Consumer Bankruptcy

Bankruptcy Judge Donald Steckroth, recently handed down an unpublished decision that declared nondischargeable a debt for money taken by a caregiver-daughter from her elderly mother. Buttimore as Executor for the Estate of Helen C. Buttimore, Plaintiff v. Carole Wolke. Defendant Adversary Case Number 07-01756(DHS). (Bankr. D.N.J. Feb. 13, 2008). The decision interpreted Bankruptcy Code §523(a)(4), which renders nondischargeable a debt owed for the return of funds taken from an elderly parent’s assets without consent. The decision is noteworthy because there was not previous state court ruling finding the daughter’s actions wrongful.

Congress added a provision to BAPCPA that appeared to be designed to protect auto lenders who financed cars for debtors within 910 days of the bankruptcy filing. This provision sought to prevent the cramdown of these so-called “910-day loans” in chapter 13 cases and was included in a section of the legislation entitled “Giving Secured Creditors Fair Treatment in Chapter B.” H.R. Rep. No. 109-31 at 72 (2005). Unfortunately, this provision was unnumbered and simply added at the end of §1325(a). Now known as the “hanging paragraph,” the apparent misplacement of this provision, together with its confusing language, has created extensive litigation on a number of issues.

The typical consumer bankruptcy attorney is knowledgeable about bankruptcy law and property rights in general. Today, more than ever, mortgage foreclosure is the event which precipitates bankruptcy filings. Most of the mortgages that are now being foreclosed upon are subprime mortgages originated within the past three years. Many of these subprime mortgage transactions were refinancing transactions. The overwhelming majority of bankruptcy attorneys are unaware of the fact that refinancing transactions within three years prior to the bankruptcy case may be subject to substantial claims or defenses under the federal Truth in Lending Act (TILA) and Regulation Z.

Section 522(o) of the Bankruptcy Code seems to have the potential to significantly restrict pre-bankruptcy exemption planning for prospective debtors who choose state exemptions (in states that opted out of federal exemptions, bankruptcy debtors are stuck with §522(o and p)). Prior to the passage of BAPCPA, there was no magic language in §522 to indicate what a trustee had to prove if she sought to show that a transfer of nonexempt property into exempt property was improper. Section 522 merely provided that property that fits the definition of exempt property held by a debtor at the time she files bankruptcy can be claimed as exempt.

(Norris v. Thomas, 216 S.W.3d 851 (Tex. 2007))

The volume of critics and supporters of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) has finally begun to settle down. There is an emerging issue that several national associations of debt and credit counseling agencies are possibly endorsing as a marketing tool for their membership. Now lawyers are joining the arena of a particular section in the law and using part of it to entice consumers to realize the light at the end of the tunnel of debt. However, that light can be a locomotive coming the other way.

In Perlin v. Hitachi Capital Am. Corp (In re Perlin),[1] the U.S. Court of Appeals for the Third Circuit affirmed a bankruptcy court’s order denying a creditor’s motion to dismiss the debtors’ chapter 7 petition. Creditor Hitachi Capital moved to dismiss the Perlins’ chapter 7 petition pursuant to 11 U.S.C. §707(a), which permits dismissal after notice and hearing only for cause. The statute furnishes three nonexclusive examples of cause, but does not include bad faith among them. Hitachi Capital alleged that the petition was filed in bad faith, finding the debtors’ substantial income and expenses especially objectionable. The bankruptcy court refused to consider the debtors’ high income and expenses, reasoning that the presumption of abuse provisions in the context of the means test in 11 U.S.C.

Almost two years after the implementation of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), it would appear that some of its provisions are meeting their objectives better than others. In the case of residential tenancy issues, the number of new disclosure requirements, coupled with submissions required to overcome the exceptions to the automatic stay, have had their intended effect. In reviewing this particular area of BAPCPA, the number of reported cases is scant, reflecting the limited issues subject to challenge.