U.S. Supreme Court: Chapter 13 Debtor Who Does Not Make Loan or Lease Payments Cannot Deduct Vehicle Ownership Expenses
Ransom v FIA Card Services, NA, Supreme Court of the United States, Jan. 11, 2011 (Case No. 09-907).
In the first opinion authored by Justice Elena Kagan, the Supreme Court of the United States held that a Chapter 13 debtor who owns a vehicle outright and thus does not make loan or lease payments cannot include vehicle ownership costs in his or her monthly expenses for purpose of the means test.
Under BAPCPA, debtors in Chapter 13 cases must follow a formula to calculate their disposable income - that is, the amount that the debtor must use to pay creditors under a court-approved Chapter 13 plan. To determine disposable income, the debtor deducts certain "reasonably necessary" expenses from his or her monthly income. Those reasonably necessary expenses, which are outlined in the IRS's "National and Local Standards," include allowances for vehicle ownership and operating costs. Read More ›
Categories: Chapter 13, U.S. Supreme Court
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New Opinion Creates Split in Western District as to Whether Debtors Can Exempt Undisclosed Tax Refund That is Spent Post-petition.
In re O'Brien, Bankr. W.D. Mich., Jan. 4, 2011 (Case No. 09-00426, Hon. James D. Gregg).
As previously discussed on this blog, debtors should include a good-faith estimate of an anticipated tax refund in their bankruptcy schedules. In prior cases, the Hon. Jeffrey R. Hughes and the Hon. Scott W. Dales suggested that debtors may not be able to amend their schedules to exempt tax refunds that have already been spent at the time of the amendment. But in a recent opinion, the Hon. James D. Gregg disagreed with those cases and held that, depending on the circumstances, debtors may be able to exempt a tax refund that was not originally disclosed, even if the tax refund has been spent. Read More ›
Categories: Chapter 7, Western District of Michigan
Eastern District: Business Debtors in Chapter 7 Must Tighten Their Belts, Too
In re Rahim, Bankr. E.D. Mich., Dec. 16, 2010 (Case No. 10-57577-R, Hon. Steven Rhodes).
When one thinks of Chapter 7 bankruptcy cases, the low-income consumer debtor who is overwhelmed by debt often comes to mind. But individuals whose debts are primarily "non-consumer" debts – usually business debts – may also qualify for Chapter 7 relief, even if they cannot pass the "means test" required for consumer debtors under BAPCPA. Because business debtors do not have to pass the means test, their incomes may be significantly higher than what one might expect to see in a Chapter 7 case. However, at least one Michigan bankruptcy court is requiring high-income business debtors to tighten their belts when they seek Chapter 7 relief.
In In re Rahim, the married debtors, both practicing physicians, earned a startlingly high income. Despite having filed Chapter 7, the debtors' annual income exceeded $500,000, and their expenses included sizeable mortgage payments on their home, vacation home, and rental home, plus payments on three luxury vehicles. Their debts included numerous mortgages and personal guaranty liability arising out of failed real estate ventures. Read More ›
Categories: Chapter 7, Eastern District of Michigan
New Amendments to Bankruptcy Rules Take Effect
Although less sweeping than the 2009 rule amendments, which changed the time periods for many actions, bankruptcy professionals should take note of the most recent changes to the Bankruptcy Rules.
Notably, Amended Rule 1007(c) increases the time for an individual debtor in Chapter 7 to file the statement of completion of a course concerning personal financial management from 45 days to 60 days. Read More ›
Categories: Chapter 11, Chapter 13, Chapter 7
Annuity Purchased by Non-Filing Spouse Can Become Property of Bankruptcy Estate
In re Olsen, E.D. Mich., Oct. 27, 2010 (Case No. 10-10926, Hon. Stephen J. Murphy, III, District Judge).
When a person files bankruptcy, all of his or her property becomes property of the bankruptcy estate. This concept of "property of the estate" casts a wide net and includes all of the bankruptcy debtor's legal and equitable interests in property. However, questions often arise when a debtor is listed as an owner of an asset that someone else purchased. In such cases, the debtor might argue that he or she is not the "true," or equitable, owner of the property and that the property therefore cannot be used to pay creditors.
In In re Olsen, the debtor's husband, who did not file bankruptcy, was in a motorcycle accident. He settled a claim for his personal injuries and used the settlement funds to purchase an annuity. He and his wife, the debtor, were listed as co-owners and co-annuitants, and both were entitled to receive payments under the annuity. Read More ›
Categories: Eastern District of Michigan
Chapter 7 Trustee May Avoid Mortgage on Platted Land Where Legal Description Fails to Identify Plat
Richardson v. Wells Fargo Home Mortgage, Inc. (In re Brandt), Bankr. W.D. Mich., Nov. 30, 2009 (Adv. Pro. No. 08-80342, 421 B.R. 426, Hon. James D. Gregg), affirmed, W.D. Mich., Aug. 25, 2010 (Case No. 1:10-CV-55, Hon. Robert Holmes Bell).
Outside of bankruptcy, errors in legal descriptions in mortgages often can be corrected. But when a mortgagee files a Chapter 7 bankruptcy case, a mistake in a legal description can open the door for a trustee to avoid the mortgage and potentially liquidate the property for the benefit of the debtor's unsecured creditors. Read More ›
Categories: Chapter 7, Western District of Michigan
Bankruptcy courts split as to dischargeability of personal guaranty liability
In re Lipa, E.D. Mich., Aug. 17, 2010 (Case No. 04-74608, Hon. Steven Rhodes).
In re Weeks, W.D. Mich., Jan. 23, 2009 (Case No. 05-02298, 400 B.R. 117, Hon. Jeffrey R. Hughes).
It is not uncommon for debtors - particularly those who own businesses - to sign personal guaranties before their bankruptcy filing. Pre-petition obligations under those guaranties are generally discharged in bankruptcy. But when a post-petition obligation arises under such a guaranty, the Bankruptcy Courts for the Western and Eastern Districts of Michigan are divided as to whether a guarantor-debtor is protected by his or her discharge. Read More ›
Categories: Eastern District of Michigan, Western District of Michigan
Bankruptcy Court Rejects Chapter 7 Trustee's Efforts to Revoke Abandonment of Property
In re Reiman, Bankr. E.D. Mich., July 16, 2010 (Case No. 09-70776, Hon. Phillip J. Shefferly).
Because of the high volume of foreclosures in Michigan, some lenders are bidding less than fair market value at foreclosure sales, particularly on the east side of the state. This has created a conundrum for Chapter 7 trustees who close cases as "no asset" cases, only to discover after the foreclosure sale that they could have sold the property at market value, paid the redemption amount, and still had money remaining to distribute to unsecured creditors. Read More ›
Categories: Chapter 7, Eastern District of Michigan
Espinosa Does Not Excuse Compliance With Bankruptcy Rules When Defect is Detected Pre-Confirmation
In re Peckens-Schmitt, Bankr. W.D. Mich., July 16, 2010 (Case No. 10-04164, Hon. Scott W. Dales).
In a notable decision, the United States Supreme Court recently upheld a bankruptcy court's confirmation of a Chapter 13 plan that discharged part of a student loan debt without an adversary proceeding where the student loan creditor had notice of the plan but did not object. United Student Aid Funds, Inc. v. Espinosa, 130 S. Ct. 1367 (2010). Read More ›
Categories: Chapter 13, U.S. Supreme Court, Western District of Michigan
Debtors' Counsel Take Heed: Chapter 7 Debtors Must Schedule a Good Faith Estimate of the Value of Their Anticipated Income Tax Refund
In re Trudell, Bankr. W.D. Mich., Feb. 19, 2010 (Case No. 09-00340. Hon. Jeffrey R. Hughes).
Attorneys for bankruptcy debtors have a duty under the Bankruptcy Code to ensure that the information in the debtors' schedules is accurate. A recent decision from the Bankruptcy Court for the Western District of Michigan cautions debtors' attorneys that this duty extends to the disclosure of anticipated income tax refunds.
When the chapter 7 debtors filed their schedules, they indicated that they did not expect to receive an income tax refund. Several weeks later, the debtors filed their tax return, which showed that they were entitled to a $5,000 refund. The debtors subsequently amended their schedules to disclose the refund and to fully exempt it. Thereafter, the debtors spent their refund. Read More ›
Categories: Chapter 7, Western District of Michigan
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