The Bankruptcy Lawyers Blog

Automatic adjustments to dollar amounts across several sections of the U.S. Bankruptcy Code will take effect on April 1, 2007, impacting Chapter 12 and Chapter 13 eligibility, maximum exemption values in certain categories, means test calculation, and more. 

The Memorandum detailing the specific changes is available online at Automatic Adjustment of Certain Dollar Amounts in the Bankruptcy Code and Official Bankruptcy Forms.

Several forms are being updated as a result of the changes including:

Official Form 1, Voluntary Petition
Official Form 6C, Schedule of Property Claimed as Exempt
Official Form 6E, Schedule of Creditors Holding Claims Entitled to Priority
Official Form 7, Statement of Financial Affairs
Official Form 10, Proof of Claim
Official Form 22A, Statement of Current Monthly Income and Means Test Calculation (Chapter 7)
Official Form 22C, Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income (Chapter 13)

The next scheduled automatic update to these dollar amounts will take effect on April 1, 2010.

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by Bankruptcy Attorney Richard J. Waple at Bankruptcy HQ

On February, 21, 2007, the United States Supreme Court issued an opinion holding that a debtor who files a chapter 7 bankruptcy in “bad-faith” does not have an absolute right to convert to a chapter 13 bankruptcy in an attempt to avoid the trustee gaining control of non-exempt assets. Marrama v. Citizens Bank of Massachusetts, et al.

Marrama originally filed a chapter 7 bankruptcy petition, but filed a motion to convert the case to a chapter 13 after the trustee discovered that Marrama had fraudulently concealed information about a property transfer seven months prior to the bankruptcy filing.  Marrama had transferred a piece of real estate into a trust that he was the beneficiary of.  On his bankruptcy petition, Marrama did not disclose the transfer and listed his interest in the trust as “0”.  It appears that his motion to convert was intended to stop the trustee from taking control of the property, which was not exempt in his chapter 7 proceeding.  Both the trustee and Citizens Bank filed objections to the conversion.

Marrama primarily relied on the argument that §706(a) of the Bankruptcy Code explicitly provides an absolute right to convert, with two exceptions; (1) A debtor may only convert once, and (2) a debtor must be eligible to be a debtor under the chapter he is attempting to convert to.   Marrama had not previously converted and was financially eligible for a chapter 13 bankruptcy after recently gaining employment, and argued that he had a right to convert his case even if it would be later dismissed or reconverted in the chapter 13.

The Court disagreed.  The majority opinion in the 5-4 ruling, delivered by Justice Stevens, held that  Marrama was not eligible to be a chapter 13 since the chapter 13 would have been dismissed under §1307, because Marrama acted in “bad-faith”.  The Court also referred to its broad authority to take action “to prevent an abuse of process” described in §105(a).   The Court affirmed appellate court’s decision to deny Marrama’s motion to convert.

The dissent, delivered by Justice Alito, argued that a plain reading of the Bankruptcy Code clearly indicates that a debtor has an absolute right to convert a case to another chapter absent the two specific exceptions set forth in §706, “bad-faith” not being one of them.   The dissent did not find anything “in §706(a) or any other provision of the Code [that] suggests that a bankruptcy judge has the discretion to override a debtor’s exercise of the §706(a) conversions right on a ground not set out in the Code”.  The dissent seems to indicate a belief that the majority ignored the clear provisions set forth in the Bankruptcy Code to make an what it considers an equitable holding, and argues that “whatever steps a bankruptcy court may take pursuant to §105(a) or its general equitable powers, a bankruptcy court cannot contravene the provisions of the Code.” This holding does not prohibit a conversion to a chapter 13 bankruptcy where the debtor has acted in “good-faith”, not previously converted, and is otherwise eligible to file for a chapter 13 bankruptcy under §109.

  

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Brad Botes, a successful consumer bankruptcy attorney from Birmingham, Alabama has announced his intent to return to his former position on the board of directors of the National Association of Consumer Bankruptcy Attorneys (NACBA). 

Originally elected to the NACBA Board in 2004, Brad relinquished his position in order to accept an appointment by the remaining board members to serve as the organization’s first full time Executive Director.  His declaration of candidacy states “NACBA’s Executive Director’s position now appears to be in able hands and I wish to return to the position I once held on the board”. 

Botes has been a member of NACBA since shortly after it was formed.  In addition to serving on the board and as executive director, he has also served as a state chair.  During his tenure on the board, NACBA’s membership increased by almost 200%.  He served during the tumultuous period leading up to and following the enactment of BACPA. Brad helped plan and participated as a speaker in the special educational programs NACBA held during 2005 to help consumer debtor attorneys adapt to the new laws provisions.

Prior to serving as NACBA’s Executive Director, Botes helped build his firm, Bond & Botes, P.C., into one of the top debtor’s practices in the country.  The firm has offices in Alabama, Florida, Tennessee and Mississippi and represents thousands of consumers annually.  Brad has lectured on various bankruptcy topics to local and national gatherings of bankruptcy attorneys, trustees and judges.

I know Brad to be a knowledgeable, motivated leader who has a keen understanding of what it takes to meet the challenges faced by consumer bankruptcy lawyers.  NACBA’s membership will be well served by returning him to the organization’s Board of Directors.

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We saw an "open letter" this morning from Marie McDonnell, who has been documenting mortgage fraud since 1991. After sixteen years in the trenches, Marie has some interesting things to say about what's really going on in the mortgage industry and the extreme measures required to put a stop to it.  With her permission, here's what she had to say:


We need Congress to enact an emergency "disaster relief" program, overseen by HUD, to prevent the tsunami of foreclosures that is now in progress due to the unbridled greed launched and authorized by the Garn-St. Germain Act of 1982 which, according to the FDIC, was the first non-homeowner friendly federal legislation in history.
 
We need to start talking about this in terms that people can understand:  

1. This is a pandemic that is inflicting catastrophic physical and mental  illness on vulnerable children, women, minorities, elders, low-income  and median-income families across the nation, but the Center for  Disease Control has not yet identified and classified the virus;
2. There is a criminal element to this problem which everyone is denying  except when it comes to defrauding financial institutions;
3. A pickpocket will get time in jail whereas the theft of mortgage payments,  equity and real property from homeowners is a "civil" matter where there is no  effective redress;
4. As with 9/11, we are unprepared to deal with this crisis because we have  never seen it before and don't have enough time to train nurses or set up  triage centers;
5. Disaster relief (shipping supplies and money) will only enable the  predators to profit further unless we find a way to nullify these transactions  and disgorge the illicit fees and finance charges;
6. There are too many people in distress and too few advocates to assist;
7. The banking lobby has got to go; there are too many US Congressmen  beholden to big money and corporate interests who are profiting from the  transfusion of wealth from the working to the capital class; we need to "clean  house" if we are to correct this national disgrace.
   

If Congress giveth, Congress can taketh away and it had better do so soon before we have another Katrina-like fiasco.  I suggest we get Move-On.org to run a campaign, spread the word and take on this issue.
 
The implosion of the subprime industry gives us the best clues about what to do here:  we are witnessing the most effective discipline that can be imposed upon rogue lenders by the market itself...finally!  By cutting off the gravy train and stopping the supply of money, the industry is getting the message loud and clear in a heartbeat.  (Mortgage Lenders Network, Ameriquest, New Cenruty, Fremont, ad nauseam.)
 
Consumer advocates need to organize their position and hold the Bond Market Association accountable for creating the supply lines that have fostered this travesty.  The Mortgage Bankers Association, National Association of Mortgage Brokers, National Association of Home Builders and the National Association of Realtors have to take responsibility for their roles as does the SEC, Fitch, Standard &Poors and Moodys for hyping the investments that were build on air.
 
These are strong words but as the great English statesman, Edmund Burke once said:

"The only thing necessary for the triumph of evil is for good men to do  nothing."

Marie McDonnell

THE MORTGAGE COUNSELOR
Raising the Standard of Truth in Lending
through Auditing, Education and Advocacy

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With the annual convention less than two months away and a panel session on Attorney's Fees in the works, NACBA is updating its earlier survey results with regard to local fee practices.  Please take a moment to complete the NACBA Survey

Log in with the same user name and password that you use on the NACBA website.  If you practice in more than one Division, please complete a survey for each Division, and please make sure to respond to the survey by March 16, 2007.

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A Texas Bankruptcy Judge is holding a hearing today to get input from the U.S. Trustee’s office on whether or not one of the nation’s largest credit counseling agencies remains qualified to provide pre-bankruptcy credit counseling briefings.  The issue arose after the Judge heard a high-ranking representative of the agency state that they maintained a policy prohibiting the employment of any credit counselor who had been in bankruptcy.  Such a policy, if it was accurately described, would seem to violate section 525 of the U.S. Bankruptcy Code, which prohibits private employers from discriminating on the basis of a past or current bankruptcy filing.

It seems likely that the company will retain its U.S.T. approval, but the issue raises larger questions for everyone involved in the consumer bankruptcy process. Section 525 aside, what is a credit counseling agency that maintains such a policy saying to its customers—and to your clients?  The agency is charged with the responsibility of helping consumers in financial crisis find the solution best suited to their particular needs, but if the company is indeed making this kind of blanket judgment about people who have filed for bankruptcy protection, doesn’t that call into question that agency’s ability to give impartial advice about the best course of action for each individual debtor?  There appears to be no policy prohibiting the employment of credit counselors who have previously participated in a debt management plan, although debt management plans result from many of the same types of financial problems that trigger bankruptcy filings.  
 
Consumer bankruptcy clients are often already discouraged, demoralized, and feeling guilty. They need to work with providers who understand their situations and are compassionate, empathetic, and committed to helping them find the best possible solution under their difficult circumstances.  We would hate to think that an agency charged with providing that support might automatically disqualify anyone who might be able to identify and empathize with those clients based on shared experience and his own successful financial recovery.  
 
Worse, such a policy would make an indirect but very clear statement about what the agency thinks of people who find it necessary to file for bankruptcy protection—they’re somehow substandard, good enough to pay the credit counseling fee but not good enough to work for the company.  That’s a far cry from the encouragement toward a fresh start and a brighter financial future that we’d like our clients to find in their briefings and educational programs.

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