Caselaw - BAPCPA Issues

Attorneys as debt relief agencies.

Attorneys advertising as debt relief agencies.

Attorneys advising assisted persons to incur debt.

Failure to keep or preserve records.

Projected Disposable Income.

Written by Rachel Lynn Foley, Kansas City Missouri Bankruptcy Attorney.

In re Schilke Case No: 056-41813

Under a Code provision added by the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), that allows Chapter 12 debtors to pay, as general unsecured debts not included among the priority claims that otherwise must be paid in full, any debt "owed to a governmental unit that arises as a result of the sale, transfer, exchange, or other disposition of any farm asset used in the debtor's farming operation," a Chapter 12 debtor was entitled to pay, as a general unsecured claim not entitled to priority, a capital gains tax that arose in connection with the postpetition sale of real estate and other farm assets to fund the debtor's plan, even though the debtor's Chapter 12 estate was not a separate taxable entity. The bankruptcy estate need not be a separate taxable entity in order for taxes to be "incurred by the estate" and thus entitled to priority under 11 U.S.C.A. 503(b)(1)(B).

Date of decision: 11/28/07

For full opinion click here.

In re Spratling Corp. Case No: 06-40614

Creditor Wells Fargo Corp. (Fargo) filed an objection to the confirmation of Debtor's Chapter 13 plan. In his plan, Debtor proposed to bifurcate and cramdown Fargo's undersecured claim using § 506 of the Code as was common practice prior to the enactment of certain provisions of BAPCPA. The "hanging paragraph" of § 1325(a), which was added by BAPCPA and became effective on October 17, 2005, prohibits bifurcation and cramdown where (1) the creditor has a purchase money security interest; (2) the debt was incurred within 910 days preceding the filing of the bankruptcy case; (3) the collateral for the debt is a motor vehicle; and (4) the motor vehicle was acquired for the personal use of the debtor.The Court SUSTAINED Fargo's objection holding that in the context of the retail installment sale of a motor vehicle in Georgia, "price," for purposes of Georgia's purchase money security interest statute, can include monies paid for an extended service contract and gap insurance.

Date of decision: 10/19/07

Full opinion click here.

In re Murray Case No: 05-48017

Creditor Nuvell Financial Services Corp. (hereinafter, “Nuvell”) filed an objection to the confirmation of Debtors’ Chapter 13 Plan on the basis that the treatment of Nuvell in the plan did not comport with the requirements of the “hanging paragraph” of 11 U.S.C. § 1325(a) (hereinafter, “§ 1325(a)(*)”). Debtors purchased a motor vehicle within 910 days of filing their Chapter 13 bankruptcy petition. The vehicle was purchased for the personal use of Debtors. At the time the vehicle was purchased, Debtors also purchased an extended service contract and were assessed a documentary fee by the seller. Debtors argued that the purchase of the extended warranty and the payment of the documentary fee with monies meant for the purchase of the vehicle alone, prevented Nuvell from holding a purchase-money security interest.

The Court held that Nuvell in fact held a purchase-money security interest and that the other requirements of § 1325(a)(*) were met so as to qualify Nuvell’s claim for treatment under that section. Further, the Court held that § 1325(a)(*) does not prevent a claim qualifying under that section from being an “allowed secured claim” for purposes of § 1325(a)(5) and its present interest requirement. Section 1325(a)(*) serves to prevent the bifurcation of an under-secured claim into a secured and unsecured portion under § 506. This holding is consistent with the vast majority of cases considering the meaning of § 1325(a)(*). The Court’s interpretation is also consistent with the plain meaning of the statute and with the legislative history on the section.

The Court also considered the issue of post-petition interest rates to be paid in accordance with § 1325(a)(5) on secured claims that qualify for treatment under § 1325(a)(*). The Court concluded that the United States Supreme Court case of Till v. SCS Credit Corp., 541 U.S. 465 (2004), was applicable to claims falling under § 1325(a)(*). The Supreme Court held in Till that § 1325(a)(5) required that interest on allowed secured claims should be paid at a current rate determined by an adjustment from the prime rate based upon the risk of nonpayment. Being as the Court concluded that a claim qualifying under § 1325(a)(*) is an “allowed secured claim” for purposes of § 1325(a)(5), the interest rate set forth in Till is appropriate.

Date of decision: 6/6/06

Full opinion click here.

In re Shorton

Discharge - Debtor's breach of his obligations as escrow agent was defalcation while acting in fiduciary capacity.

A Chapter 7 debtor-attorney's conduct, in his capacity as escrow agent for both the vendor and purchaser on a sale in which he had represented the vendor, in applying the purchaser's escrowed deposit to attorney fees owed by the vendor without the purchaser's consent, was in the nature of a "defalcation" that the attorney committed while acting in a fiduciary capacity and served to preclude discharge of the resulting debt. A bankruptcy judge in Massachusetts rejected the debtor's argument that the purchaser had breached the sales agreement and lost any right to the escrowed funds.

Tanna LaTisha Suggs, Debtor. Tanna LaTisha Suggs, Plaintiff-Appellant v. Regency Financial Corp., Defendant-Appellee. Case No. 06-6077

Western District's Local Rule 4070-1.D, allowing creditors to repossess uninsured vehicles in Chapter 13 cases without first filing a motion for relief from stay, is found invalid.

Date of decision: 9/12/07

Full opinion here.

In re VIKKI J. NICKERSON - Case No. 07-41889

If the effect of section 522(b)(3)'s domiciliary requirements is to render a debtor ineligible for any state's exemptions because the domiciliary state has opted out of the federal exemption scheme and does not permit non-residents from claiming the state's exemptions, the debtor may elect to exempt property under section 522(d).

Date of decision: 9/7/07

Full opinion here.

In re SHANTE LaSHELL RIDING - Case No. 07-42368

Following the Eighth Circuit BAP's decision in In re Frederickson, the Court deviates from its prior interpretation of "projected disposable income" under section 1325(b), and adopts a mechanical application of the numbers from Form 22C to determine whether a plan can be confirmed. Hence, the Court may no longer consider the debtor's actual circumstances for plan confirmation purposes.

Date of decision: 10/30/07

Full opinion here.