This is continuing coverage of the 2013 National Conference of Bankruptcy Judges.   Today I was able to attend a program on blogging, listen to an economist prognosticating and observe a hearing of the ABI Commission to Study the Reform of Chapter 11.BloggingJudge Robert Kessel (Bankr. D. Minn.), Judge Bruce Harwood (Bankr. D. N.H.), Bob Lawless (of Credit Slips) and Debra Dandenau (of Weil Bankruptcy Blog) presented an informative panel on blogging.   Including this panel at NCBJ (with two judges participating) is evidence that blogs have come a long way in terms of respectability.     It also underscores the point that judges read bankruptcy blogs.Blogs are part of the larger group of content classified as “electronic social media,” which puts them in the same category as Facebook and Twitter.    The term blog is a contraction of web log and refers to the origin of blogs as personal journals published on the internet.    The blogs on the internet are distinguished from the same term used to describe a strong drink of indiscriminate content used by science fiction writers.   (I would not have known this if it wasn’t for Judge Harwood).Debra Dandenau is an editor of the Weil Bankruptcy Blog (WBB), which can be found here.    In order to distinguish themselves from other blogs, they made the decision to publish daily.   This is possible when you have an army of minions (associates) jumping at the chance to be published.   The Weil authors publish an average of once a month which must mean that they have at least twenty authors contributing.    The firm uses the blog as a marketing tool which means that the Weil name is on every page.    Prof. Bob Lawless is a contributor to Credit Slips, which can be found here.   Credit Slips is also a group effort.   It began as a way for a diverse group of academics working on a major research project to maintain contact with each other.   The two blogs have contrasting approaches to their corporate identity.   At WBB, editors who are partners review the content to ensure quality and make sure that the blog represents the firm.    Associates are required to send an email around to all of the partners in the department to make sure that the blog does not take a position contrary to client interests.   In contrast, each of the Credit Slips bloggers are solely responsible for their own content and they do not attempt to do message control.   This blog, on the other hand, is purely a solo effort.   While I have been approached by strangers offering to do guest posts, I would not be comfortable accepting content from someone I did not know well.   WBB tries to engage its readers through devices such as surveys and humor.   Their October 31 posting was on the Ghost of Anna Nicole.    Writing a blog raises legal and practical issues.   As explained by Dandenau, authors strive to provide more insight than can be gained from simply reading the cases, but are careful not to betray client confidences or work product.   As a result, the firm rarely writes about ongoing cases in which it is involved.   (A practice that I follow as well).   Prof. Lawless noted that it was important to make disclosure when writing about a case that the author has an interest in.   Another important decision to make is how much of an editorial voice to use.   Ms. Dandenau stated that they never criticize bankruptcy judges, although they may occasionally point out an issue that presumably was not brought up by the parties.    The blog is somewhat more willing to take a position on appellate decisions.   There are also judicial bloggers, including Hercules and the Umpire (found here) and the Becker Posner blog (found here).   According to ABA FormalOpinion 462, judges can participate in electronic social media, but must “avoid any conduct that would undermine the judge’s independence, integrity, or impartiality, or create an appearance of impropriety.”    Thus, a judge could get in trouble for making comments on a blog or other social media that reflected favorably or poorly on an attorney appearing before her.   According to Prof. Lawless, the benefits of writing a blog include:Getting your name outShowcasing your expertiseNetworking with the mediaStaying current on the issuesEngaging with the community that reads your blogOne way to engage with the community is through the comments section of the blog.   WBB make a conscious decision not to allow comments, while Credit Slips allows unmoderated comments (although they have software to screen out spam).   Prof. Lawless said that one recent commenter who took him to task succeeded in changing his mind.   On the other hand, nasty comments may come back to bite the commenter.   Recently, an irate reader of Scotusblog posted a comment that read  “go f***yourself and die.”   Scotusblog tracked down the anonymous commenter though his IP address and outed him to their list of 174,000 twitter followers.    I moderate comments because I haven’t figured out a better way to block spam, but also because I get the occasional hateful comment about a judge, lawyer or party. Judge Harwood said that he reads bankruptcy blogs because they are updated frequently, have focused content and have hyperlinks to useful material.   He compared blogs to law reviews with the analogy that blogs are business casual while law review articles are black tie.   Law reviews get dressed up but don’t go out very often.   Judge Hannah Blumenstiel (Bankr. N.D. Cal.) stated that she uses blogs as a shortcut to do legal research.   She said that they did not violate the prohibition against a judge consulting outside sources because they were used to find the law rather than the facts.The most popular blogs read by panelists were:Credit SlipsHercules and the UmpireWeil Bankruptcy BlogThe Ponzi BlogWall Street Journal Bankruptcy Beat Even though they did not mention this blog, I am glad to give a hat tip to these well-written selections.   (Their written materials did refer to both A Texas Bankruptcy Lawyer’s Blog and Spiritually Bankrupt by Ron Satija).Judge William L. Norton, Jr. AwardJudge Barry Russell (Bankr. C.D. Cal.) was honored by the American Bankruptcy Institute with the William L. Norton, Jr. Award.   Judge Russell was appointed as a Bankruptcy Referee in 1974 and became a Bankruptcy Judge in 1979.   He is currently the longest serving Bankruptcy Judge in the United States.  He is the author of West’s Bankruptcy Evidence Manual and established a mediation program in his district.   In his acceptance speech, he called his long friendship with Judge Norton and noted that Judge Norton encouraged him to write his first evidence book.The Economist’s ViewpointProf. Jeffrey Rosensweig of Emory University, who was formerly a senior economist for the Atlanta Fed, gave the luncheon address for the ABI.    His presentation was full of slides packed full of charts and economic data, some of which I could read.    Any errors are due to my poor eyesight.Prof. Rosensweig presented a lot of data pointing to different trends.   One recurring theme was that the incoming Fed Chairman Janet Yellen will keep interest rates low for the foreseeable future but that they will go up.     He said that Yellen would continue the quantitative easing program of the Fed where it buys U.S. government debt from banks in order to put more money back into the economy.    He pointed out that treasury debt held by the Federal Reserve System had increased from $1.5 trillion to $2.0 trillion in the last three years.   So long as the Fed keeps pumping money into the economy interest rates will remain low.   Recently the expectation that the Fed would begin tapering its purchases caused interest rates to go up by a point.   However, when the Fed did not taper, they resumed their downward path.   The 10 year U.S. Treasury interest rates upon which most mortgages are priced has declined from 7% to less than 2%, went up to 3% but is expected to drop to 2.5%.   Beyond the interest rate news, he was fairly gloomy.   He noted that the developing countries were showing tremendous growth while Europe was stagnant or declining.   The U.S. economy will grow at a rate of 1.5% this year and is expected to grow by 2.5% next year.    This will not be sufficient to put a dent in unemployment.   One reason for poor growth is that housing is no longer the locomotive driving growth.   During the housing bubble, home starts were up at two million, which exceeded the long term average of 1.5 million per year.   After the crash, they dropped as low as half a million before rebounding to one million.  Thus, even though housing starts are up from the bottom, they are not back to historic levels.Among other industries, health care employment is up by 35% over ten years, while manufacturing employment is down 30%.   Construction had crashed but is coming back.   Government employment has been steadily declining for years.He said that the unemployment rates published gave a misleading impression of the labor market.   While unemployment is down, labor force participation is at its lowest point since women entered the workforce in the 60s and 70s.   (He was quick to point out that women had always been working but were not counted as being in the workforce until they began working outside the home).    He described labor force participation and unemployment as the donut and the hole.   Participation is the donut, while unemployment is the hole in the donut.   He said that when you buy a donut, you care about how big the donut is, not the size of the hole.   The donut is shrinking.Prof. Rosensweig noted that inflation has been running below target.   To keep the economy humming, an inflation rate of 2% is healthy.   We have been running below 2% and declining.However, he was not overly pessimistic about the national debt and entitlement spending.   The national debt has grown from $1 trillion in 1981 to a projected $18 trillion next year   Meanwhile the ratio of debt to GDP grew from 30% of GDP in 1981 to over 100% in 2011.   Now the percentage has dropped below 100% which means that the economy will not implode (my words not his).   On an annual level, the deficit has dropped from $1.4 trillion in in 2009 to $680 billion in 2013.   As a percentage of GDP, this is a drop from 10% to 3%.    He said that as long as the economy grows faster than the new debt being accumulated, we will be able to stay ahead of the deficit.   He likened it to a family that is going deeper in debt, but whose income is rising faster than their debt payments.Finally, he said that we will be able to maintain entitlement spending but that it will be necessary to raise the retirement age.   He said that in order to have the same number of workers paying into social security and medicare in 2030 as in 2010, it will be necessary to raise the retirement age to 70, although we may be able to get away from 68 or 69.   On the other hand, if the retirement age remains at 65, there will be a serious imbalance between working and retired people.   ABI Commission to Reform the Bankruptcy LawsThe ABI is conducting a series of hearings on reforming chapter 11.   Today’s hearing was on corporate governance.   The six witnesses combined a chorus of pleas for the status quo with a few startling proposals for change.Dennis Dunne of Milbank Tweed testified that the current system of official committees worked just fine and should be kept.   He argued that ad hoccommittees were a poor substitute because they did not owe fiduciary duties and tended to come and go.   However, he did note a potential problem where a committee represented unsecured creditors who were out of the money.   In that situation, the committee would have an incentive to pursue chancy litigation and prolong the case in order to fulfill its fiduciary duty to get something for the unsecureds.   However, he did feel that the committee still had a role in order to investigate the secured creditor’s liens and make sure there were not any unencumbered assets.Questions directed to Mr. Dunne concerned whether there should be multiple committees for jointly administered debtors or one committee for all creditors, secured and unsecured creditors alike.   Mr. Dunne testified that too many committees could prevent reorganization while a single committee, including secured creditors, would have impossible and conflicting duties.    He was also asked about the problem of ad hoc committees holding out for substantial contribution claims.   He acknowledged that having to pay two sets of committees was a problem, but said there was not a statutory fix.            William Snyder of Deloitte Financial Advisory Services, LLP testified about the virtues of Chief Restructuring Officers.    In his view, a Chief Restructuring Officer allows a business to address is problems while retaining the institutional knowledge of the board of directors.   He said that anyone who thinks they can step into a business and know everything within 2-4 weeks is delusional.   He gave the analogy of a plane in trouble.   In that case, there is one pilot to fly the plane and one pilot to fix the problem.   Presumably, the CRO would be the pilot fixing the plane.   He said that to work, a CRO must have the power to hire, fire, sign checks and refuse to sign checks.   He recommended that section 101(14) be amended to allow a pre-petition CRO to be employed as a professional.   Currently, “officers” are defined as not disinterested.   Since the O in CRO stands for officer, this is a problem.One of the commissioners questioned whether the CRO was a threat to the traditional DIP model.   He described the CRO as “just a trustee picked by the secured creditor before the case is filed.”   Mr. Snyder pushed back against this notion, asserting that while someone in the capital structure usually forces the issue but the debtor selects the CRO.    He said that if the creditor requesting the CRO provides a list of acceptable candidates, those parties are usually blacklisted.   One of the commissioners suggested that the debtor’s lawyer usually has the most control over selection of the CRO.Brady Williamson, who chaired the National Bankruptcy Review Commission, advised the Committee to forget about persuading Congress with their recommendations and instead focus on educating the courts, US Trustees and public of the need for change.   He pointed out that BAPCPA was vetoed by the President and blocked by one house of Congress or the other on at least four occasions before it eventually passed.   He said that today’s Congress is much more divided.    He said that the Commission could improve the public perception of the bankruptcy system by showing that it is fundamentally sound.Clarkson McDow is the former U.S. Trustee for Region Four.   His message was that the U.S. Trustee system is a valuable part of the system.   In particular, he was emphatic that the U.S. Trustee continue to appoint trustees and examiners so that judges can avoid fulfilling an administrative role.    He insisted that appointing a chapter 11 trustee was not an extreme remedy and encourage more use of chapter 11 trustees in liquidating chapter 11 cases.   He said it was important to get a trustee in place before the most valuable assets were gone.    Mr. McDow encouraged the panel to resist appointing persons with trustee-like powers in favor of appointing actual trustees.Prof. Anne Lawton of Michigan State University College of Law reported on her empirical research.   She said that the 300 day deadline for a small business debtor to file a plan and the45 day deadline to confirm a plan were solutions in search of a problem.   She said cases were being disposed of quickly prior to BAPCPA.    Of small business cases, only 47% were still pending at 345 days into the case.   However, she said that of cases still pending at the 345 day mark, 71% proposed a plan and 46% confirmed a plan.   This compares to a confirmation rate of 26% overall.   She said that it just takes longer to get to confirmation.    She also testified that cases more likely to succeed typically had committees appointed.   However, she did not advocate for more committee appointments.   Instead, she said that appointment of a committee was a signal that the creditors believe that the case is one worth paying attention to.   Prof. Lawton said that there were adequate means for quickly getting rid of cases with low prospects for success.    On the other hand, she said that there were too many levers to pull to dispose of a case that might succeed.   She said that we need a more efficient system for determining keepers.    Mark Gittelman, Chief Practice Counsel-Asset Recovery for PNC Bank, had the most provocative recommendations.    Unlike the other witnesses, who proposed no changes or at most one tweak, he had a six point plan:He recommended bifurcating bankruptcy courts into commercial courts and consumer courts.He also recommended creating mega courts for large and complex cases.   He said that the system could start with the courts in Delaware and New York and add a few others elsewhere in the country.   In return for creating the mega court, mid-market cases would be filed in their local venues.Mr. Gittelman also recommended that bankruptcy judges be rotated among different courts to encourage uniform practices between locales.He recommended that the selection process for professionals be more transparent and that courts be open to billing arrangements other than on an hourly basis.He favored enforcing the rules on timely filing of schedules and monthly operating reports so that creditors can receive needed information early in the process.   (Apparently he was referring to the practice of routinely granting schedule extensions in large cases).Finally, he recommended uniformity in first day motion practices.   He said that many cases were needlessly delayed because lawyers failed to file all of the first day motions they should.   He recommended developing a series of uniform first day motions to be filed in every case.

Eight Catholic Dioceses have Filed For Bankruptcy Protection In 2002, the Catholic diocese in Boston faced an enormous sex abuse scandal, during which its clergy were accused of countless instances of abuse. The allegations have forced the diocese into bankruptcy. Through the bankruptcy process, we have learned about the sheer number of allegations against the […]The post Approximately 550 Claims Filed Against Archdiocese in Milwaukee Bankruptcy appeared first on Tucson Bankruptcy Attorney.

I am at the National Conference of Bankruptcy Judges in Atlanta.    The conference includes some of the best bankruptcy continuing education in the country.    There is no way to report on it all, so I will be offering some random observations.    Moonlight RunThe  healthiest event of NCBJ is Bernstein-Burkley’s Wake Up and Run.    This year’s event drew about 60 runners willing to meet up at 6am for a 5k run.    The race was done professionally with personalized race bibs, chip timing and souvenir tshirts.    It was still full on dark at the race’s start time of 7am, so it ended up being a moonlight run through the park.    Judge Elizabeth Stong of the Eastern District of New York finished second in the women’s division.    Judges Tony Davis and Cooter Hale represented Texas.   I don’t know their times but they were faster than me.    VenueI attended a meeting of the Venue Working Group.   This is a group of about 100 attorneys from 35 states who are working to build support for venue reform in Congress.   The group is supported by the Commercial Law League of America and includes many members from the group.    Peter Califano made a presentation on the group’s work later in the day.   According to Peter, during 2003-2012, there were  559  chapter 11 cases filed in Delaware and 104 in the Southern District of New York which had their headquarters elsewhere.    Those cases involved $2 trillion in collective debt.    The Working Group supports legislation similar to HR 2533, introduced by Reps. Smith and Conyers, which would have eliminated state of incorporation venue and restricted affiliate venue.Douglas Rosner of the Working Group will be testifying before the ABI Chapter 11 Reform Commission in November.    The Group will also be participating in the CLLA’s legislative conference in February 2014.363 SalesThe presentation on 363 sales raised more questions than it answered.    One rhetorical question asked is whether debtor’s management is a mere tool of the secured lenders and whether cases run for the benefit of the secured creditors are proper under the Code.   Another question was whether 363 sales can be structured to accomplish results that could not be obtained under a plan, such as paying some administrative claimants but not others and paying money to unsecured creditors when senior creditors are not being paid in full.    The question was posed of whether the judge could “throw out the Code to do the most good for the most people.”Student LoansJudges Anita Shodeen (Bankr. D. Ia) and Michael Williamson (Bankr. S.D. Fl.) had a “debate” on student loans.   I put debate in quotes because they agreed with each other far more than they disagreed.    However, the point-counterpoint format was lively.    Judge Shodeen noted the difficulty of trying cases with pro se debtors who may suffer from mental illness.   She noted that North Carolina has a program for low cost mental health evaluations for student loan plaintiffs.    Both judges suggested that practitioners push back on the Brunertest for undue hardship.    Judge Shodeen suggested that the legislative history indicated that section 523(a)(8) was originally intended as a guard against debtor abuse and that it should be brought back to that purpose.Judge Williamson rejected the appeal to legislative history noting:Looking to legislative history is like going to a cocktail party and looking for a friendly face.   You’ll probably find one.    However, he emphasized that the Bruner test is a product of a bygone age when student loans could be discharged in as little as five to seven years and student loan defaults had not ballooned to over 17%.    He said that it is “time for trial courts to get a little aggressive” in pushing back against Bruner and urged attorneys to “push the envelope on these issues.”Lawrence B. King AwardJudge Jay Cristol received the Lawrence B. King Award from the Commercial Law League.   While I was well acquainted with Judge Cristol’s poetic efforts, I was not aware of his service as a pilot.    During the Korean War, he flew submarine hunting missions off an aircraft carrier.   On a training run, he once shot a missile that ricocheted back and hit his own plane.    More recently, while flying patients for charitable medical treatments, he suffered engine failure and had to put his plane down on the highway.    He has also donated $1 million of his own funds to the University of Miami’s pro bono program.    Finally, he is the author of an acclaimed book on the Liberty Incident in which Israel fired on a U.S. ship during the Six Day War.   In discussing the history of bankruptcy, which once included debtor’s prisons, he said:I once proposed lender’s prisons for bank officers who made loans that were not properly underwritten.  It was not well received.Judge Cristol offered five suggestions for reforming bankruptcy and insolvency laws:Eliminate prebankruptcy credit counseling. Credit counseling is as valuable as telling a person with a heart attack to listen to a lecture on healthy eating habits before he can have open heart surgery. While Judge Cristol did not oppose the personal financial management course, he said it came too late. He recommended that all high school students be required to complete a financial management course.He recommended bringing back “real” usury laws.He said that education should be free in the United States or that student loans should be dischargeable. He said that I see little difference between a person who borrows $100,000 to open a pizza business and the person who borrows $100,000 for an education. Why shouldn’t they both be dischargeable?He also asked: “Why undue hardship? Why isn’t hardship enough?”He also said that chapter 13 would be more useful if courts could modify home mortgage loans. He said this “would be the law if the major banks were not so greedy and stupid.”It is somewhat ironic that the person being honored by a creditors’ rights organization used his acceptance speech to criticize certain creditors. However, after 28 years on the bench and 38 years of service in the Naval Reserve, he has earned the right to speak his mind. His presentation was lively and drew a warm response from the crowd. Thursday’s Keynote SpeechBloomberg News Editor Bill Rochelle gave the keynote address for the CLLA lunch.    Prior to joining Bloomberg in 2007, he was a bankruptcy lawyer for 35 years.He thanked the CLLA for inviting him to an event where he wouldn’t have to pay for any of his food or drink for four days.The more the bankruptcy business declines, the more the turnaround managers parties to hold onto market sharehe remarked.He predicted that Executive Benefits Insurance Agency v. Arkinson will not make much difference, but that “the next case will be a whopper.”   He said that when he attended oral arguments in Stern v. Marshall, he observed that all of the justices (even the ones who eventually dissented) were “very concerned about preserving the perogatives of Article III judges.”    He said that if the Supreme Court rules against the viability of waiver and consent, it will only affect cases currently pending.   However, the next case to reach the Supreme Court could hold that decisions in cases decided long ago are invalid.   He noted that Judge Jed Rakoff (S.D. N.Y.) has held that decisions by Bankruptcy Courts within the ambit of Stern v. Marshall are not entitled to res judicata or collateral estoppel effect and are only binding between the parties.   He said that the next case decided by the Supreme Court under Stern v.Marshall could spell the end of the U.S. Magistrate system.However, he said that Law v. Siegel is likely to be the big case of the term.    Law v. Siegel is a Ninth Circuit case that I have previously written about in which the Circuit affirmed the Bankruptcy Court’s decision to take away a debtor’s exempt property under section 105 based on misconduct.    He said that the case could be “a blockbuster case on whether federal courts can use their equity powers to override the plain meaning of statutes.”    He said that the case could be the turning point on equity.   He proceeded to discuss numerous areas where there are splits between the circuits, including equitable mootness, artificial impairment, inherited IR As, recharacterization of debt into equity, dismissal for bad faith based on pre-petition conduct, whether the Fair Debt Collection Practices Act is preempted by the Bankruptcy Code and whether wage garnishments within 90 days of bankruptcy are preferences.    Rochelle proposed creating a Federal Circuit Court for Bankruptcy.    He noted that disagreements between the circuits are growing while the Supreme Court hears only a few bankruptcy cases.   Sending all bankruptcy cases to one federal circuit composed of judges from each of the other circuits would allow for uniformity in bankruptcy law that is not present today and reduce the opportunities for forum shopping.CLLA Afternoon PanelsThe main thing that I took away from the discussion on complex litigation in Ponzi Scheme cases is that there is a presumption of fraud in Ponzi Scheme cases but no one agrees on its boundaries.   I also learned that Kathy Bazolan Phelps and Judge Steven Rhodes have written The Ponzi Book:   A Legal Resource for Unraveling Ponzi Schemes.   The main take aways from the Current Developments program were that deepening insolvency is still viable in Europe where it is known as “wrongful trading” and can lead to jail time and that the cases over who owns the unfinished business of bankrupt law firms are still very much in play after being a major topic of discussion at last year’s NCBJ.In the ethics panel, I learned that there is a new proposed Rule 2014 which will only require disclosure of material connections, but will require the firm to disclose how it defined materiality in doing the conflicts check.   It will also require firms to disclose what process they followed to score creditors’ committee gigs.Another theme was that when caught in an ethical violation, remorse is good.   It is better for the firm and its partners to accept responsibility than to deny that anything happen or throw the young associate under the bus.    

As many readers of our Cooler e-mails and blog posts are aware, one of the hottest current topics in personal bankruptcy is the treatment of rent–stabilized leases in Chapter 7 personal bankruptcy cases. Earlier this month, the New York Times had an excellent front page article entitled “Widow's Bankruptcy Case Poses Risk to Rent-Stabilized Tenants.” The case is captioned Santiago-Monteverede v. Pereira and involves 79 year old Mrs. Mary Veronica Santiago-Monteverede, who has lived in a two bedroom rent stabilized apartment in the East Village for 50 years and is paying monthly rent of $703, while the market rate for the unit would be $2,000 to $2,500 per month. Ms. Santiago-Monteverede filed Chapter 7 bankruptcy to discharge $23,000 of debt, none of which was owed to her landlord. Her landlord made an offer to purchase her lease from Chapter 7 Bankruptcy Trustee John S. Pereira, which he accepted.  The sale of the lease was subsequently challenged by Ms. Santiago-Monteverde’s attorneys.  The U.S. Bankruptcy Court for the Southern District of New York and the U.S. District Court for the Southern District of New York both ruled in favor of the Bankruptcy Trustee, and the case is now pending before the 2nd Circuit Court of Appeals, where oral arguments were held on September 23rd.This is the first Chapter 7 personal bankruptcy rent–stabilized case to reach the 2nd Circuit Court of Appeals. Please keep monitoring our Cooler e-mails and blog, and when the 2nd Circuit Court of Appeals issues a decision and order, we will report on it. Again, debtors who live in apartments with rent–stabilized leases need to proceed with extreme caution in deciding whether to file for bankruptcy. Jim

Do you remain on watch in your client’s Chapter 13 after confirmation? The attorney for the couple in my office yesterday apparently thought she was off duty  after confirmation. As a result, the debtors paid more than $30,000 to the wrong creditor, the mortgage arrears weren’t paid, and their case is on the verge of dismissal four years into the case. What went wrong What counsel didn’t monitor was the  filing of claims. The mortgage creditor with the$33,000 in arrearages, failed to file a proof of claim.  No claim, no distribution by the trustee. The strippable junior lien holder did file a claim. Counsel hadn’t taken the necessary steps to value the lien. A  filed claim, asserting secured status, was entitled to payment. So, the trustee paid the worthless junior lien the money intended to cure the mortgage arrears and to save the house. The takeaway The tragedy in this story is the information that counsel needed to catch the problem early was easily available. PACER lists the claims filed in the case. The trustee sends an annual report showing who is being paid in the case. I suspect I will find that the trustee notified the debtor about her intent to pay the claim not provided for by the plan. Counsel, it appears, was asleep on watch. When filed claims matter Your client usually chooses Chapter13 for a reason. They want to get current on the mortgage;  pay off their car; or take care of unpaid taxes. In other circumstances, you can leave creditors to take care of themselves.  Not so in Chapter 13. Your client has a real and post bankruptcy interest in those claims being paid.  Neither liens nor priority claims are discharged for failure to file a proof of claim. Remember that the debtor can file a proof of claim on behalf of a creditor. Image courtesy of Flickr and DonDeBold. The debtors are your flock.  You need to stay on patrol.

This is the case of David Hammons who comes from Skokie, Illinois which is Cook County, Illinois.  He is married to Christine but Christine is going to be a non-filing spouse in this case.  Right off the bat, we are not sure whether this is going to be a Chapter 7 or Chapter 13 so+ Read MoreThe post Bankruptcy Software Will Determine If Chapter 7 Or Chapter 13 appeared first on David M. Siegel.

National Lien Processors called “Bill” yesterday.  Bill filed bankruptcy with me and was discharged in June 2013. Bill told them he filed bankruptcy, and National Lien Processors told him that bankruptcy did not apply to them. That of course is B.S. and they know it.  They told Bill his lawyer better be ready to defend […]The post National Lien Processors 561-409-5490 Collecting after Bankruptcy appeared first on Robert Weed.

  In re McClendon, 2013 WL 5676215 (Bankr. N.D. Miss, October 18, 2013) involved the trustee's request for his 10% fee off of the sale of a piece of property which was sold outside the chapter 12 plan.  The Debtors own and operate a sod farm, and decided after confirmation of the plan to sell a portion of their land for $320,000 with the proceeds going to the creditor holding a lien on the property.  The confirmed chapter 12 plan provided for payment of that secured creditor's claim of $1,043,000 with a 4%, 20 year amortization and a 5 year balloon.  The chapter 12 plan is for a three year term.  The sale does not affect the amount being paid to the secured creditor through the plan, but solely affects the balloon after completion of the plan. The only compensation a standing chapter 12 trustee may receive is the percentage fee provided for by 28 U.S.C. § 586(e). 11 U.S.C. § 326(b).  Before or at the time of each payment to creditors under the plan, there shall be paid ... the percentage fee fixed” for the trustee. 11 U.S.C. § 1226(b)(2). The statutory formula for determining payment of compensation and expenses renders the fee-setting provisions under 11 U.S.C. § 326 inapplicable to a standing chapter 12 trustee.  Section 326(b) provides:In a case under chapter 12 or 13 of this title, the court may not allow compensation for services or reimbursement of expenses ... of a standing trustee appointed under section 586(b) of title 28....11 U.S.C. § 326(b). Accordingly, the Court may not award the Trustee compensation beyond what he is entitled to receive under 28 U.S.C. § 586(e). Michel v. Beard (In re Beard), 45 F.3d 113(6th Cir.1995).The Trustee argued that he was entitled to statutory compensation on any impaired claim being paid during the life of the chapter 12 plan.  The Court distinguished this case from those dealing with the authority of the debtor to make on-going direct payments to secured creditors without paying the trustee.    The trustee is entitled to collect his percentage fee “from all payments received by [him] under plans in the cases under chapter 12 ... for which [he] serves as standing trustee.” 28 U.S.C. § 586(e)(2).  The Court rejected the Trustee's argument that all payments to impaired creditors are payments made under the plan.  However, the sales were not contemplated in the confirmed plan, and did not flow through the trustee's office.  The court found that the sale was not a modification of the confirmed plan.  No change is made in the payments made by the trustee under the plan as originally confirmed.     The court also denied the trustee's request for a surcharge under §506(c).    Section 506(c) of the Bankruptcy Code provides that a “trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim.  Since the trustee did not expend any money or effort in effectuating the sale, such a request must fail. 

   In In re Vegt, 2013 WL 5652157 (Bankr. N.D. Iowa, October 16, 2013) the Court approved a priming lien on a dairy operation in order to construct a waste storage facility and rotational grazing facility.  The $300,000 loan carries an 8% interest rate increasing to 18% in the event of default and has a six month term.  The loan would prime the existing purchase money mortgage and lien on the property.  The US Dept. of Agriculture, National Resources Conservation Service had approved the debtor for two grants totaling $300,000, which would cover the costs of both projects upon completion.  The priming financier would obtain a lien on the proceeds of such grants.  The current waste storage facility is at capacity, and would be over capacity upon the Debtor's planned purchase of additional cattle, subjecting the debtor to environmental fines or possibly closure by the Iowa Dept. of Natural Resources.   The debtor requested approval under both 11 U.S.C. 364(c) and (d).  The court denied the request under §364(c) as it was inapplicable to the priming lien request.  Under §364(d) the Court can authorizing the incurring of debt and subordinate the lien of an existing senior creditor only if the debtor is unable to obtain credit otherwise, and if there is adequate protection of the senior lienholder.      Section § 364(d)(1)(A) requires the debtor to show that less burdensome financing is unavailable. In re Reading Tube Indus., 72 B.R. 329, 332 (Bankr.E.D.Pa.1987). The debtor does not have to show that it sought credit from every possible lender. Id. The parties do not dispute that Debtors are unable to obtain credit without granting the lender a priming lien. Jeremy testified that he had unsuccessfully requested financing from between 15 and 20 other lenders. Debtors have met their burden under § 364(d)(1)(A).The whole purpose in providing adequate protection for a creditor is to insure that the creditor receives the value for which the creditor bargained prebankruptcy.” In re O'Connor, 808 F.2d 1393, 1396 (10th Cir.1987) (citing House Rep. No. 95–595, 95th Cong ., 2d Sess. 53, reprinted in 1978 U.S.Code Cong. & Admin. News 5787, 5963, 6295).  Debtors carry the burden of proof on adequate protection. In re DB Capital Holdings, LLC, 454 B.R. 804, 822–23 (Bankr.D.Colo.2011).Adequate protection “may be provided by (1) periodic cash payments; (2) additional or replacement liens; or (3) other relief resulting in the ‘indubitable equivalent’ of the secured creditor's interest in such property.” In re Swedeland Dev. Grp., Inc., 16 F.3d 552, 564 (3d Cir.1994) (quoting 11 U.S.C. § 361 (2012)). Debtors do not offer FSBTC cash payments or an additional or replacement lien. Therefore, they must provide FSBTC with “the indubitable equivalent of its interest in the property.” 11 U.S.C. § 361 (2012).   The Court found that the current mortgage holder was currently undersecured, therefore there was no present equity cushion to support the adequate protection.  The court examined the risk to the creditor.  This risk being that the debtor was unable to complete the construction project and the priming creditor called its loan it would have priority over the current mortgage holder in a foreclosure, and the mortgage holder would receive $300,000 less.  However, the Court found that this risk was small.    The Court next examined whether the increase in the value of the collateral protects against risks, consistent with the concept of indubitable equivalence.  Where the increase in the value of the collateral resulting from the priming loan is highly speculative, where time periods and value increases were tight, or where debtors faced red tape or other hurdles, courts generally find there is no indubitable equivalent required for adequate protection.  Here, the time period is short, taking about three months to complete, with a six month financing commitment     The ability to pay off the priming lien is based solely on completion of the construction projects.  Thus, the risk to the mortgage holder is minimal. The fact that a performance bond is required on the projects also minimizes the risk of nonperformance.  Based on the analysis above, the Court found that the two projects in this case will ultimately benefit the estate and improve Debtors' ability to reorganize without unjustifiably jeopardizing the existing mortgage. . The Court concludes that these projects will more likely than not increase the value of the Debtors' property and the mortgage's collateral. The value increase, the short duration of the priming lien financing, and the near-certain payments from the NRCS grants provide the mortgage with an indubitable equivalent that qualifies as adequate protection. However, as an additional layer of protection for the mortgage holder, the Court's approval of Debtors' Motion to Incur Secured Debt is conditioned on Debtors meeting all of the requirements for the NRCS grants prior to new lender taking a priming lien on the collateral.

By MIREYA NAVARRO After her husband died, Mary Veronica Santiago fell behind on her bills, and the creditors began to call. So two years ago, she took refuge in bankruptcy, hoping to have her debts wiped away. But far from providing a fresh start and peace of mind, the Chapter 7 filing thrust Mrs. Santiago, 79, who lives in the East Village, into the center of a case that bankruptcy lawyers say poses a major risk to her and the millions of other New Yorkers who live in rent-stabilized apartments. The issue, pending before the United States Court of Appeals for the Second Circuit, is whether a rent-stabilized lease can be treated as an asset in a personal bankruptcy, just like a car or a piece of land, and used to pay off creditors. The trustee overseeing Mrs. Santiago’s bankruptcy thinks so. If that position is upheld, bankruptcy lawyers who are closely monitoring the case say it would make it easier for landlords to evict rent-stabilized tenants if they file for bankruptcy, even when, like Mrs. Santiago, they pay their rent. At a time when housing affordability and income inequality have been driving the debate in the mayoral race, the bankruptcy case could add another element of uncertainty to New York City’s efforts to preserve housing for people with low incomes. Mrs. Santiago has lived for 50 years in a two-bedroom apartment near Tompkins Square Park, in a neighborhood where unregulated apartments rent for thousands more a month than Mrs. Santiago’s rent of $703. Her main income is a Social Security check and, under normal bankruptcy proceedings, her lawyers said, she would have avoided repaying the $23,000 she owes because she had no assets. “I got scared,” she said, noting that her creditors “threatened that they were going to take me to court.” But as her case was nearing conclusion, her landlord stepped in with an offer to buy her rent-stabilized lease and produce the funds to pay off her debt. (Mrs. Santiago’s landlord is not among her creditors, but he was notified of the bankruptcy as a matter of course.) The bankruptcy trustee in charge of marshaling her assets accepted the offer, and that decision, challenged by Mrs. Santiago’s lawyers, has been upheld by both a bankruptcy court and a Federal District Court. In New York City, there were 11,500 individual bankruptcy filings in the 12 months ending June 30, federal bankruptcy court figures show. How many of them involved people with rent-stabilized leases is not tracked by the court. Rent stabilization laws, a defining element of New York real estate for decades, limit rent increases and allow automatic lease renewals and even survivor’s rights to tenants. In recent years, rent-stabilized leases have been deemed assets in some bankruptcy proceedings. Now, for the first time, a federal appeals court is being asked to weigh in. The widow’s lawyers argue that a rent-stabilized lease is a public assistance benefit, just like Social Security or disability payments, and should be exempt from the bankruptcy estate. Treating it like an asset, the lawyers said in court documents, undermines the intent of rent-stabilization laws in New York designed to protect tenants deemed in need of assistance with housing. “This is not what bankruptcy is about,” said Kathleen G. Cully, one of Mrs. Santiago two pro bono lawyers. “What’s next? Are they going to start going after food stamps?” The case, Mary Veronica Santiago-Monteverde v. John S. Pereira, has drawn the interest of bankruptcy experts and legal aid lawyers who see it as a threat to the housing stability of many low-income New Yorkers. Mrs. Santiago’s case was argued before the appeals court last month by Ronald J. Mann, a law professor at Columbia University and a bankruptcy specialist who has argued cases before the United States Supreme Court. New York’s unique rent laws and expensive real estate market make a rent-stabilized lease particularly prized. In New York City, 44 percent of the rental units are rent-stabilized and an additional 2 percent are governed by the more restrictive rent-control regulations, according to figures from the Furman Center for Real Estate and Urban Policy at New York University. At least 2.2 million people live in more than a million rent-regulated units in the city, the center said. Legal aid lawyers who are also watching the Santiago case say the rent laws are essential to help maintain affordable housing in the city — the median income for rent-stabilized tenants is $37,000, compared with $52,260 for market-rate tenants, figures from the city’s Housing and Vacancy Survey show. Some bankruptcy lawyers say they are advising clients with rent-stabilized leases not to file for Chapter 7 bankruptcy or risk being left homeless. “It’s an unfair money-grab,” said David B. Shaev, the New York state chairman of the National Association of Consumer Bankruptcy Attorneys. “To remove this foundation, this safety net, it’s unconscionable.” The trustee in Mrs. Santiago’s case, Mr. Pereira, has an obligation to marshal all assets to get her debt paid, said his lawyer, J. David Dantzler Jr. (The trustees, who are not government employees, receive a commission on the assets they are able to gather.) He said that New York law did not intend for leases to be exempt from bankruptcy estates and that any change to that effect should be left up to the state’s lawmakers. “This is about a fear of what could happen in the future to other tenants in rent-stabilization apartments,” he said. “Our view is that that’s a question for the New York Legislature, not the courts.” But no one should think that bankruptcy is a painless process, he said. “If you file for bankruptcy, there are consequences.” The trustee in Mrs. Santiago’s case has proposed an arrangement in which the landlord would pay her debt, pay the trustee and his lawyer, and allow Mrs. Santiago to live out her years in her apartment at a similar rent under a non-rent-stabilized lease “with no succession rights” that could otherwise have allowed her to pass the apartment on to her 50-year-old son, a personal trainer who lives with her and helps support her. Her lawyers opposed the proposal. In the realm of consumer bankruptcies, Mrs. Santiago’s is small. She owes mostly credit card companies, she said in an interview. But after her husband, Hector Santiago, died in 2011 she could not keep up with the payments. The couple moved into their ground-floor apartment in a five-story brick building on East Seventh Street in 1963. Mr. Santiago was the superintendent of their building and of several others in the neighborhood. The landlord is a limited-liability company whose owner, James V. Guarino, referred questions to his lawyer. The lawyer, Lawrence M. Gottlieb, said in an e-mail that the company “has no intentions of selling the lease or dispossessing Ms. Santiago or renting out the unit for market rent.” At home, in the cluttered apartment where her family has celebrated weddings, birthdays and holidays, and where her ill husband died at age 80, Mrs. Santiago said she regretted filing for bankruptcy. Her lawyers have reassured her that she has a good chance of prevailing, but first thing every morning, Mrs. Santiago said, she checks her front door for an eviction notice. “I’m afraid to find a white paper on my door,” she said with her head down, tearing up as she tugged at the edges of her plastic-covered chair.Copyright 2013 The New York Times Company.  All rights reserved.