Taxes, Refunds & Dismissals During the past several years, there has been a huge increase in Chicago trustees under Chapter 13 demanding taxes and refunds of the debtors. The bankruptcy code requires that a debtor provide to the trustee, annually, a copy of his or her tax return. This statutory requirement was primarily to ensure+ Read More The post Chicago Chapter 13 Trustee’s Squeezing Debtors Into Dismissal appeared first on David M. Siegel.

Though Ohio laws on payday loans have changed over the year, one thing remains clear: Payday loans seem like a simple solution, but they are very costly and hard to get out of. Whenever possible, avoid them. If you already have them, it’s essential to know your rights. How Do Payday Loans Work? The traditional style of payday loan involves a consumer writing a check to a lender for the amount owed plus a fee. Most are short-term loans of only two weeks. The individual is expected to repay the loan on time. Usually the day he or she has received a payment from an employer. It sounds simple – borrow $300, pay back $330 in two weeks. However, this amounts to some 260 percent APR (annual percent rate), and it tends to be difficult to make such a large payment. Lenders often have a number of threats for individuals. They may say they are calling the police if you fail to make payment. They may state you will go to jail if you do not make payment. Some threaten to contact your friends and relatives to tell them about your debt. Some may contact you directly at your place of employment. Know Your Rights In 2008, Ohio passed the Short-Term Lender Law, or STLA. This law provides specific guidelines about payday loans and other short-term lending in the state. Here’s a breakdown of the law: Lenders cannot provide short-term loans over the phone, online or through mail. It caps the interest rate at 28 percent APR. The loan duration cannot be less than 31 days. The amount borrowed is capped at $500. Borrowers cannot obtain a loan for more than 25 percent of their gross salary. The laws also provide you with protection from harassment. Individuals who operate and provide such loans cannot make false claims. They cannot state they are from the FBI or that they are calling the police. They also cannot threaten you in any other manner. If this occurs, speak to the police and then call an experienced payday loan attorney. Are You Facing Harassing Calls? A common threat used by payday loan lenders is that an individual is going to go to jail for not paying back what is owed. It is possible that the lender can file a lawsuit against you, get a judgment against you in a court of law, ask the court to seize assets in some way, and legally peruse the debt. However, they cannot threaten you with jail time or other claims. Some may claim that you are “writing a bad check” when receiving a payday loan and that this is illegal. It is illegal to write a bad check. However, it is only illegal if you know that you will not have the funds available in your account when you write that check. If you will have enough in your account on that day – by all expectations – you are not writing a bad check. What Are Your Options? Payday loans continue to be very complex, and the laws continue to change in Ohio. It may be possible to get some help with these loans when you file for bankruptcy. Depending on the circumstances, you may not be able to have these loans discharged like you would other debt, but you may have options for making the debt easier to repay. Do not put off getting legal help in a matter like this. You cannot go to jail for not paying your loans back on time in most situations. The Federal Trade Commission also provides information about what steps you can take to report these illegal threats. Don’t Be a Victim: Get the Legal Support You Need Payday loan laws in Ohio are complex, and collection agents are merciless. However, you don’t have to be abused or feel overwhelmed by this. Our team at the Chris Wesner Law Office, LLC provides outstanding support and one-on-one guidance. We understand your concerns and have helped many people facing payday loan collections and even threats from these lenders. Call us first before you become a victim of this type of harassment at 937-339-8001. Or, fill out our online contact form. The post Can You Be Arrested for Defaulting on a Payday Loan in Ohio? appeared first on Chris Wesner Law Office.

The Commercial Law League of America presented a keynote address from Dean. Erwin Chemerinsky, of UC Berkeley Law School at its annual luncheon.  Dean. Chemerinsky discussed his main area of expertise in a talk entitled The Supreme Court:   Appointments to and Statutory and Constitutional Interpretation by the Court in Bankruptcy Cases.   He spoke for over an hour without notes.He started by talking about the place of bankruptcy cases in the Supreme Court's jurisprudence.  Although bankruptcy cases outnumber every other case in the federal system, the Supreme Court only takes two or three bankruptcy cases in a given term.   He noted that of the current justices on the court only one had served as a trial court judge and several justices had never argued a case in any court before being appointed to the Supreme Court.   As a result, the Court is taking fewer and fewer cases.   For much of the 20th Century, the Court heard as many as 200 cases a term.  Last term the Court heard only 59 cases (not counting cases decided without argument). The bulk of his talk discussed the battle between the formalists and the realists on the Court.  He offered three theses:  1)  we have and are likely to continue to have a conservative Supreme Court; 2)  the conservatives and some of the liberals tend to be quite formalistic; and 3) this trend is undesirable.  A Conservative Court Since 1971, the Supreme Court has had five to eight justices appointed by Republican presidents.  With the death of Antonin Scalia, the Court was split 4-4 for a brief period of time.   This led to a remarkable fight in Congress.   In recent years (I missed the exact number), there have been twenty-four justices nominated during the final two years of a president's term.  Of those, 21 were confirmed and three were voted down.  However, until the nomination of Merrick Garland, there had never been a nominee who was simply ignored.   Until the nomination of Neil Gorsuch, no nominee had ever been filibustered.   The Senate had to change its rules to end the filibuster by a majority vote.  Dean Erwin ChemerinskyJustice Gorsuch appears to be very conservative.   Since taking the bench, he has voted with Clarence Thomas 100% of the time.  In contrast, Antonin Scalia only voted with Thomas 81% of the time.   The Court's current makeup consists of three consistently conservative justice (Alito, Gorsuch and Thomas), one most conservative justice (Roberts), four consistently liberal justices (Breyer, Ginsberg, Kagan and Sotomayor) and Anthony Kennedy as the swing vote.   Justice Kennedy votes with the majority 97% of the time.  Eliminating unanimous decisions, he still sides with the majority 94% of the time.   The Dean tells his students to shamelessly pander to Justice Kennedy in their Supreme Court briefs.The age of the current justices indicates that conservative domination is likely to continue for decades.    Since 1960, the average age where justices retired from the court was 78.  Three of the liberal/swing justices are currently over 78 (Ginsberg, Breyer and Kennedy).   In contrast, three Republican appointees are likely to serve for an additional fifteen years (Alito, Thomas and Roberts) while Justice Gorsuch could possibly serve as many as forty years.   Thus, the Court is likely to remain very conservative for decades to come.Formalists Formulate More OpinionsDean Chemerinsky said that the conservatives and some liberals tend to be very formalistic.  Formalism is the view that judges take undisputed legal premises and apply them to the facts.   Formalism is often dominated by "plain meaning" analysis.    Formalism was the dominant approach to constitutional law through the 19th Century when the legal realists tried to blow it up. The legal realists argued that there are political decisions which form the basis for so-called undisputed legal premises so that courts should look at the values being served rather than pretending to apply neutral principles.  However, formalism is alive and well in the Supreme Court, especially when it comes to bankruptcy decisions.Formalism in Statutory InterpretationDean Chemerinsky argued that Henson v. Santander Consumer USA, Inc., 137 S.Ct. 1718 (2017) was an example of formalism.   The question was whether the FDCPA should apply to anyone who has purchased debts.   The Court ruled that it did not apply to creditors who purchased debts prior to default.   He described this as very formalistic.   He said that formalism rejects consideration of the legislative purpose, let alone the legal history.    The definition of "debt collector" under the FDCPA includes a person who regularly collects or attempts to collect debts owed to another.  He claimed that it was just as reasonable to construe this provision to anyone who collects debts.   He said that the purpose of the statute would be furthered by applying it to all persons who collect debts.   (I'm not sure I buy that analysis, but he is a really smart guy).   In Midland Funding, LLC v. Johnson, 137 S.Ct. 1407 (2017), the Court was asked whether a proof of claim filed on a debt that was barred by the statute of limitations violates the FDCPA. There is nothing in the Bankruptcy Code which bars the filing of a time-barred debt.    According to Dean Chemerinsky, Justice Breyer wanted to take a plain meaning approach to what is false, deceptive, misleading, unfair, or unconscionable.  However, Justice Sotomayor, in dissent, was concerned by the fact that the courts were being "deluged" with bad debts.       The professor asked why it wouldn't be unfair to file a debt that the creditor knew was time-barred?Going back a few years to Law v. Siegel, 134 S.Ct. 1188 (2014) a debtor sought to fraudulently invent liens which would keep the value of his property within the California exemption limit.   The Bankruptcy Court would have denied the exemption based on the fraud.   However, a unanimous Supreme Court reversed based on the plain language of Sec. 522.   He said that the formalists don't want to focus on the consequences of the decision and instead look just at the plain meaning.   On the other hand, Marrama v. Citizens Bank, 549 U.S. 365 (2007) was a functional decision.   The Bankruptcy Code said that a debtor had an absolute right to convert to chapter 13.   The liberal justices said that it would be a waste of time to allow a debtor to convert to chapter 13 if the case would just be converted back to chapter 7.   The four conservatives said just follow the statute.Dean Chemerinsky said that it is impossible to reconcile Law v. Siegel with Marrama.   Formalism in Constitutional AnalysisProf. Chemerinsky described Northern Pipeline Construction Co. v. Marathon Pipeline Co., 102 S.Ct. 2858 (1982) as one of the worst cases decided by the Supreme Court.    The issue was whether a Bankruptcy Court could enter a final judgment on a state law claim between two non-bankrupt parties.   The Court voted 6-3 to strike down the jurisdictional scheme of the original Bankruptcy Code.   However, no opinion commanded a majority.   He said that Justice Brennan's plurality opinion was the epitomy of formalism.  It gave no reasons why judges appointed under Article I could not rule on state law matters.  After all, he asked, who normally rules on state law matters?  State courts.  State judges do not have life tenure.  However, the subtext of the opinion had nothing to do with bankruptcy. It was the Reagan era.  Congress was seeking to restrict the authority of courts to consider hot button issues, such as abortion and school busing.   In Northern Pipeline, the Supreme Court sent a message to Congress that if it attempted to restrict its jurisdiction, it would be unconstitutional.   After Northern Pipeline, the Court took a functional approach in cases such as Commodity Futures Trading Commission v. Schor, 478 U.S. 833 (1986) where they considered where a grant of power to a non-Article III court would undermine the Article III judiciary.   The Court veered back into formalism with Stern v. Marshall, 131 S.Ct. 2594 (2011).   Chief Justice Roberts' majority opinion could not have been more formalistic.    While the majority acted as though practical consequences didn't matter, Justice Breyer's dissent was focused on the confusion that would result from the opinion.Four terms later the Court backed away from formalism when it decided Wellness International Network, Ltd. v. Shariff, 135 S.Ct. 1932 (2015).  The issue was whether an Article I Bankruptcy Judge could render a final judgment with consent.  By a vote of 6-3, the Court said yes.   Justice Sotomayor's majority opinion followed the Schor case's doctrine that delegation to a non-Article III tribunal was only unconstitutional when it undermined the Article III courts.   The difference between Stern v. Marshall and Wellness was that Justices Alito and Kennedy changed their minds.   Why did they do this?   It had nothing to do with bankruptcy.  Rather, both Justices were concerned about Magistrate Judges.   If Stern was followed to its formalistic conclusion, it could render Magistrate Judges unconstitutional as well and both justices had previously written opinions upholding Magistrate Judges.Dean Chemerinsky cautioned that Wellness will not put formalism to rest.   The Court vacillates between formalism and functionalism from case to case.The Critique of FormalismThe legal realists offered a critique of formalism a century ago.  Formalism provided a false certainty.   Do fixed legal principles really provide answers with certainty?   Formalism makes it look like the justices are not deciding how a case should turn out; it hides what's really happening. Dean Chemerinsky suggested that we should be asking what was Congress's purpose?   In his view, the Court got Congress's purpose wrong in both Henson and Midland Funding.   He said that there was no good reason to object to bankruptcy courts deciding state law issues.In conclusion, he asked, what should we do?   He said that academics need to explode the myth of formalism.   The Dean said that he hoped that the academic criticism of Stern v. Marshall caused Justices Alito and Kennedy to back away in Wellness.In the meantime, lawyers and judges should be aware that the Supreme Court is going to be receptive to formalistic arguments for a long time to come.   The take-away he said is the what if?   What if Hillary Clinton had defeated Donald Trump?  What if there had not been hanging chads in Florida in 2000?  What if John Kerry had been elected?   The Supreme Court would have looked much different today.   The bottom line is that elections matter.   And then he sat down.Note:  I did not use direct quotes in this article because I was not confident in my note-taking.  In some passages, I added or rearranged words to better reflect the sense of what Dean Chemerinsky was saying when my notes came off as wooden and jerky.   Dean Chemerinsky was anything but wooden and jerky so I did not want to portray him in that way.  However, I am pretty sure that the last sentence of his address is pretty close to verbatim.     

One thing that conferences like NCBJ celebrate are the best in the profession.  This year I went to three awards presentation.   Prof. Nancy Rapoport of the University of New Las Vegas Law School received the Lawrence P. King Award for Excellence in Bankruptcy from the Commercial Law League of America.   Judge Mary Walrath (Bankr. D. Del.) received the Norton Judicial Excellence Award from the American Bankruptcy Institute and Thompson Reuters.   Finally Judge Homer Drake (Bankr. N.D.Ga.) received the Distinguished Service Award from the Bankruptcy Alliance of the American Inns of Court.    Nancy Rapoport is the Special Counsel to the President of the University of Nevada, Las Vegas, the Garmin Turner Boyd Professor of Law at the William S. Boyd School of Law and an Affiliate Professor of Business Law and Ethics at the Lee Business School.    She has served as Dean or interim Dean of three separate law schools.   She received the Distinguished Alumna Award from Rice University.   Prof. Rapoport is a recognized expert in ethics.    She is the author of Enron and Other Corporate Fiascos:  The Corporate Scandal Reader and appeared in the Academy Award nominated move Enron:  The Smartest Guys in the Room.   She is currently serving on the Fee Review Committee in the Caesars Entertainment Operating Co., Inc. bankruptcy.    She is also a Board Member of the National Museum of Organized Crime and Law Enforcement (the MOB Museum).   In her spare time, she competes, pro-am, in American Rhythm and American Smooth ballroom dancing.   In her introduction of Prof. Rapoport, Wanda Borges of the CLLA quoted her as saying, "My parents taught me everything.  They taught me how to live a moral life."   Wanda quoted the President of UNLV as saying, "If she was a superhero, her power would be enthusiasm."In receiving the award, she said she was "flabbergasted but not speechless."    She went on to offer two true confessions:  that she took bankruptcy pass/fail and never took professional responsibility.  She said she had no interest in bankruptcy and intended to be a securities lawyer--until she began to work as a securities lawyer.Prof. Rapoport Accepts the King AwardProf. Rapoport said "I have built a career out of the intersection of bankruptcy law and professional responsibility.  I love bankruptcy law.  I love that bankruptcy lawyers find ways to make the pie bigger.   I love the people."    She also said that "good lawyers have the ability to change the world for the better."Finally she said  "We are at a pivotal point for the practice of law.   Our margins are tighter.   Think about where the practice of law should go."    She said that she teaches law students that it is more important to listen to the other side than to push your own position.On a personal note, I have enjoyed attending many continuing legal education programs where Nancy spoke.   She spoke on legal ethics at the very first Commercial Law League meeting that I attended.  Although she is kind of a big deal, she came and presented a showing of The Smartest Guys in the Room  to the Austin Bankruptcy Bar.    Her ability to include clips from lawyer movies in her ethics presentations has given me many laughs while making good points.  Finally, I am amazed by the pictures she posts on Facebook of her ballroom dancing exploits.    Judge Walrath Receives the Norton Award for ExcellencewJudge Mary Walrath (Bankr. D. Del.) is the current President of the National Conference of Bankruptcy Judges.    She has served on the Delaware Bankruptcy bench since 1998.   When she took the bench, Delaware had two bankruptcy judges but based on the workload could have qualified for eighteen.   She is a co-founder and co-president of the Delaware Bankruptcy Inn of Court.   She is also a fellow of the American College of Bankruptcy. In her remarks she mentioned that she also sits as Bankruptcy Judge for the District of Virgin Islands.  She expressed admiration for the Court Clerks who have experienced so much difficulty after Hurricanes Irma and Maria.Judge Homer Drake Accepts the Distinguished Service AwardJudge Homer Drake has been a bankruptcy judge since 1964, which is before they were known as bankruptcy judges.   He was president of the National Association of Referees in Bankruptcy in 1973 when the rules committee changed the name of the judicial officials from Referees in Bankruptcy to Bankruptcy Judges.   That was also when the National Conference of Bankruptcy Judges took its present name.    Judge Drake also has an Inn of Court named after him.   That was a significant honor since few Inns of Court are named after living persons.   

This panel discussed some of the unusual issues raised by limited liability companies.   The panel consisted of Bankruptcy Judge Ashely Chan from the Eastern District of Pennsylvania,  Prof. Carter Bishop from Suffolk University Law School, Craig Goldblatt form Wilmer Hale, Paul L. Lion, III from Morrison & Foerster, LLP and Emily Pagorski from Stoll Keenon Ogden PLLC   Emily Pagorski and Craig Goldblatt played the role of litigators in two moot court arguments.What Is It?According to Paul "Chip" Lion, a limited liability company is neither a corporation nor a partnership. LL Cs have members rather than shareholders.  They have managers who may be members who run the business.    LLC's are formed by filing a certificate of formation.   They are governed by their operating agreement.    The state where the certificate of formation governs the legal affairs of the LLC.The members of an LLC own interests, which consist of economic interests, information rights and management rights.    Managers of an LLC owe fiduciary duties to the LLC    These are duties of loyalty and care and can be modified under the law of some states.Bankruptcy Remote EntitiesProf. Bishop introduced the problem of an LLC being used as a bankruptcy remote entity.   Under the hypothetical, unanimous consent was required to file bankruptcy and allowed members to act in its own interest and waived all duties except for the implied duty of good faith and fair dealing.  The operating agreement was then modified to add a non-economic member to presumably represent the interest of the secured creditor.    When it is time to file bankruptcy, the members disagree.   However, the LLC files anyway.    The secured creditor then sought to dismiss the case as a bad faith filing.Two cases involving LL Cs have found that bankruptcy policy invalidated the state law blocking provision because the non-economic member did not have a duty to act in the entity's best interest.  In re Lake Michigan Beach Pottawattamie Resort LLC, 547 B.R. 899 (Bankr. ND Ill. 2016); In re Intervention Energy Holdings, LLC, 553 B.R. 258 (Bankr. D. Del. 2016)  However, a case involving a limited partnership reached the opposite conclusion.   In re Squire Partners, Limited, 2017 W.L. 2901334 (E.D. Ark. 2017), appeal filed to Eighth Circuit.   The Squire case relied on the fact that the partner with the blocking interest had a financial interest.The hypothetical posed a conflict between the ability of parties to contract as allowed by state law as opposed to whether the contractual provision was a waiver of the right to file bankruptcy similar to a pre-petition waiver of discharge.  After a mock trial, the court found that the non-economic member did not act in good faith and that therefore his blocking vote was invalid.   In partcular, under the hypothetical, the debtor had equity which would be lost in the event of a foreclosure.Is an Operating Agreement an Executory Contract?In the second hypothetical, a member holds the right to manage the LLC.    There are other members.   Under the Operating Agreement, the right to manage cannot be assigned.  Additionally, the Operating Agreement provides that upon filing bankruptcy, the member ceases to be a member.   When the managing member files bankruptcy, the Chapter 7 trustee attempts to assume the operating agreement and dissolve the LLC over the objection of the other members.  The hypothetical was based on a California LLC.Prof. Bishop argued that under Sec. 541 would bring the economic interest and management right into the estate.   Most Operating Agreements would not meet the Countryman test for an executory contract.   Additionally, Sec. 365 precludes the assumption of a personal services contract.    Further, the contract would be subject to the ipso facto clause of Sec. 365.   The hypothetical posed a conflict between the property of the estate provisions of Sec. 541 and the executory contract provisions of Sec. 365.   The judge asked whether it would be appropriate to apply a broader definition of an executory contract than the Countryman test.    The hypothetical also raised the issue of how the Chapter 7 trustee could meet the debtor's fiduciary duties to the other members.     The Court ruled that both the economic and non-economic interests entered the estate but that the Trustee would order the Trustee to wait six months before dissolving the LLC to maximize the value for the other members.One issue that was not raised by the discussion was the application of 11 U.S.C. Sec. 541(b)(1) which states that property of the estate does not include a power that the debtor may only exercise for the benefit of an entity other than the debtor.   In my opinion, the right to manage an LLC is a power which the member exercises for the benefit of the LLC and the other members.   Thus, I would expect that it would not be property of the estate.I liked the format of this program because it used two of the panel members to provide background and introduce the hypotheticals while the two litigator members of the panel argued the case to an actual Bankruptcy Judge.  

The Wolf (of Wall Street?) at the Door:   Lending to the Financial Underclass examined a variety of issues affecting those with limited means.   Bankruptcy Judge D. Sims Crawford from the Northern District of Alabama moderated a discussion with Thad Bartholow with Bartholow & Kellett and Prof. Creola Johnson from the Ohio State University Moritz College of Law.Prof. Johnson and Mr. Bartholow focused on several areas that they believed were subject to abuse, including car title lending, payday lending, loans made that were never requested and claims on non-existent debt.   Prof. Johnson spoke about subprime auto loans which carry double digit interest rates with collateral that is easy to repossess.  She said that while the volume of subprime loans was going down, a majority of them would likely end up in default and in bankruptcy.    A trend in subprime auto loans is to include a kill switch in the vehicle which turns off the car if payments are not made which she described as "synthetic foreclosure."    She said that subprime lenders often threatened to repossess cars if regular payments were not made post-petition and gave the example of In re Velichoko, 473 B.R. 64 (Bankr. S.D.N.Y. 2012) where the lender said that bankruptcy did not apply to it and repossessed the car during the bankruptcy.    In order for the debtor to get the car back, the creditor extracted a payment of $800 and execution of a reaffirmation agreement.Mr. Bartholow suggested that a best practice for chapter 13 cases involving kill switches was to include a plan provision invalidating that clause in the loan agreement.Another abuse he identified was student loan servicers who may fail to cancel a garnishment after bankruptcy is filed due to defects in their software.Prof. Johnson spoke about problems raised by payday lending.   She said that technology has changed so that where a payday lender would have previously obtained a post-dated check, now they obtain authority to debt a customer's bank account.    One practice she identified was when payday lenders would have authority to debit the customer's account for the full amount of the loan but would just debit for the amount of a rollover fee.   In that case, the customer would end up paying much more than the original debt.   Another problem she discussed was payday lenders threatening borrowers with criminal prosecution if they did not pay.   Although dishonoring a postdated check will not give rise to theft by check, she said that payday lenders take advantage of poorly educated consumers to make these threats.    She gave In re Hodge, 367 B.R. 843, 846 (Bankr. M.D. Ala., 2012) and In re Snowden, 422 B.R. 737, 740–41 (Bankr. W.D. Wash. 2009) as examples of bad behavior by payday lenders.    In the Hodge case, the creditor told the debtor that bankruptcy did not apply to checks, threatened the debtor with arrest and continued to make EFT withdrawals from her account post-petition.    In Snowden, the creditor called the debtor sixteen times including at her job as a nurse. According to Bartholow, the debt buying industry is buying debts without much due diligence and that this places the burden on debtor's counsel to remedy. He claimed that many debt buyers "don't know or don't care" whether the debt they buy is legitimate and that it imposes a massive cost to the bankruptcy system.    He said that because debtors who take out payday loans often take out many of them, they may not remember which ones are real.    He described time-barred claims as a "cancer on the system" and also pointed out the danger of fake claims and miscalculated claims.    Bartholow said that he has had problems with debtors who are already in chapter 13 taking out post-petition payday loans.   He noted a split of authority as to whether a court order is required to take out these loans but expressed his opinion that it should be required.   He expressed frustration that debtors would keep relying on payday loans which he described as "financial crack."    Mr. Bartholow described attempts to collect on debts not owed as the CFPB's #1 reported consumer complaint.   He put part of the blame on skip tracing services such as Accurint which may erroneously report that a debt is owed by someone with a similar name.   In one case, he had a client named Marco R who lived in South Texas but was being dunned by a creditor seeking to collect a debt from a debtor named Marcos R who lived near Dallas.    A related problem he discussed was consumers who may apply for a payday loan but don't agree to accept it.   In some instances, the payday lender will advance the funds anyway and it becomes a swearing match as to whether the customer accepted the loan.Prof. Johnson talked about trends in the fintech industry but focused on lead aggregators.   Many of the internet ads for payday loans are not from actual payday lenders but companies which use them to generate leads which are then compiled by lead aggregators.    A consumer may think she is applying for a low interest loan only to be paired with a high interest payday lender.    Mr. Bartholow also talked about abuses with loan modifications.   He said that in many cases, borrowers filed bankruptcy in order to buy time to obtain a loan modification.   However, in other cases, lenders may place a borrower on a trial modification that was not requested by the borrower.   The lender then files a notice of payment change with the court which results in the trustee reducing the payment to the lender.   When it is time to approve the final loan modification, it may extend the loan out forty years and greatly increase the amount the borrower would pay.   However, at that point, the debtor has a choice to either accept the bad deal or face a default created by the creditor's interim loan modification.Returning to the theme of debt buyers, Mr. Bartholow said that debt buyers usually are engaged in the purchase and sale of spreadsheets and do very little to verify the debts.   He estimated that debt buyers only have loan documents in 5% or less of transactions they do.    When the transaction involves, a payday loan, which is a closed end loan, Rule 3001 requires that "the writing" upon which the debt is based be attached to the claim.   If debt buyers don't have the documents, they are in violation of the rule.Bartholow also spent some time discussing the Supreme Court decision in Johnson v. Midland Funding.   He stated that in his opinion, the dissent got it right.   However, he said that it will be important to limit Midland Funding to its facts.   The opinion stated that filing a time barred claim that contains the information necessary to readily determine whether it is a time-barred claim is one thing.   However, he opined that the ruling should not apply to a non-existent debt or one that is miscalculated.    Finally, Prof. Johnson concluded with the story of the Tucker brothers,Scott and Joel Tucker.   Scott Tucker had a payday loan empire that made actual payday loans although the way he processed payments was fraudulent.   He used the money that he made to become a race car driver.   In addition to having fines levied against him, he is now being prosecuted for criminal violations.Bartholow chimed in with the story of his brother, Joel, who took data obtained from lead aggregators and entered it into spreadsheets which he represented to be legitimate payday loans.   He ultimately sold a portfolio of 15,000 fake payday loans in the amount of $390 which were then placed into the court system by unwary debt buyers.   Judge Marvin Isgur initiated a Show Cause Proceeding in the Southern District of Texas in which he compelled Joel Tucker to appear and testify with regard to the claims under penalty of being incarcerated.   Judge Isgur found Mr. Tucker's testimony to be non-credible.Disclaimer:   I am currently involved in litigation with Mr. Bartholow's firm.   While I have tried to accurately convey the highlights of what was discussed, nothing in this post should be construed to be a comment on our case.

This year's National Conference of Bankruptcy Judges takes place in Las Vegas at the Paris Hotel and Casino.   The conference kicked off just one week after the horrific shootings here.  Mass shootings represent a break down of the social contract.  The law is intended to resolve disputes between people without the need for violence.   Bankruptcy law deals with break downs of financial relations.   It can involve such weighty matters as whether a company goes out of business or a family loses their home.  It is an imperfect system.   However, the terrible tragedy that occurred here is a reminder of the alternative to the rule of law.  #VegasStrong.The conference opened with Broken Bench TV, NCBJ's current events program anchored by Judge Bruce Harwell (Bankr. D. N.H.), Prof. (and candidate for Congress) Katherine Porter from the University of California Irvine School of Law and Prof. John Pottow from the University of Michigan School of Law.     Last year, NCBJ opened with Broken Bench Radio.   This year brought the conference into the 21st Century with a combination of highly produced video reports and live in-studio conversations. 21st Century Repo Man Judge Mildred Caban from the Bankruptcy Court of Puerto Rico talked how technology is enabling auto lenders to more efficiently repossess autos.   She said that there is $1.2 trillion in auto debt in this country with one-fifth being advanced to people with bad credit.  She described secret weapons that subprime auto collectors ploy, including GPS trackers, starter interrupters and plate recognition technology.    A starter interrupter is a device which prevents the vehicle from starting.   A buy here pay here lender may give a debtor a code good for just that month or may disable the vehicle if payments are not made. Interestingly, Article 9 of the UCC specifically allows lenders to employ a device which renders the collateral inoperative.    License plate recognition allows repo men to identify vehicles that have been slated for pickup as they drive around.   The judge described a scene of repo men trolling a neighborhood where their presence was more pervasive than the police.Adventures in ValuationBill Rochelle from ABI and Susan M. Freeman with Lewis Roca Rothgerber Christie LLP presented a segment on Current Developments in the Saga of Sunnyside Housing.   This case dealt with a major valuation opinion from the en banc Ninth Circuit.Bill Rochelle introduced the discussion by noting that the Courts of Appeals had recently had two Emily Litella moments.   Emily Litella was the Saturday Night Live character who go off on a rant about something she had misheard and then when she was corrected would say "never mind."  (Remember the segment on Soviet Jewelry?). Mr. Rochelle said that the Fifth Circuit had an Emily Litella moment in Matter of Hawk.   The Court initially ruled that a chapter 7 trustee could seek turnover of property that was finally exempted when it changed form.  After a petition for rehearing, an outcry from the bankruptcy bar, an amicus brief and coverage from Bill Rochelle, the panel reversed itself.   (Bill did not mention his role in bringing attention to the issue).The other Emily Litella moment occurred in In re Sunnyslope Housing Limited Partnership, 818 F.3d 937 (9th Cir. 2016).   This was an affordable housing project.   As long as the debtor owned the property, it could only be used for affordable housing.   However, if the lender took it back, it could realize a greater value.    Thus, it was the rare case where liquidation value was greater than going concern value.  The panel opinion declined to apply the Rash case which required application of fair market value.    It focused on the language in Sec. 506(a) to value collateral based on the creditor's interest in the property.   However, on en banc review, the full Ninth Circuit reversed.   In re Sunnyslope Housing Limited Partnership, ___ F.3d ___ (9th Cir. 5/26/17).  The en banc court stated that it would take the Supreme Court at its word in the Rash decision.   It also noted that Sec. 506(a) actually refers to the creditor's interest in the debtor's interest in the property.   Thus, value under Sec. 506(a) could never exceed the value of the property in the debtor's hands.There has been a petition for cert. filed in the case.   Rochelle stated that if cert was granted, "I'm going to wet my pants" because it would mean that the Supreme Court was willing to re-examine the rights of secured creditors. Judge Laura Grandy (Bankr. S.D. Ill.) gave a commercial for the 2018 NCBJ in San Antonio which will be the city's tricentennial.   In discussing retail bankruptcies, she noted that it was a shame that Payless and not Prada was not well heeled.Getting PaidProf. Porter and Ed Baltz discussed issues of getting paid in consumer bankruptcy including unbundling and fee only chapter 13 cases.    Mr. Boltz said that if someone files a chapter 7 petition without receiving a retainer on the premise that they did not perform any work pre-petition, he has either committed malpractice or is lying.    However, he said the alternative was to wait until the debtor could cobble together the fee during which he would still be subject to collection actions.  An alternative is to file a no money down chapter 13, which he described as two-thirds of the chapter 13 cases being filed.  He said that the key to doing a fee only chapter 13 case was getting informed consent from the client.     Finally, Mr. Baltz discussed how suing creditors can be a way for debtor's lawyers to get paid.  He dismissed the Johnson v. Midland Funding case as merely eliminating "low hanging fruit." Supreme Court Weather ReportElizabeth Wydra of the Constitutional Accountability Center presented the Supreme Court weather report.    She said all eyes are going to be on swing vote Anthony Kennedy this term.   She noted the strange weather patterns presented by the gerrymandering case and noted that "representatives should not choose their voters; voters should choose their representatives."    Other highlights of the court's term include the Masterpiece Cake case about whether a Christian baker could refuse to bake a cake for a gay wedding and the whether public employee unions could charge non-members a representation fee, an issue on which the court had deadlocked 4-4 in the prior term.   She described the Carpenter case dealing with whether accessing cell phone tower records without a warrant as "sunshine through the partisan fog" (meaning that the case is likely to draw broad agreement among the justices)ArbitrationTwo New York bankruptcy judges, Judge Bob Drain and Judge Alan Gropper had a segment on binding arbitration of bankruptcy matters.    They noted that when parties seek to employ arbitration in bankruptcy, the answer is usually emphatically no.    However, the Supreme Court is dramatically in favor of arbitration.    Judge Drain raised the question of whether there could be arbitration of a motion to approve a DIP loan.   Judge Gropper stated that there are conflicting cases on whether a debtor could be forced to arbitrate a discharge violation.   I found two cases denying arbitration of discharge violations but could not find one allowing it.   Harrier v. Verizon Wireless Personal Communications, LP, 903 F.Supp.2d 1281 (M.D. Fl. 2012); In re Jorge, 568 B.R. 25 (Bankr. N.D. Ohio 2017).   They said that bankruptcy should not be allowed on a "core" bankruptcy matter but then changed that to a "primary" bankruptcy issue to avoid confusion with the formal core/non-core dichotomy.Up in SmokeRetired Judge Keith Lundin appeared to offer an op-ed on cannibis bankruptcies.   He appeared with a cardboard figure named CK (which I think stands for Cannibis Keith).  He appeared to be dazed and confused when he said that he was stoked about cannibis bankruptcies but that a letter from the U.S. Trustee meant that those cases could go up in smoke.  The U.S. Trustee program has issued a letter to trustees directing them not to administer marijuana assets in bankruptcy because marijuana remains illegal under federal law.   However,he raised the issue of what is a marijuana related asset.   Is it the warehouse where the cannibis was stored?   What about the truck that delivered the pot?   What if an employee of a marijuana dispensary files chapter 13.   Are his wages marijuana-related assets?     The Bankruptcy Court for the District of Colorado has dismissed a marijuana related case on the basis that the trustee would violate the law by administering the assets.  In re Arenas, 514 B.R. 887 (Bankr. D. Col. 2014).Judge Lundin argued that there is not an exception in the Bankruptcy Code for toxic assets.  However, he said that the U.S. Trustee has the power to say, "I appoint you and I forbid you."At that point, Irving Picard, trustee for Bernie Madoff, called in.   Mr. Picard said that he had collected $12 billion on behalf of creditors.   Judge Lundin asked him if any of the money he recovered constituted proceeds from illegal activities, to which Mr. Picard said, that's what a Ponzi scheme is.Judge Lundin concluded by stating that with the U.S. Trustee forbidding trustees to administer cannabis-related assets that state court receiverships may be sprouting up in the states where it is legal. Structured Dismissals Craig Goldblatt and Chris Landau, who battled each other in the Jevic case, appeared to discuss the case.   Mr. Goldblatt said that the takeaway from Jevic was that you can't have an end of case distribution which violates the the priority scheme and that any priority skipping distributions must have a code-related objective.  Mr. Landau said that although he technically lost the case, it was a win in the bigger picture of defining when payments to critical vendors, employee wage claims and other similar items would be permissible.A Series of Unfortunate Events  Professors Porter and Pottow discussed Sundquist v. Bank of America (In re Sundquist), 566 B.R. 563 (Bankr. E.D. Cal. 2017) in which Bank of America found itself on the receiving end of over $40 million in damages for violating the automatic stay again and again and again. The case began with a promised loan modification that Bank of America apparently never intended to process.   That does not violate the law.  However, it did result in the Sundquists filing Chapter 13.  Nevertheless, Bank of America proceeded to foreclose on the Sundquists and evict them from their home.   The Court founds that the stay violation would have been apparent to anyone who cared to look but that nobody at Bank of America cared to look.   Bank of America's agents then disconnected the utilities so that the yard died.   Attempting to remedy the situation, Bank of America transferred the property back to the Sundquists but failed to tell them.   Meanwhile, the overgrown loan, the homeowners association made an assessment against the Sundquists for failure to maintain their property.  The case was so serious that one of the debtors was hospitalized and the other attempted suicide.   The Court awarded $1 million in compensatory damages to the debtors and $45 million in punitive damages.   The Debtors were ordered to pay the punitive damages award to the National Consumer Law Center, the National Consumer Bankruptcy Rights Center to five law schools in the University of California system (including UC Irvine School of Law where Prof. Porter teaches).  In awarding punitive damages, the Court described the case as a problem of corporate culture.The professors noted that the parties are now engaged in settlement negotiations.  One term being discussed is vacating the opinion.   As a result, they said, go to 566 B.R. 563 and read the case while you still can.  A Commercial for Pro Bono AppealsRetired Judge Gene Wedoff appeared to give a commercial for his new project to represent pro se individuals in bankruptcy appeals on a pro bono basis.   He said that in 28 years as a judge, he saw many people who had good issues but could not afford to appeal.   He said "I want people to know that I am giving away appellate services."   He gave an example of one of his projects, an appeal of a student loan dischargeability case.   A teacher went to school to gain a graduate degree so she could work as an administrator.   However. she couldn't get an administrative position.   She persuaded the bankruptcy court that she was subject to an undue hardship while representing herself on a pro se basis.  However, the District Court reversed.   It rejected the Bankruptcy Court's fact finding without explaining why.  It also found that the debt should not be discharged because she did not make a wise decision in pursuing the additional education.   The Eleventh Circuit reversed requiring the District Court to explain its fact finding and to reject its new requirement.   Buying Retail Rick Wynne with Jones Day offered a prognosis on the future of retail bankruptcies.   He said the tsunami of retail bankruptcies is just started.   Low interest rates have allowed lenders to keep extending the debt and delaying the inevitable.   He said that one huge problem is not no one has found a way to respond to Amazon..   He said that retail companies are further weakened by high amounts of leverage.   For example, ToysR Us has a ratio of debt to EBIDTA of 14:1 compared to Amazon whose ratio was 1.3:1.   He said that another problem was that retail cases must go fast due to utility deposits, 503(b)(9) claims and restricted deadlines to assume or reject leases.Many of the issues covered briefly in this program were the subject of later panels.

   The Court ruled that a loan Debtor obtained from Citibank in order to take a course to prepare her for medical school, and for books and living expenses, did not qualify as an educational benefit under 11 U.S.C. 523(a)(8)(A)(ii).  In re Essangui, No. 16-12984-MMH, 2017 WL 4358755 (Bankr. D. Md. Oct. 2, 2017).   The creditor acknowledged that the loan did not qualify under the other definitions of a student loan in §523(a)(8)(A)(i) or 523(a)(8)(B).     Debtor had borrowed $23,670 to attend the course in March 2008, when she enrolled in the program, which was a preparatory course of instruction that, upon completion, allowed students to enroll at Ross University School of Medicine.   The program was not qualified as a Title IV institution under the Higher Education Act of 1965, thus federal aid and grants were not available to it's students.  Debtor completed the course in 2008 and she enrolled in Ross University for the 2008 semester.  She was unable to complete her studies or graduate from Ross University, and was dismissed from Ross University in December 2008.    Debtor filed a chapter 7 bankruptcy in March 2016 and initiated an adversary proceeding against the creditor to determine that the debt was discharged in April 2017.   The Court ruled on cross motions for summary judgment.  The lender did not contest that the loan was not a qualified education loan under 11 U.S.C. 523(a)(8)(B).  Thus, the issues were limited to whether the debt is excepted from discharge as an educational benefit under 11 U.S.C. 523(a)(8)(A)(ii).    The court went into some depth as to the history of §523(a)(8).  Until 1976,  debts were dischargeable in bankruptcy.  In 1976 Congress passed section 439A of the Higher Education Act of 1965 which made non-dischargeable debts which were for a loan insured or guaranteed under the authority of this part that first became due less than five years prior to the filing of a bankruptcy and included language for hardship discharges.    The provision was included in the 1978 Bankruptcy Code amendments, as to debts to a governmental unit, or a nonprofit institution of higher education, for an educational loan first due more than five years prior to the filing of the bankruptcy (again with inclusion of a provision for hardship discharge).  This was further amended in 1979 by adding language to cover loans under certain programs, and in 1984 by eliminating the reference to higher education.    In 1990 amendments were enacted which added the language "or for an obligation to repay funds received as an educational benefit, scholarship or stipend” which courts generally have interpreted to add another category of non-dischargeable debts, which excluded for-profit loans.  In 2005, when Congress again amended section 523(a)(8), it did not change the substance of the existing statutory language. It did separate the language into two different sections: (A)(i) an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or (ii) an obligation to repay funds received as an educational benefit, scholarship, or stipend; ....11 U.S.C. 523(a)(8).  Also, BAPCPA added a new provision:(B) any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual ....Id.  The legislative history indicate these provisions were intended to enhance fairness for all parties, including debtors and creditors, and to “respond to many of the factors contributing to the increase in consumer bankruptcy filings ... to eliminate abuse in the system.” H.R. Rep. No. 109–31(I), at 2 (2005).   There is a split of authority in interpreting the the 'educational benefit' language of the statute.  The majority view focuses on the policy objectives of §523(a)(8) in taking a broad view of debts included.  See Micko v. Student Loan Finance Corp. (In re Micko),356 B.R. 210, 216–217 (Bankr. D. Ariz. 2006) finding a private non-profit loan to qualify.    More recent cases question this approach, focusing on the precise language and structure of the statute.  These cases point out concerns with the majority approach, including Congress's use of the word 'funds' instead of 'loans' in §523(a)(8)(A)(ii), given the use of the word 'loans' elsewhere in the statute; and 2) that the term 'educational benefit' is different from the 'educational benefit overpayment or loan' or 'educational loan' language used elsewhere in the statute.  “those bankruptcy cases [in the majority], perhaps inadvertently, imprecisely quote the provisions of the discharge exception statute as applying to ‘loans received,’ as opposed to the ‘obligation to repay funds received.’ ” Inst. of Imaginal Studies v. Christoff (In re Christoff), 527 B.R. 624, 635 (9th Cir. BAP 2015).  The court in Essangui agreed with the minority view more faithful to the actual language of the statute.  First, the subjection of (A)(ii) is 'an obligation to repay funds'.  This is not equivalent to a loan.  While defendant argues that funds could be interpreted as proceeds of a loan, the structure of §523(a)(8) suggests a more limited and tailored definition.   Second, the funds at issue must be 'received as an educational benefit, scholarship, or stipend.'  See Kashikar v. Turnstile Capital Mgmt., LLC (In re Kashikar), 567 B.R. 160, 167 (9th Cir. BAP 2017) holding that a loan is not an educational benefit.  The use of the word 'as' an educational benefit rather than 'for' indicates a reference to the role or character of the funds rather than the object or purpose of the funds.  Further, the definition of educational benefit should align with the other debts in subsection (A)(ii): scholarship or stipend, ie  funds extended for educational purposes that generally do not need to be repaid unless the recipient fails to graduate or meet other specified requirements. For profit lenders do not meet this requirement.  Third, interpreting (A)(ii) broadly to mean loans for educational purposes renders subsections (A)(i) and (B) largely meaningless.  See   Corley v. United States, 556 U.S. 303, 316, 129 S.Ct. 1558, 173 L.Ed.2d 443 (2009) rejecting position that rendered subsection of a statute superfluous.   This more limited reading of §523(a)(8)(A)(ii) not only gives meaning to the other sections of §523(a)(8) but also comports with the well-established principle of interpreting exceptions to discharge narrowly.    The court found that applying this interpretation to the facts of the case determined that the loan was not qualified as an educational benefit under (A)(ii).   The facts do not show an educational benefit, scholarship or stipend, but rather only show that the loan was used for educational purposes.  Thus the loan is not excepted from discharge under §523(a)(8).  The court concluded discussing policy considerations for its ruling.  By separating subsection (A)(ii) Congress confirmed that it dealt with a separate category of debts.  The addition of subsection (B) incorporated private loans previously not covered by §523(a)(8), and it's linkage to §221(d)(1) of the Internal Revenue Code ensured that the credit extended was for attending an institution that was eligible to offer programs under Title IV of the Higher Education Act of 1965.  This interpretation is consistent with the legislative history of the both the original enactment of §523(a)(8) generally and BAPCPA generally.  It recognizes Congress's delicate balance between the debtor's fresh start and protection of certain educational programs and lenders offering loans for such programs. Michael Barnett www.hillsboroughbankruptcy.com 

Two years after bankruptcy, Jim gets 3.25% car loan Just got an email from Jim, who filed Chapter 7 bankruptcy with me in 2015.  His case was approved and discharged in May 2017.  In August 2017, he got a car loan at 3.25%. I tell people to try to get three years after the bankruptcy, to […]The post Two years after bankruptcy, Jim gets 3.25% car loan by Robert Weed appeared first on Robert Weed.

Two years after bankruptcy, Jim gets 3.25% car loan Just got an email from Jim, who filed Chapter 7 bankruptcy with me in 2015.  His case was approved and discharged in May 2015.  In August 2017, he got a car loan at 3.25%. I tell people to try to get three years after the bankruptcy, to […] The post Two years after bankruptcy, Jim gets 3.25% car loan by Robert Weed appeared first on Robert Weed.