RECENT BANKRUPTCY CASE LAW

June 14 2006

HELD: THE "APPLICABLE COMMITMENT PERIOD" IS THE LENGTH OF THE PLAN; CHAPTER 13 EXPENSES CABankruptcy LawsNNOT INCLUDE OWNERSHIP COST IF CAR IS OWNED OUTRIGHT

The bankruptcy court in In re McGuire __ B.R. __ (Bkrtcy.W.D.MI 2006) held that a chapter 13 plan had to be 60 months where the debtor's income exceeded the state median; the 60-month phrase in section 1325(b) was not merely a multiplier but also determined the length of the plan (contradicting the position of NACBA that the figure is merely an arithmetical multiplier not related to the length of the plan.

The opinion also held that where the debtor did not owe anything on his motor vehicle he could not claim as an expense the "ownership" expense described in the I.R.S. Manual, but if the car was over 6 years old or more than 75,000 miles he could add $200 to the operating cost expense item.

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May 25, 2006

BK COURT FINES CREDITOR LAW FIRM $125,000 FOR RULE 9011 VIOLATIONS

Attorney's filing of pre-signed declarations without actual review by the signer is condemned.

A law firm's practice of preparing certifications in support of motions for relief from stay by the mortgage lenders that it represented, and of having these certifications pre-signed so that they could be appended to subsequently prepared summaries of mortgage defaults that were never reviewed by the persons signing these certifications, violated Rule 9011.

The use of such forms fails the requirement that the affiant can verify the truth of the information pursuant to a reasonable inquiry, before signing. And, the documents were filed for an improper purpose, namely, for the purpose of misleading the court into believing that they were valid certifications.

The court deemed the practice to be akin to the practice that was condemned in In re Wenk, 296 B.R. 719 (Bkrtcy.E.D.Va. 2002), which held that an attorney who files an electronic petition "represents to the court" that the attorney "has secured an originally executed petition physically signed by the debtor" before filing the case electronically. This conduct was deemed to be fraud on the court.

In re Rivera __ B.R. __ (Bkrtcy.D.NJ May 25 2006).

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March 6, 2006

Judge Holds Disposable Income Means Projected Postpetition Income, Not Previous 6 Month Average

In re Hardacre, __ B.R. __, 2006 WL 541028 (Bankr. N.D. Tex. 3/6/06) the opinion noted the conundrum of the test as prescribed by the Code which calculates disposable income based on prepetition income history, versus the actual disposable income the debtor may have post-petition to fund a chapter 13 plan.

After taking a close look at the statute, Judge Nelms concluded that "projected disposable income" for purposes of 1325(b) is based on the debtor's post-petition income rather than the prior six months. First, the use of "projected" before "disposable income" suggests Congress intended something other than "disposable income," under the traditional presumption that Congress acts intentionally when it uses different language in different sections of a statute. Second, the statute refers to projected disposable income "to be received" in the applicable commitment period -- language which would be superfluous (perhaps nonsensical) if Congress was referring to the debtor's pre-petition income. Finally, 1325(b)(1) requires the court to determine whether the debtor is committing all of her projected disposable income "as of the effective date of the plan." Again, the language indicates that the court should consider current income, rather than historical income.

The opinion also discusses some aspects of permissible expenses.

The consequence of this ruling would be that the monthly plan payment is based on the actual income and expenses appearing in schedules "I" and "J" rather than the hypothetical disposable income calculated pursuant to 11 U.S.C. §§ 1325(b)(2), (b)(3) and (b)(4). But, of course, this is only one ruling, not enough to demonstrate a trend in interpretation of this section of BAPCPA.

SOURCE: ABI BAPCPA BLOG
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March 2, 2006

Student loan and undue hardship

Bankruptcy Appellate Panel. An order of the bankruptcy court discharging a debtor's student loans as the result of undue hardship pursuant to 11 U.S.C. section 523(a)(8) is affirmed where the bankruptcy court properly found that debtor satisfied all prongs of the Brunner test. Debtor was diagnosed with Hodgkin's Disease and Avascular Necrosis and unable to work for the foreseeable future. Educ. Credit Mgmt. Corp. v. Barrett (03/02/06 - 6th Cir. No. 05-8011)

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Feb 17, 2006

Failure to show adequate exigent circumstances results in dismissal

Debtor submitted certification failing to certify exigent circumstances (11 U.S.C. § 109 (h)(3)(i)) which would merit the statutory waiver of the prebankruptcy briefing requirement. Failure of the debtor to demonstrate required exigent circumstances properly resulted in ineligibility to be a debtor, case dismissal affirmed. Dixon v. LaBarge (In re. Dixon), 2006 Bankr. LEXIS 196 (8th Cir. B.A.P. Feb. 17, 2006).

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Illinois exemptions

Bankruptcy Exemptions

Under Chapter 7, most people are able to keep their home and cars. They can keep their pensions, 401(k)’s and they can keep their furniture. In fact, most people keep everything they own when they file bankruptcy; however, there are some exceptions to this. If you have a Picasso painting and file Chapter 7, the bankruptcy trustee will sell it and use the proceeds to pay your creditors.

Each state has ‘exemptions’ which are state laws enacted to protect certain assets of a debtor when they file bankruptcy. These statutes are complicated, with many requirements and loopholes, so your bankruptcy attorney should be well versed and knowledgeable about the Illinois exemptions that can affect your case.

The attorneys from the Chicago Bankruptcy Network have filed thousands of cases in Illinois just like yours. We have the experience and knowledge to properly educate you about your bankruptcy case. Call today to speak with a bankruptcy lawyer from the Chicago Bankruptcy Network.  We will give you a free consultation and review all of the options you have available based on your individual case.

Below is the Illinois Code sections on some of the most popular exemptions used in bankruptcy cases.

Illinois Compiled Statutes

CIVIL PROCEDURE
(735 ILCS 5/) Code of Civil Procedure.
(735 ILCS 5/Art. XII Pt. 9 heading)

Part 9. Exemption of Homestead
(735 ILCS 5/12‑901) (from Ch. 110, par. 12‑901)

Sec. 12‑901. Amount. Every individual is entitled to an estate of homestead to the extent in value of $15,000 of his or her interest in a farm or lot of land and buildings thereon, a condominium, or personal property, owned or rightly possessed by lease or otherwise and occupied by him or her as a residence, or in a cooperative that owns property that the individual uses as a residence. That homestead and all right in and title to that homestead is exempt from attachment, judgment, levy, or judgment sale for the payment of his or her debts or other purposes and from the laws of conveyance, descent, and legacy, except as provided in this Code or in Section 20‑6 of the Probate Act of 1975. This Section is not applicable between joint tenants or tenants in common but it is applicable as to any creditors of those persons. If 2 or more individuals own property that is exempt as a homestead, the value of the exemption of each individual may not exceed his or her proportionate share of $30,000 based upon percentage of ownership.

(Source: P.A. 94‑293, eff. 1‑1‑06.)


Part 10. Exemption of Personal Property
(735 ILCS 5/12‑1001) (from Ch. 110, par. 12‑1001)

Sec. 12‑1001. Personal property exempt. The following personal property, owned by the debtor, is exempt from judgment, attachment, or distress for rent:
(a) The necessary wearing apparel, bible, school books, and family pictures of the debtor and the debtor's dependents;
(b) The debtor's equity interest, not to exceed $4,000 in value, in any other property;
(c) The debtor's interest, not to exceed $2,400 in value, in any one motor vehicle;
(d) The debtor's equity interest, not to exceed $1,500 in value, in any implements, professional books, or tools of the trade of the debtor;
(e) Professionally prescribed health aids for the debtor or a dependent of the debtor;
(f) All proceeds payable because of the death of the insured and the aggregate net cash value of any or all life insurance and endowment policies and annuity contracts payable to a wife or husband of the insured, or to a child, parent, or other person dependent upon the insured, whether the power to change the beneficiary is reserved to the insured or not and whether the insured or the insured's estate is a contingent beneficiary or not;
(g) The debtor's right to receive:
(1) a social security benefit, unemployment compensation, or public assistance benefit;
(2) a veteran's benefit;
(3) a disability, illness, or unemployment benefit; and
(4) alimony, support, or separate maintenance, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor.
(h) The debtor's right to receive, or property that is traceable to:
(1) an award under a crime victim's reparation law;
(2) a payment on account of the wrongful death of an individual of whom the debtor was a dependent, to the extent reasonably necessary for the support of the debtor;
(3) a payment under a life insurance contract that insured the life of an individual of whom the debtor was a dependent, to the extent reasonably necessary for the support of the debtor or a dependent of the debtor;
(4) a payment, not to exceed $15,000 in value, on account of personal bodily injury of the debtor or an individual of whom the debtor was a dependent; and
(5) any restitution payments made to persons pursuant to the federal Civil Liberties Act of 1988 and the Aleutian and Pribilof Island Restitution Act, P.L. 100‑383.

For purposes of this subsection (h), a debtor's right to receive an award or payment shall be exempt for a maximum of 2 years after the debtor's right to receive the award or payment accrues; property traceable to an award or payment shall be exempt for a maximum of 5 years after the award or payment accrues; and an award or payment and property traceable to an award or payment shall be exempt only to the extent of the amount of the award or payment, without interest or appreciation from the date of the award or payment.

(i) The debtor's right to receive an award under Part 20 of Article II of this Code relating to crime victims' awards.  Money due the debtor from the sale of any personal property that was exempt from judgment, attachment, or distress for rent at the time of the sale is exempt from attachment and garnishment to the same extent that the property would be exempt had the same not been sold by the debtor.

If a debtor owns property exempt under this Section and he or she purchased that property with the intent of converting nonexempt property into exempt property or in fraud of his or her creditors, that property shall not be exempt from judgment, attachment, or distress for rent. Property acquired within 6 months of the filing of the petition for bankruptcy shall be presumed to have been acquired in contemplation of bankruptcy.

The personal property exemptions set forth in this Section shall apply only to individuals and only to personal property that is used for personal rather than business purposes. The personal property exemptions set forth in this Section shall not apply to or be allowed against any money, salary, or wages due or to become due to the debtor that are required to be withheld in a wage deduction proceeding under Part 8 of this Article XII.

(Source: P.A. 94‑293, eff. 1‑1‑06.)

(735 ILCS 5/12‑1006) (from Ch. 110, par. 12‑1006)
Sec. 12‑1006. Exemption for retirement plans.

(a) A debtor's interest in or right, whether vested or not, to the assets held in or to receive pensions, annuities, benefits, distributions, refunds of contributions, or other payments under a retirement plan is exempt from judgment, attachment, execution, distress for rent, and seizure for the satisfaction of debts if the plan (i) is intended in good faith to qualify as a retirement plan under applicable provisions of the Internal Revenue Code of 1986, as now or hereafter amended, or (ii) is a public employee pension plan created under the Illinois Pension Code, as now or hereafter amended.

(b) "Retirement plan" includes the following:
(1) a stock bonus, pension, profit sharing, annuity, or similar plan or arrangement, including a retirement plan for self‑employed individuals or a simplified employee pension plan;
(2) a government or church retirement plan or contract;
(3) an individual retirement annuity or individual retirement account; and
(4) a public employee pension plan created under the Illinois Pension Code, as now or hereafter amended.

(c) A retirement plan that is (i) intended in good faith to qualify as a retirement plan under the applicable provisions of the Internal Revenue Code of 1986, as now or hereafter amended, or (ii) a public employee pension plan created under the Illinois Pension Code, as now or hereafter amended, is conclusively presumed to be a spendthrift trust under the law of Illinois.

(d) This Section applies to interests in retirement plans held by debtors subject to bankruptcy, judicial, administrative or other proceedings pending on or filed after August 30, 1989.

(Source: P.A. 86‑393; 86‑1329.)

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