit.Was There Jurisdiction?On appeal to the Fifth Circuit, VSP argued that the Bankruptcy Court lacked subject matter jurisdiction to preclude VSP, a non-debtor, from asserting claims against Hillair, a second non-debtor. On the surface, this argument had some appeal, since the Northern Pipeline case had found that the Bankruptcy Court lacked jurisdiction to determine certain claims between non-debtors. As a reminder, Bankruptcy Courts have three types of jurisdiction: claims arising under the Bankruptcy Code, claims arising in a case under the Bankruptcy Code and claims related to a case under the Bankruptcy Code. Related to jurisdiction extends to matters which could have a conceivable effect on the estate being administered in bankruptcy. The Fifth Circuit found that lifting the automatic stay fell within "arising under" jurisdiction because 11 U.S.C. 362(d), which authorizes lifting the stay, is part of the Code.  The Court then found that the Bankruptcy Court had "related to" jurisdiction over VSP's claims against Hillair. Its rationale was that if VSP prevailed in its claims against Hillair, this result would reduce the amount of claims that VSP would have against PFO, the Debtor.  The Fifth Circuit found that Under Stern v. Marshall, the Bankruptcy Court would have lacked authority to enter a final order on these related to claims absent consent. However, because the order was an agreed order, consent was clearly present.Did the Fifth Circuit Get It Right?The Fifth Circuit may or may not have reached the right result, but it appears that its reasoning was flawed.  Allowing VSP to pursue Hillair could certainly have a conceivable effect on the estate being administered in bankruptcy. However, the part of the order that VSP complained about prevented it from pursuing affirmative claims against Hillair. It takes more imagination to see how precluding VSP from pursuing affirmative claims against Hillair would have an effect on the bankruptcy estate. Perhaps Hillair would have been able to assert indemnity claims against the estate if VSP prevailed and those indemnity claims would have an impact on the estate. That seems like more of a reach, especially if those facts did not appear in the record.However, there may be a better alternative rationale, at least in part. The agreed order made perfect sense in the context of a sale free and clear of liens. When Hillair purchased the counterclaims, it did not assume liability for VSP's claims That is the essence of a sale free and clear of liens. In this light, the prohibition against pursuing direct claims against Hillair was necessary to implement the order for sale free and clear of liens and thus would be covered by "arising under" jurisdiction. The problem with this rationale is that the parties didn't contemplate that VSP might discover that it had independent claims against Hillair, ones that didn't arise from purchase of the counterclaims. It seems likely that the parties did not contemplate that existence of independent claims when they drafted the Lift Stay Order or that they would have any reason to even contemplate this result. In this context, it might have been reasonable for VSP to approach the Bankruptcy Court to modify its Lift Stay Order to allow VSP to pursue its independent claims. It appears that VSP did make this approach and that the Bankruptcy Court said no. That seems like an abuse of discretion to me. Would the outcome have been different if VSP had appealed based on an abuse of discretion? Probably not. This is so because courts of appeals are reluctant to reverse orders based upon an abuse of discretion.At the end of the day, I am appalled that VSP told the California State Court that it could ignore the Bankruptcy Court's orders. However, I am also left wondering why the Bankruptcy Court refused to modify its order. It seems clear to me (someone who had no participation in the case) that the Lift Stay Order did not anticipate VSP discovering independent claims against VSP. The Lift Stay Order made perfect sense in the original context but led to jarring consequences later. I am left with two final conclusions. The first is that bankruptcy jurisdiction is simultaneously straightforward and incredibly complex at the same time. Most of the time, it is easy to apply "arising under," "arising in" and "related to." Then there are mind-splitting cases like the present one where it is easy to go down a rabbit hole and fall into a Through the Looking Glass world. The second conclusion is that in real life, it is impossible to anticipate every contingency that may arise. Courts should be willing to be flexible in interpreting orders that were not intended to deal with a specific situation. (Caveat: There may be other facts that are not apparent from the opinion that invalidate my conclusions).This case just leaves a bad taste in my mouth and makes my head hurt. On rare occasions, I have opined that the Fifth Circuit reached a terribly erroneous result. This is not one of those cases. It is a bad result but not necessarily a bad opinion.

Very often new clients ask me if they have to go to the  Hospital or doctor within 72 hours.  Apparently, people are told by the officer responding to the accident that they won’t be able to pursue a claim for personal injuries if they do not see a doctor in 3 days of the accident.  This is totally wrong.  Do not suffer in silence, but do not assume that you cannot proceed with a claim because of this “3 day” rule.  Even if you do not go to a physician within a week of the accident, you can proceed.  I have settled cases successfully where a client did not treat for an entire month after the accident!  This is not recommended and there should be a good reason for the delay.  But, the mere fact that more than 3 days had passed after the crash does not eliminate the claim.The post In a Maryland car accident do you have to go to the Hospital within 72 hours? first appeared on Scholnick Law.

Mental illness can be a contributing factor to bankruptcy. Adrienne Woods, Esq.

While bankruptcy subject matter jurisdiction is broad, sometimes an order can just go too far as shown by the recent opinion from the U.S. District Court for the Eastern District of Virginia in Patterson v. Mahway Bergen  Retail Group, Inc., 2022 U.S. Dist. LEXIS 7431 (E.D. Va. 2022).The Three Types of JurisdictionBankruptcy practitioners can usually recite the three types of bankruptcy jurisdiction in their sleep: arising in, arising under and related to. Of these, related to is the broadest. In the Fifth Circuit, related to jurisdiction is present if the matter being addressed could have a conceivable effect on the debtor or the bankruptcy estate. Thus, if the debtor owned a store at the bottom of a hill and a property owner had allowed a boulder at the top of the hill to work precariously loose, an adversary proceeding to force the other property owner to secure the boulder would have a conceivable effect on the bankruptcy estate and related to jurisdiction would be present. Why is this? If the boulder rolled down the hill, it could smash the debtor's store. On a more mundane note, there is related to jurisdiction to collect accounts receivable owed to the debtor because collecting money would make it easier to reorganize.In the past, there were many arguments about whether bankruptcy courts had jurisdiction to grant third-party releases. The Supreme Court put this controversy to rest in United Student Aid Funds v. Espinosa, 559 U.S. 260 (2010). In that case, the Supreme Court drew a distinction between having statutory authority to take an action and having jurisdiction to do so. The Bankruptcy Code does not allow a court to grant a hardship discharge on a student loan without filing an adversary proceeding. However, there is clearly jurisdiction to do so because granting the discharge would have a conceivable effect on the debtor. What this means is that if a plan contains a provision which should not be approved, the parties have to challenge it directly as opposed to coming back years later and saying that there was no jurisdiction to approve the provision.A Broad ReleaseAs broad as bankruptcy court jurisdiction is, it is hard to find something that could conceivably come up in a bankruptcy case that would not have a conceivable effect on the debtor or the estate. However, the opinion in the Mahway Bergen case found just such a provision. The provision was included among the third-party releases in the plan. Under the plan, these releases were binding on anyone who either voted in favor of the plan or who voted against or abstained from voting but didn't object to the plan or affirmatively opt-out.  The release released any and all claims, known or unknown, related to the Debtors (including the management, ownership or operation thereof), the purchase, sale, or rescission of any Security of the Debtors or the Reorganized Debtors, the subject matter of, or the transactions or events giving rise to, any Claim or Interest that is treated in the Plan, the business or contractual arrangements between any Debtor and any Released Party, the Debtors' in- or out-of-court restructuring efforts, intercompany transactions, the ABL Credit Agreement, the Term Loan Credit Agreement, the Chapter 11 Cases, the Restructuring Support Agreement and related prepetition transactions, the Backstop Commitment Letter, the Disclosure Statement, the New Corporate Governance Documents, the Exit Facilities, the Plan (including, for the avoidance of doubt, providing any legal opinion requested by any Entity regarding any transaction, contract, instrument, document, or other agreement contemplated by the Plan or the reliance by any Released Party on the Plan or the Confirmation Order in lieu of such legal opinion), the filing of the Chapter 11 Cases, the pursuit of Confirmation, the pursuit of Consummation, the administration and implementation of the Plan, including the issuance or distribution of Securities pursuant to the Plan, or the distribution of property under the Plan or any other related agreement, or upon any other act, omission, transaction, agreement, event, or other occurrence (in each case, related to any of the foregoing) taking place on or before the Effective Date.In the District Court’s view, the Bankruptcy Court clearly lacked jurisdiction over some of the releases.Although the Court cannot determine precisely which Released Claims the Bankruptcy Court could have adjudicated, it takes only a cursory review of the Third-Party Releases and the Releasing Parties to find released claims that the Bankruptcy Court lacked the authority to adjudicate. The universe of released claims includes claims between non-debtors which may have no connection to the property of Mahwah's bankruptcy estate or the administration of the Bankruptcy Proceeding. For example, the Third-Party Release would bar securities claims, such as those brought by the Securities Plaintiffs, against former directors and officers of Mahwah, even if the claims arose before Mahwah filed for bankruptcy and those directors and officers had no involvement in the Bankruptcy Proceeding. And it bears noting that "federal courts disfavor indemnity for federal securities law violations, calling into question the enforceability of these obligations."(citation omitted). Thus, the only type of released claim that the Bankruptcy Court actually considered finds antipathy in the case law. 2022 Bankr. LEXIS at *46-47.What Does It Mean?This is a case of drafting that was too clever by half. The author threw in lots of specific things that were subject to the release and were clearly related to the plan process. However, the very first line released all claims related to "the Debtors (including the management, ownership or operation thereof)." Thus, if a forklift operator at one of the debtor's warehouses dropped a pallet on the foot of another employee of the debtor that would be a claim arising from the operation of the Debtors and hence subject to the release. Reading between the lines, the intent here may have been to cut off securities liability for the Debtor's officers and former officers. I suggest this because the release specifically included claims arising from "the purchase, sale, or rescission of any Security of the Debtors." Additionally, one of the appellants in the case was the putative class representative in a securities law class action. Elsewhere in the opinion, the District Court pointed out that the release officers and directors were getting more relief than they could have received in their own bankruptcy proceedings since securities fraud claims are non-dischargeable under 11 U.S.C. Sec. 523(a)(19). Ironically, there probably was jurisdiction to release these claims since the officers and directors might have had indemnity rights against the debtors or perhaps the debtors would have had to pay deductibles on D & O insurance. However, if the intent was to cut off the securities litigation, debtor's counsel used a nuclear bomb to swat a fly.The lesson from this opinion is that although bankruptcy jurisdiction is broad, it is not all-encompassing. Sometimes there will be grounds to object to subject matter jurisdiction.  On a related note, this is the second district court opinion in six months to find fault with third-party releases. The same thing happened in the Purdue Pharma case. This may be a case of District Judges diligently discharging their responsibility as first level appellate judges in bankruptcy cases. However, it might also signal that at least some Article III judges feel like the Article I bankruptcy judges are getting a little bit too big for their britches. Reading the language in this opinion and the Purdue Pharma opinion, there is a palpable sense that mega bankruptcy cases have become an anything goes free-for-all.  This is troubling because there have been two Supreme Court cases dealing with the power of the Article I courts: Marathon Pipeline and Stern v. Marshall. Each of these decisions brought chaos to the bankruptcy world. If Chief Justice Roberts is watching this issue, we may be in line for a third smackdown on the power of the bankruptcy courts.

After Paying for Ten Years, Nina Got Public Service Student Loan Debt Forgiveness There’s very little bankruptcy law can do to help people with student loans. But as a bankruptcy lawyer, I can at least give people good advice.   Since 2017, I started steering people who seemed eligible to Public Service Student Loan Debt […] The post After Paying for Ten Years, Nina Got Public Service Student Loan Debt Forgiveness by Robert Weed appeared first on Northern VA Bankruptcy Lawyer Robert Weed.

The post When do you have to give notice of your Maryland Workers’ Comp injury? first appeared on Scholnick Law.

The no man’s land between the mortgage due date and late payment is a persistent trouble spot for Chapter 13 practitioners: Are there arrears when the case is filed during the grace period and the payment made before it was late? In Borre, Judge Ronald Sargis of ED CA said no. He held that the […] The post Between the 1st and the 15th: Is Mortgage Current? appeared first on Bankruptcy Mastery.

Although I enjoyed associating with the law firm Silverman/Thompson/Slutkin/White, it was time to return to Timonium- my clients did not want to go downtown anymore & they certainly did not want to pay for parking.  I always have tried to be accessible to clients- being available after regular business hours, having a 24 hour return phone call policy, meeting with clients on weekends as necessary.  Now I have free parking right in front of the building, covered parking for inclement weather and I am right off the expressway (I-83 North, Padonia Road exit).  Come see me & I will take you to lunch at Liberatore’s Restaurant downstairs!!The post I’M BACK IN TIMONIUM! HERE IS MY NEW ADDRESS- 9515 DEERECO RD, STE 407, TIMONIUM MD 21093 first appeared on Scholnick Law.

Law Review: Simmons, Joseph, Reconstructing the Bankruptcy Power: An Originalist Approach (October 31, 2021). 131 Yale L.J. 306 (2021) Ed Boltz Mon, 01/24/2022 - 03:23 Abstract: This Note responds to two distinct difficulties in the constitutional law of bankruptcy. First, many bankruptcy scholars and practitioners intuit that the Thirteenth Amendment places important limitations on the law of personal bankruptcy, but this intuition is difficult to cash out in a convincing legal argument. Second, modern bankruptcy law requires an expansive construction of the bankruptcy power, but such a construction is difficult to ground in the meaning of the Bankruptcy Clause in 1789. This Note resolves both difficulties by showing how the proper legal construction of the bankruptcy power changed during Reconstruction with the ratification of the Thirteenth Amendment in 1865. Before Reconstruction, the bankruptcy power was limited to the creation of collective-creditor remedies against merchants who committed acts of insolvency. The Thirteenth Amendment both granted Congress new powers to legislate against relations of economic domination, including relations between creditors and insolvent debtors, and altered the function that the bankruptcy power plays within the Constitution. These changes amounted to a reconstruction of the bankruptcy power, such that bankruptcy law now has as its primary purpose the provision of a “fresh start” to the honest unfortunate debtor. This argument helps ground the constitutionality of both voluntary bankruptcy and corporate bankruptcy, but its most important implications are for consumer bankruptcy law, particularly the status of the debtor’s fresh start and the grounds on which it can be denied. Commentary: An obvious missed opportunity would have been to include Abraham Lincoln's quote from the Gettysburg Address, which together with his Second Inaugural Address are foundational to the new understanding of the entire Constitution that followed his death in the Reconstruction Amendments, by noting that the bankruptcy clause as reconstructed by the 13th Amendment provided that debtors too would "have a new birth of freedom." The discussion in this article of how the term "uniform" in the Bankruptcy Clause relates to the parallel term in the naturalization powers granted to the federal government is very pertinent to the case of Siegel v. Fitzgerald, which is currently pending in the Supreme Court, and concerns whether the two systems of bankruptcy oversight, the Bankruptcy Administrators in North Carolina and Alabama and the U.S. Trustee Program in the rest of the country, are uniform. As discussed by James Madison in the Federalist No. 42, the uniformity in the naturalization power was meant to prevent the "very serious embarrassment" of states racing to the bottom in easing immigration. Similarly, the uniformity requirement in the bankruptcy clause should be seen as a tacit and tactful rebuke to the forum shopping between states in regards to debt relief. The uniformity was meant less to apply to federal choices regarding bankruptcy. Further, this article makes clear that advocates for student loan debt relief, rather than grounding their arguments on the Bankruptcy Clause, which was originally meant as a right creditors had to force debtors into bankruptcy, would be on firmer ground viewing the Bankruptcy Clause as reconstructed through the lens of the 13th Amendment prohibition on "involuntary servitude." Then the question becomes whether a student loan repayment scheme, such as an Income Driven Repayment plan, is so coercive that it becomes "involuntary servitude." That coercion becomes clear when the debtor is insolvent and cannot repay. While ID Rs do not generally consider a debtor's assets, the lack of both those and any ability to meaningfully repay the student loans could be seen as unconstitutional involuntary servitude. The article does in fact argue that the "undue hardship" standard for allowing discharge of student loans fails this and is "in a constitutional sense, not ... bankruptcy at all." For a copy of this article, please see: Reconstructing the Bankruptcy Power: An Originalist Approach Blog comments Category Law Reviews & Studies