Consumer Bankruptcy

Since the enactment of BAPCPA, both bankruptcy and appellate courts have been split on the issue of whether debtors may deduct vehicle ownership expenses for vehicles that are not encumbered and for which debtors do not make an actual monthly loan or lease payment. To date, the Seventh Circuit Court of Appeals and four Bankruptcy Appellate Panels have ruled on this issue: Two hold that debtors may not take such deduction (Eighth and Ninth Circuits), and two panels, along with the Seventh Circuit Court of Appeals, hold that debtors may take such deduction (Sixth and Tenth Circuits). Six district courts have also published opinions on this issue, five of which deny debtors such deduction and one that allows such deduction.

Section 522(c) of the Bankruptcy Code states that “unless the case is dismissed, property exempted under this section is not liable during or after the case for any debt of the debtor that arose, or that is determined under §502 of this title as if such debt had arisen, before the commencement of the case” with certain limited exceptions. Section 522(l) states that “unless a party in interest objects, the property claimed on (Schedule C) is exempt.” Rule 4003(b) gives creditors 30 days after the initial meeting of creditors in which to object.

One of the myriad changes made to bankruptcy practice by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) is the treatment of a claim for a debt collateralized by a motor vehicle or other personal property of the debtor.  More specifically, new language inserted by BAPCPA at the end of 11 U.S.C. §1325(a), nicknamed the "hanging paragraph" because of its physical location and appearance on the page, addresses the treatment of a secured claim arising from a debt.

Bankruptcy courts addressing the issue have reached a consensus regarding the extent to which a nonfiling spouse’s income should be included in the calculation of current monthly income. The nonfiling spouse’s income is included in current monthly income only to the extent that it is received on a regular basis for the benefit of the household expenses of the debtor or the debtor’s dependents. The nonfiling spouse’s income not dedicated to household expenses may be deducted from current monthly income through a marital adjustment. The burden of proof lies on the debtor to prove that the excluded nonfiling spouse’s income is not for the benefit of the household.

Bankruptcy courts addressing the issue have reached a consensus regarding the extent to which a nonfiling spouse’s income should be included in the calculation of current monthly income. The nonfiling spouse’s income is included in current monthly income only to the extent that it is received on a regular basis for the benefit of the household expenses of the debtor or the debtor’s dependents. The nonfiling spouse’s income not dedicated to household expenses may be deducted from current monthly income through a marital adjustment. The burden of proof lies on the debtor to prove that the excluded nonfiling spouse’s income is not for the benefit of the household.

Completing Form 22A necessarily requires the consideration of pre-petition debts, but if a debtor intends to surrender real estate, should that expense still be included on Form 22A (the Means Test)?  On May 23, 2008, the First Circuit Bankruptcy Appellate Panel (BAP) ruled that a debtor who intends to surrender property in chapter 7 may deduct contractually due monthly payments on that property on the means test, even though the debtor intends to surrender the property. In re Rudler,1st Cir. B.A.P., No. 07-015 (2008 WL 2222388). 

One of the most hotly debated aspects of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was whether the unlimited homestead exemption in states such as Florida and Texas should be curtailed in bankruptcy proceedings.  In a compromise, Congress adopted three specific limitations on the homestead exemption:

1) Section 522(o) disallowed value added to the homestead with intent to hinder, delay or defraud creditors within 10 years prior to bankruptcy;

A debtor's proposed chapter 13 plan may not be confirmed if a trustee or the holder of an unsecured claim objects thereto unless a debtor pays in full each allowed unsecured claim, (11 U.S.C. §1325(b)(1)(A)) or pays to his unsecured creditors under the plan all projected disposable income to be received during the applicable commitment period (11 U.S.C. §1325(b)(1)(B)) (emphasis added).  Thus, upon objection, if allowed unsecured claims are not paid in full, a plan may be confirmed only if it pays all allowed unsecured claims a qualifying amount of money over a qualifying span of time.

 the court emphasized that the debtor's attorney's conduct in the case was above reproach (honest and straightforward), and held that it should not be inferred "as a criticism of the integrity of [the attorney] or his law practice."

“Subprime Mortgage Crisis!” “Predatory Loans!” These are headlines that have dominated financial news for months. Unfortunately, although the terms are used loosely and frequently, the stories have done little to educate the public—people whose homes may be lost in a foreclosure action—about what the terms mean. More importantly, there are few explanations being given for the current problems. This article will attempt to define the terms and explain the causes for these now-common problems.