Today is the first Tuesday in October which marks the start of the Supreme Court's October Term 2011. So far the Court has granted cert in forty-eight cases, only one of which involves bankruptcy. There are a few interesting petitions pending but no bombshells like last term's Stern v. Marshall.Cert Granted:No. 10-875, Hall v. United States. This case concerns whether post-petition capital gains in a chapter 12 case constitute a claim against the estate. The case arises because chapter 7 and chapter 11 cases give rise to a separate taxable estate while chapter 12 and chapter 13 cases do not. The Ninth Circuit found that because a chapter 12 estate is not a taxable entity, it could not "incur" a tax. Because the estate did not incur the tax, the tax could not be treated under the debtor's plan. The Ninth Circuit position conflicts with opinions from the Eighth Circuit and the Tenth Circuit Bankruptcy Appellate Panel.You can read the docket here.Petitions Pending:No. 11-166, RadLAX Gateway Hotel, LLC v. Amalgamated Bank. This case raises the Philadelphia Newspapers issue of whether a plan can propose a sale of property without allowing the lender to credit bid. The Seventh Circuit ruled that it could not. The Third Circuit has allowed a sale without credit bidding as the "indubitable equivalent" of the creditor's claim.You can read the docket here.No. 10-1285, Countrywide Mortgages v. Rodriquez. This case has to do with the troublesome issue of how to calculate escrow payments on a mortgage claim in chapter 13. The Third Circuit held that, notwithstanding RESPA, the lender could not factor pre-petition escrow shortgages into the debtor's post-petition payment. The Fifth Circuit has ruled consistently with the Third Circuit.You can read the docket here.Cert Denied:No. 10-1443, AmeriCredit Financial Services v. Penrod. This case involved whether a creditor who financed negative equity still had a purchase money security interest under the hanging paragraph of Section 1325(a). The Ninth Circuit said that it did not, while the other eight circuits to consider the issue ruled in favor of the purchase money status. The Supreme Court denied cert today. This means that the circuit split is not resolved.

It sounds like a cliché, but here at Shenwick & Associates, every bankruptcy case really is different. Every debtor has their own unique story of how they got into debt, what type and amount of debt they have, their living conditions and many other factors, which we need to apply the law to so we can provide them with the relief they seek. In one recent case, we had a young single man (let's call him "Doug") who lived in Brooklyn and earned a substantial income. He had filed for Chapter 7 bankruptcy a few years ago, but the case was dismissed because he was earning too much to qualify for Chapter 7 bankruptcy. In 2005, Congress radically amended the bankruptcy laws through the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which introduced a new form, Form 22, the "Statement of Current Monthly Income." There are actually three different forms, depending upon whether the debtor is filing for relief under Chapter 7 ( Form B22A) (the "Means Test"), Chapter 11 ( Form B22B) or Chapter 13 ( Form B22C) of the Bankruptcy Code. For Chapter 7 debtors, Form B22A includes a means-test calculation, which is a complex six page calculation of expenses and disposable income that a debtor must complete if he or she is above the median income for their state and family size. If their disposable income is above $11,725 over a 60 month period, the presumption of abuse arises, which means that it would be presumptively abusive to allow them to liquidate their debts under Chapter 7 of the Bankruptcy Code. In this case, they must file for relief under Chapter 11 or Chapter 13 of the Bankruptcy Code. Form B22C includes calculations to determine the length of a Plan (36 or 60 months) and the amount of disposable income the debtor must pay into the Plan each month. Doug came to us to determine what his disposable income would be in a Chapter 13 Plan. Although he had a condo, it was "underwater" (the liens on the condo exceeded the fair market value of the apartment), so he was going to have to surrender the unit to his secured creditors and rent an apartment. However, the rents he was being quoted by brokers far exceeded the IRS mortgage/rent standard for one person living in Brooklyn ($1,297). The question was-could we also deduct the differenhttp://www.blogger.com/img/blank.gifce between the actual rent he was going to have to pay and the mortgage/rent standard? There is very scant case law on this question, and no appellate courts appear to have considered the issue yet, but according to the Bankruptcy Court in the Eastern District of Kentucky, the answer is no, not without special circumstances. In , 382 B.R. 85 (2008), the debtors filed a joint Chapter 7 bankruptcy petition that reported annualized current monthly income of $83,022.36 on their Means Test. The applicable median family income for 2 persons in Kentucky was $41,560. The allowable mortgage/rent standard for 1 or 2 persons living in Boone County, KY was $842/month, but the Shinkles' actual rent was $1,500/month. So, the Shinkles claimed an adjustment of $658 on Line 21 of their Means Test, which allows debtors to claim an additional expense if they contend that the process set out in Line 20 of the Means Test does not accurately compute the amount they are due under IRS Standards. Without this adjustment, their Chapter 7 case would have been presumptively abusive. The legal issue before the Court was if the Shinkles should be entitled to claim their actual rental expenses on the Means Test, in excess of the IRS standards. In its discussion, the Court looked to the plain language of § 7070(b)(2)(B) of the Bankruptcy Code, which provides: "In any proceeding brought under this subsection, the presumption of abuse may only be rebutted by demonstrating special circumstances, such as a serious medical condition or a call or order to active duty in the Armed Forces, to the extent such special circumstances that justify additional expenses or adjustments of current monthly income for which there is no reasonable alternative. In order to establish special circumstances, the debtor shall be required to itemize each additional expense or adjustment of income and to provide - documentation for such expense or adjustment to income; and a detailed explanation of the special circumstances that make such expenses or adjustment to income necessary and reasonable." The United States Trustee contended that the Shinkles had not demonstrated such special circumstances. The Shinkles argued that allowed amounts for rent or mortgage expenses are guidelines and not "set in stone," that a condition of Mrs. Shinkle's employment was that she reside in Boone County, and that any slight reduction in rent they could derive from moving would be offset by the costs of moving and forfeiting their opportunity to own the house they were renting. The Court cited two cases where special circumstances were found–In re Scarafiotti, 365 B.R. 618,631 (Bankr. D.Colo. 2007) (debtors' son needed to be in a specific school to address mental and emotional difficulties, which justified a modest increase in the debtors' housing allowance) and In re Graham, 363 B.R. 844,847 (Bankr. S.D. Ohio 2007 (the debtor husband had to move 800 miles from his wife and her two children from a previous marriage in order to find gainful employment, but the debtor wife could not join her husband because of the constraints of her shared custody agreement. These debtors were allowed to claim a second set of housing expenses for the husband). The Court found no such special circumstances in the Shinkles' case. For more information about the Means Test in Chapter 7, disposable income to fund a Plan in chapter 13 and getting relief through the bankruptcy process, please contact Jim Shenwick.

By JOSEPH PLAMBECK First-time buyers in New York City confront a series of choices: co-op or condo, high-rise or walk-up, a second bathroom or just steps from the subway? But there seems to be consensus on at least one decision — whether to hire a real estate lawyer.In New York, unlike most places in the United States, it is customary for buyers to seek the representation of a lawyer throughout the purchasing process. Although this is not a legal requirement, some longtime real estate agents say they have never witnessed a deal completed without the buyer’s having a lawyer on hand.“I would never, never have a situation where a buyer did not have an attorney,” said Deanna Kory, a senior vice president of the Corcoran Group. “Without question, there is too much to understand. You can’t understand it on the fly.”Buyers in New York City rely upon lawyers because real estate transactions can be extraordinarily complicated. In addition to the usual concerns about contracts, liens and titles, New York’s numerous co-ops have financial statements and meeting minutes that require scrutiny. Buying a condo, and even a single-family home, can be equally knotty. Not to mention that the sellers on the other side of the table usually come armed with their own lawyer.And then, of course, there is the simple fact that real estate in New York is expensive. Making a bad deal can jeopardize huge amounts of money.“You’re signing the largest check you’ve ever signed,” said Gary L. Malin, the president of the brokerage Citi Habitats, “and you want to make sure that you’re not missing something. To not engage an attorney — you’d feel naked in the process.”Lawyers also provide a necessary buffer in what can be an emotional process. Peter Graubard, a real estate lawyer since 1994, said lawyers were able to provide an objective assessment even while advocating for buyers.“I’m really the only involved party whose fee doesn’t depend on the deal closing,” Mr. Graubard said. “I get paid for my lack of a conflict of interest.”Mr. Malin, who worked for a short time as a real estate lawyer before joining Citi Habitats, says it is especially important for first-time buyers to have a lawyer on their side. A real estate agent can help with some aspects of the process, but a lawyer is the one who performs crucial due diligence and helps finish the deal.At the start of the buying process, the lawyer helps negotiate the contract. Michael P. Kozek, a lawyer at Jeffrey S. Ween & Associates, says that most of the drafting is done by the seller’s lawyer, but that there should be a chance to review the terms and try to adjust them.The buyer’s lawyer will also dig into the information available about a property, looking at a co-op’s finances and the minutes of its board meetings. Some buyers with a background in finance believe they can handle this part by themselves. But, Ms. Kory said, they may not know the customary tax breaks and accounting methods used by co-ops, which can lead to serious misunderstandings.Michael W. Goldstein, a lawyer who has handled residential real estate deals for more than 20 years, says an experienced lawyer is also easily able to spot in the board’s minutes any issues that may percolate into problems. Perhaps there is talk about a loud resident who is to be the buyer’s neighbor, or discussion of a balky boiler that may need expensive repairs not accounted for in the building’s capital improvement plan.Because experienced real estate lawyers see a lot of contracts and know the customs, they can also help cut through roadblocks. For that reason, Ms. Kory said, it is usually a mistake to hire a lawyer who does not have extensive familiarity with residential deals.Lawyers and real estate agents both say that the best way to find a lawyer is through word of mouth, in the best case from a friend or a family member. But if that option is not available, real estate agents are often happy to refer someone with whom they have worked.Ms. Kory says she often advises clients to talk to two or three lawyers, and then choose one, before making any offer on a home. That might seem premature, she said, but having good representation lined up can help ensure that you get the home you really want.“Having a lawyer makes you look more capable of following through on the deal,” Ms. Kory said. “Even if you are the only one bidding, you will come across stronger if you have all your ducks in a row.”Buyers should have a few simple questions ready for prospective lawyers. First, ask about residential real estate experience — generally, more is better. Find out about experience with closings for homes similar to yours, or even in the building you are considering. Then find out how much of the work would be done by the lawyer personally, and how much (and which parts) would be handled by a paralegal.And ask if the charge will be a flat fee or based on an hourly rate. In general, residential real estate lawyers in New York charge a fee, often between $1,500 and $2,500. More complicated or expensive deals, like buying a multifamily brownstone, for example, can take the tab closer to $5,000.In most cases, that fee will cover a few hours of face time with the lawyer, his or her presence at the closing and a few conversations over the phone. The lawyer will spend several additional hours examining the paperwork and performing due diligence. The buyer also receives something else: more peace of mind.“The reality is that most people are not well versed in real estate law,” said Mr. Malin of Citi Habitats. “There are a lot of things that could potentially go wrong in the process. And you could very likely regret not spending the money.”Copyright 2011 The New York Times Company. All rights reserved.

In a recent case decided by the 9th circuit (In re Defrantz), the court ruled that the debtor has an absolute right to convert his chapter 13 case to a chapter 7 case. The creditor argued that the court should have considered the creditor's motion to dismiss before converting the case and that the right to convert was not absolute. However, the court stated the plain language of section 1307(a) of the bankruptcy code allowed conversion.(10.3.11, tl)

In short the debtor is responsible for association assessments as long as the debtor is the owner of the property. In a chapter 13, the debtor who wants to keep his property must add the prepetition assessment fees into his plan if they are delinquent. The assessment is normally secured by the property. State law often creates a lien for the association when the assessment becomes due. The post petition fees have to be paid when they become due. Smart debtors (or their attorneys) made the argument that the assessments are based on a contract and are discharged (pre- and post petition assessments) through the bankruptcy. One of their supporting arguments was that the exception of discharge in a chapter 13 (section 1328) does not refer to the section 523(a)16 of the bankruptcy code that excludes assessments from discharge. However, the courts held (most recently In re Foster 435 BR 650) that the assessment is not a contract, it runs with the land and cannot be discharged through the bankruptcy.    

We learned nothing new from a recent court decision (In re Dandrum, Bankr. D.ND. August 19, 2011): The debtor must take seriously his duties to disclose transfers before filing and to list income and assets accurately seriously or risk denial of discharge (and even more severe consequences). Debtor failed to disclose assets and transfers on the schedules and statement of affairs. He also liquidated assets that he would not have been able to exempt in his bankruptcy case, and paid only debts that were beneficial to him because the debt was either on exempt property or because the debt was nondischargeable. Even though the debtor amended his schedules later and provided information about transactions to the trustee, the court found that debtor's multiple inaccuracies regarding income, assets, and transfers rose to the level of "reckless indifference to the truth" which the court considered as equal to the intent to deceive. What do we learn from it? Disclose, disclose, disclose everything that has been done before filing.

The Austin Bankruptcy Court is housed in the Homer Thornberry Judicial Building. When the building was converted from a post office to a courthouse, the designers included an elegant entryway. Alas, this was before Oklahoma City and 9/11. Now the entryway is covered by a gate and a sign directing those with business in the building to the functional entrance, the one with the metal detector. While it is sad that the vision of the architect has been overshadowed, at least we are secure.

After the debtor filed a chapter 7 bankruptcy, his mortgage company file a motion for relief in order to start foreclosure proceedings. The court denied the motion for relief because the mortgage company could not show which rights the company has in the note and the failure of properly document the transfer of both the note and the mortgage raised the questions whether the bank had standing to file the motion for relief. The Mortgage company could not show that they actually received the note or was in possession of it. (In re Lippold, 2011 Bankr. Lexis 3282)

The Southern District of Texas has proposed several local rules for public comment. One of the interesting proposals is a model plan to be used by individual chapter 11 debtors. You can find the announcement with links to related documents here.You can find the link to the proposed model plan here.

One of the legacies of the Works Progress Administration was the construction of majestic federal courthouses and courtrooms. When you walk into the en banc courtroom of the Fifth Circuit Court of Appeals in New Orleans or Judge Leif Clark's courtroom in San Antonio or any one of dozens of other courtrooms, it is hard not to be filled with reverence for the important work which goes on there. However, several recent incidents of judicial incivility prompted the Above the Law blog to ask the question:Can you enforce civility by being… uncivil? That’s the question being raised, over and over again, by federal judges from Texas these days.Above the Law's query was prompted by three incidents: an order dated August 26, 2011 from U.S. District Judge Sam Sparks inviting lawyers to a "kindergarten party," an email reprimand from Chief Judge Edith Jones dated August 30, 2011 and Chief Judge Jones's own comments telling fellow Circuit Judge Dennis to "shut up" in oral argument on September 20, 2011. Act I: An Invitation to a Kindergarten PartyThe series of highly unfortunate events began when non-parties to a civil action sought to quash deposition notices addressed to them. This prompted an order from Judge Sparks which included the following language:Greetings and Salutations!You are invited to a kindergarten party on THURSDAY, SEPTEMBER 1,2011, at 10:00 a.m. in Courtroom 2 of the United States Courthouse, 200 W. Eighth Street, Austin, Texas.The party will feature many exciting and informative lessons, including:• How to telephone and communicate with a lawyer• How to enter into reasonable agreements about deposition dates• How to limit depositions to reasonable subject matter• Why it is neither cute nor clever to attempt to quash a subpoena for technical failures of service when notice is reasonably given; and• An advanced seminar on not wasting the time of a busy federal judge and his staff because you are unable to practice law at the level of a first year law student.Invitation to this exclusive event is not RSVP. Please remember to bring a sack lunch! The United States Marshals have beds available if necessary, so you may wish to bring a toothbrush in case the party runs late.Morris v. Coker, et al, No. A-11-MC-712-SS (W.D. Tex.). The order was disturbing on several levels. First, it pre-judged the dispute as frivolous and implicitly threatened imprisonment without having heard the merits. Second, the order castigated the objecting parties for wasting the court's time when Fed.R.Civ.P. 45 dictates that failure to comply with a subpoena is punishable by contempt, thus requiring a party to act promptly to avoid waiving an objection, even a technical objection. Finally, the order gave little concern to the fact that the subpoenas were addressed to non-parties who were involuntarily drawn into the dispute.Act II: The Email Heard Round the DistrictChief Judge Edith Jones of the Fifth Circuit Court of Appeals responded promptly, critiquing Judge Sparks for his "cute" orders. Dear Sam, It has not escaped my attention, or that of my colleagues or, I am told, nationally known blog sites that you have issued several ‘cute’ orders in the past few weeks. The order attached below is the most recent. Frankly, this kind of rhetoric is not funny. In fact, it is so caustic, demeaning, and gratuitous that it casts more disrespect on the judiciary than on the now-besmirched reputation of the counsel. It suggests either that the judge is simply indulging himself at the expense of counsel or that he is fighting with counsel in what, as Judge Gee used to say, is surely not a fair contest. It suggests bias against counsel. No doubt, none of us has been consistently above reproach in our professional communications with counsel. We are all prone to human error. But no judge who writes an order should allow such rhetoric to overcome common sense. Ultimately, this kind of excess, as I noted, reflects badly on all of us. I urge you to think before you write. Sincerely, Edith Jones.When contacted by the Texas Lawyer, Judge Jones stated that she was "saddened that somebody breached the intended limited scope of the intended distribution." However, the fact that she copied all of the District Judges of the Western District of Texas on the email virtually guaranteed that it would be leaked. Act III: Judge Dennis Gets a Talking To for Talking Too MuchIn United States v. Delgado, No. 07-11401 (5th Cir. 1/19/11), a panel of the Fifth Circuit reversed a criminal conviction. Judge James L. Dennis, joined by Judge Wiener, wrote the opinion, while Judge Clement dissented. On September 20, 2011, the en banc court heard oral arguments. At 47:40 in the argument, which you can listen to here, the following exchange took place:MR. TURNER: I think the amount of drugs in that truck supports the intent to distribute. And the jury….JUDGE DENNIS: Well, we’ve said over and over that the amount…. this court, no court has said that you can infer….CHIEF JUDGE JONES: Judge Dennis….JUDGE DENNIS: … just on the basis of the amount of drugs …CHIEF JUDGE JONES: Judge Dennis!JUDGE DENNIS: Can I, can I, can I ask a question?CHIEF JUDGE JONES: You have monopolized, uh, uh, seven minutes….JUDGE DENNIS: Well, I’m way behind on asking questions in this court. I have been quiet a lot of times, and I am involved in this case….CHIEF JUDGE JONES slams her hand down on the table (loudly), stands halfway up out of her chair, and points toward the door.CHIEF JUDGE JONES: Would you like to leave?JUDGE DENNIS: Pardon? What did you say?CHIEF JUDGE JONES: I want you to shut up long enough for me to suggest that perhaps….JUDGE DENNIS: Don’t tell me to shut up….CHIEF JUDGE JONES: … you should give some other judge a chance to ask a question …JUDGE DENNIS: Listen, I have been in this courtroom many times and gotten closed out and not able to ask a question. I don’t think I’m being overbearing….CHIEF JUDGE JONES: You’ve been asking questions for the entire seven minutes….JUDGE DENNIS: Well, I happen to be through. I have no more questions.CHIEF JUDGE JONES: I just want to offer any other judge an opportunity to ask a question. Some may support your position. If nobody else chooses to ask a question, then please go forward.(I am relying on Above the Law's transcription. Please listen to the argument yourself to ensure the accuracy of the statements quoted). It is not surprising that the author of the panel opinion would take an active role in the en banc argument. Indeed, when I appeared before the en banc court earlier this year, Judge Jones engaged me in spirited questioning throughout most of my allotted time. I found that the opportunity to engage the strongest opponent of my position to be quite rewarding. Civility Begins at the TopThe media is full of images of lawyers behaving badly in court, whether it is Arthur Kirkland screaming "You're out of order, this whole trial is out of order" in "And Justice for All," Captain Harmon Rabb discharging an automatic weapon in the courtroom in the TV series JAG and Louis Litt (in my favorite new lawyer show Suits) berating a deponent who later suffers a heart attack. That is how the world of entertainment portrays us.In the real world, judges have a right to expect a high standard of conduct from the lawyers appearing in front of them. In Matter of First City Bancorporation, 282 F.3d 864 (5th Cir. 2002), the Fifth Circuit not only upheld but increased an award of sanctions against a lawyer who repeatedly abused opposing counsel and parties. The court rejected the defense that his hyper-obnoxious approach brought results.However, civility begins at the top. Serving as a federal judge (whether under Article I or Article III) is one of the highest honors an attorney can receive. Federal judges should treat the high office they hold with respect, even when attorneys engage in unnecessary discovery disputes or a colleague monopolizes oral argument. To her credit, Chief Judge Jones did apologize at the conclusion of the session's arguments. However, it would have been better if she had held her tongue in the first instance. Post-ScriptI have made intemperate remarks in the past and will, no doubt, do so again. I live in a glass house and sometimes I throw stones when I shouldn't. When that happens, please feel free to through my own words back at me.