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Undersecured liens may not be avoided in Chapter 7
Posted by: Peter Scribner
January 27, 2010
Topic: Casenotes: 2009 WDNY Bankruptcy cases

In re Spears (Bk #08-13988; Judge Bucki decision Dec. 9, 2009): A Chapter 7 debtor attempted to avoid, or remove, a judgment lien and a mechanic's lien against commercial property.  The property was worth $167,000 and had a $220,000 first mortgage. The debtor attempted to remove the junior liens under Bankruptcy Code Section 506(a)(1) and (d). Section 506(a)(1) says that a secured claim is an allowed claim to the "to the extent of the value of such creditor's interest in the [bankruptcy] estate's interest in such property. . .".  Section 506(d) states that to the extent that "a lien secures a claim against the debtor that is not an allowed claim, such lien is void.. .".

But Judge Buckirejected the argumenty, based on Dewsnup v. Timm, 502 US 410 (1992).  The debtor argued that a new provision in Section  506, enacted after Dewsnup, changes the analysis.  New provision 506(a)(2) establishes a means of valuing personal property when determining the status of secured claims against such property. Judge Bucki rejected the conclusion that new Section 506(a)(2) merits any reconsideration of Dewsnup.

Note that a bankruptcy judge in the Eastern District of NewYork came to an opposite conclusing in a Chapter 13 case - see my blog on the 2009 case Lavella, under the topic list of bankruptcy cases outside of WDNY.

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Chain of title in assigned claims: Rochester Judge
Posted by: Peter Scribner
January 25, 2010
Topic: News from the Western District of New York Bankruptcy Court

A common situation: a chapter 13 debtor's account with a credit card bank is deep in default.  In Chapter 13 all creditors are requested to file claims.  A new entity files a claim as successor or assignee of the original credit card bank, but the claim does not include any proof that the claim was, in fact, assigned.  What is missing is a "chain of title"; proof that the claim has been legally sold or assigned to the alleged new owner.  

Rochester bankruptcy judge John C. Ninfo II issued a written decision on February 23, 2009 (In re: Doherty #06-22278 & Benedetti #07-21620) stating that the successor creditor was obligated to prove it was the legal holder of the claim.  Apparently the judge's patience with creditors creditors -- and their attorneys -- on this issue is wearing thin.  In a court appearance on October 7, 2009, Chapter 13 Trustee George Reiber argued several chain-of-title claim objections, starting with In re Alabaugh (WDNY Bk #08-22836).

"I can shorten all of this", said the judge, according to the official transcript (see link). "I'm absolutely fed up with this to the point that I'm going to tell you what I'm going to do. . . I now have a folder. What I'm going to start to record are the law firms or lawyers who represent these ridiculous clients who can't understand that they have to put a chain of title together because that is what the Court requires . . . And I think that the law firms that are representing these entities in this Court, which is what happened here, need to send their lawyers back to law school so they can take a course in chain of title. I'm really serious. And if this continues, I'm going to start inviting those law firms not to practice here. . . . Now, I don't know who to present this to, but I would suggest,
Mr. Reiber, that you get a transcript of this and start giving it to these creditors along with your . . . motions in the future, if you want to, because then the lawyers can read it who are going to represent them and come in here and do it."

Attachments:
Claimchainoftitle.pdf

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Car loan in excess of $16,000 is a 'luxury'
Posted by: Peter Scribner
January 14, 2010
Topic: Casenotes: 2009 WDNY Bankruptcy cases

In re: Andrea Daniel-Sanders; Bk #09-10695 (Judge Bucki 12/30/2009).  In this chapter 13 case in Buffalo, a single mother with three kids filed a case where she had two cars, each with a car loan. Her chapter 13 plan called for keeping both cars and paying general unsecured creditors 25% of the amount owed to them. The chapter 13 trustee objected to the debtor keeping both cars. The trustee believed that if the debtor got rid of one of her cars, she would have more money to pay to unsecured creditors.

Judge Bucki concluded that the debtor was justified in having two cars. The father of her children lived with her and took care of the kids in lieu of day care. He did not have a car and so her second car was a necessary household expense as it provided transportation for the kids during the day.

However, the amount owed on the loan for the second car was $27,163. Judge Bucki stated that his long-time position was that car loans with a balance of over $15,000 were a “luxury”. At the request of both the debtor and the trustee, he revisited his “luxury” car loan amount. He noted that the average cost for acquiring a vehicle, whether new or used, was $12,907, according to the Bureau of Transportation Statistics.  Judge Bucki concluded that 20% above this amount, or approximately $16,000, would be a reasonable amount for a car loan, and anything in excess of that he would consider a “luxury” and cannot be paid at the expense of general unsecured creditors. If the debtor wishes a second car, the debtor would have to surrender this vehicle and obtain permission to purchase more modest transportation.  It appears that the $16,000 limit applies even if the debtor only owns one vehicle.

 An open question is what sort of car loan someone who is already inChapter 13 could obtain, and at what interest rate.  One option, in light of this position, would be for a debtor to purchase a car with a more modest loan immediately before filing bankruptcy.

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Is a Sallie Mae Career Training Loan dischargeable in bankruptcy under BAPCPA?
Posted by: Peter Scribner
January 14, 2010
Topic: Notes from BAPCPA

Sallie Mae, the student loan servicing organization, provides more than just government-insured loans. The “Career Training Loan” administered by Sallie Mae Bank, is, according to their website, “a private, credit-based student loan for technical training or trade school, online courses, and other education programs.”  So is this sort of loan dischargeable in bankruptcy? It depends upon the institution where the training was received.

As “everyone” knows, student loans are not discharged in bankruptcy. Section 523(a)(8) of the Bankruptcy Code excepts from discharge the following:

– an educational loan made, insured, or guaranteed by a governmental unit

– an educational loan made under any program funded in whole or in part by a governmental unit or nonprofit institution

– an obligation to repay funds received as an educational benefit, scholarship, or stipend

– an educational loan that is a qualified education loan, as defined in the Internal Revenue Code section 221(d)(1)

That last type of loan, referring to IRC section 221(d)(1), was added as an exception to discharge when the Bankruptcy Code was amended in 2005.  That section states:

“Definitions: For purposes of this section - (1) Qualified education loan; The term "qualified education loan" means any indebtedness incurred by the taxpayer solely to pay qualified higher education expenses”

So what does the term “qualified higher education expenses” refer to? IRC section 1.25A-2, definitions, states:

“(d) Qualified tuition and related expenses —(1) In general. Qualified tuition and related expenses means tuition and fees required for the enrollment or attendance of a student for courses of instruction at an eligible educational institution.”

Okay so what is “an eligible educational institution”? IRC section 1.25A-2 defines that as:

“(b) Eligible educational institution —(1) In general. In general, an eligible educational institution means a college, university, vocational school, or other postsecondary educational institution that is—

(i) Described in section 481 of the Higher Education Act of 1965 (20 U.S.C. 1088) as in effect on August 5, 1997, (generally all accredited public, nonprofit, and proprietary postsecondary institutions); and

(ii) Participating in a Federal financial aid program under title IV of the Higher Education Act of 1965 or is certified by the Department of Education as eligible to participate in such a program but chooses not to participate.”

To summarize, a private student loan is not discharged in bankruptcy if it was used to pay educational expenses at a postsecondary educational institution that is eligible to participate in the federal student loan program.  

So, is a sallie Mae “Career Training Loan” dischargeable in bankruptcy? My analysis is that if the training was provided by an institution that is qualified to offer government student loans, the private Sallie Mae Career Training Loan is not dischargeable in bankruptcy. If, on the other hand, the training institution is not eligible to offer government student loans, the private Sallie Mae loan would be dischargeable in bankruptcy.

Please note that I cannot find any case law one way or the other on this issue, and so the above analysis is not based upon any court finding it but is just my own personal analysis.

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National bankruptcies rise 32% in 2009
Posted by: Peter Scribner
January 05, 2010
Topic: Statistical trends in WDNY bankruptcies

Accrding to several sources, bankruptcies in the United States rose 32% in 2009 compared to 2008.  The Associated Press reported such a rise in a story dated January 4, 2009.  The story reported the biggest increases were in the Western states of Arizona (77%), Wyoming (60%), Nevada (59%), and California (58%.)

The Wall Street Journal reported similar findings in a story filed online January 5.  The Wall Street Journal story, using data collected by the  National Bankruptcy Research Center, stated that Chapter 7 cases were up 42% in November 2009 compared to November 2008, while chapter 13 cases, where creditors receive some sort of repayment, were up only 12% over the same time period.

 Even Canadian bankruptcies jumped in 2009: 45.5% in September, compared to a year earlier, according to the Canadian Press.

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