Month: May 2012

E.D.N.C.: Ferguson v. Mammoth Grading, Inc.- Whether Post-Petition Claim of Liens Violated § 362

Summary:

In two opinions,  In re Harrelson Utilities, Inc. , No. 09-0281S-8-ATS (E.D.N.C. Bankr. July 3D, 2009) and  In re Mammoth Grading, Inc., No. 0901286-8-ATS (E.D.N.C. Bankr. Aug. 24, 2009),  bankruptcy court  held that a subcontractor’s lien rights did not constitute “an interest in property” under the  exception in 11 U.S.C. § 362(b) (3)  and that post-petition claims of liens and notices of claims of liens were invalid and unenforceable.  These decisions “turned the construction industry1s standard operating procedure on its head.”

Verging on an advisory opinion, the District Court questioned whether the bankruptcy court erred in determining that such liens did not arise until the filing of a notice of claim of lien by the subcontractor. … Read More

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E.D.N.C.: In re Gregory- Marital Adjustment under § 707(b)

Summary:

The Debtor excluded from her CMI her non-filing husband’s monthly payments of $166.00 for his student loans and $1,628.00 related to  their former residence, including renovation costs..  This resulted in a negative disposable monthly income.  The Bankruptcy Administrator argued that since the non-filing spouse was spending money on expenses and renovations of joint property, such payments were benefitting the Debtor and should be included in CMI.

First the Bankruptcy Court and then, on appeal, the District Court agreed with the Debtor, finding that 11 U.S.C. § 101(10A)(B) included within the Debtor’s CMI “any amount paid by any entity other than the debtor … on a regular basis for the household expenses of the debtor or the debtor’s dependents….”  The District Court examined the term “household expenses” by looking to  the definition used by the 4th Circuit for the similar term “household goods” in In re McGreevy, 955 F.2d 957, 961-962 (1992), as “those items of person property that are typically found in or around the home and used by the debtor or his dependents to support and facilitate day-to-day living within the home, including maintenance and upkeep of the home itself.”  Even if the non-filing husband were to stop paying  these debts, “it would not affect the day-to-day functioning of the debtor’s household.”

The Bankruptcy Administrator also objected under the “totality of the circumstances” test of 11 U.S.C.… Read More

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Bankr. E.D.N.C.: In re Sutton- Separate Classification of Student Loans in Chapter 11

Summary:

The individual Chapter 11 plan proposed to pay approximately a 4% dividend to general unsecured claims, but separately classified his $235,871.00 in student loans, proposing to pay that class in full.  No impaired class accepted the plan.

Accordingly, the plan could only be approved by fulfilling the requirements of 11 U.S.C. § 1129(b), which provides that the bankruptcy court shall confirm a plan that “does not discriminate unfairly, and is fair and equitable, with respect to each class of claims or interests that is impaired under, and has not accepted, the plan.”

The bankruptcy court held that a plan may discriminate in favor of nondischargable student loans, but only if such discrimination is not unfair under the four factor test from Ownby v. Read More

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Bankr. E.D.N.C.: In re John Doe- Expungement of Bankruptcy

Summary:

Kenneth Jones filed a Chapter 13 bankruptcy petition on behalf of his minor nephew, “John Doe”, in 2003.   Because Jones had not been appointed as the Debtor’s guardian, the trustee moved for appointment of a guardian ad litem under Rule 1004.1.  The case, however, was dismissed prior to any appointment.

Moving to the present, the Debtor contended that as Jones was not his guardian under Rule 1004.1, the bankruptcy was improper and had detrimentally affected his adult life.  Pursuant to 11 U.S.C. § 107(c)(1), found that expunction of the bankruptcy to seal the entire case was appropriate.

Commentary:

It is not clear to what extent removing electronic records and sealing the hard copy will be effectual. … Read More

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Economics Review: Lusardi, Schneider & Tufano- Financially Fragile Households: Evidence and Implications

Abstract:

This paper examines households’ financial fragility by looking at their capacity to come up with $2,000 in 30 days. Using data from the 2009 TNS Global Economic Crisis survey, we document widespread financial weakness in the United States: Approximately one quarter of Americans report that they would certainly not be able to come up with such funds, and an additional 19% would do so by relying at least in part on pawning or selling possessions or taking payday loans. If we consider the respondents who report being certain or probably not able to cope with an ordinary financial shock of this size, we find that nearly half of Americans are financially fragile.… Read More

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Law Review: Lofgren, McIntyre, & Miller- Chapter 7 or 13: Are Client or Lawyer Interests Paramount?

Abstract:

Households often rely on professionals with specialized knowledge to make important financial decisions. In many cases, the professional’s financial interests are at odds with those of the client. We explore this problem in the context of personal bankruptcy. OLS, fixed effects, and IV estimates all show that attorneys play a central role in determining whether households file under Chapter 7 or Chapter 13 of the bankruptcy code. We present evidence suggesting that some attorneys maximize profits by steering households into Chapter 13 bankruptcy even when the households’ objective financial benefits are low and the probability of case dismissal is high.… Read More

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4th Circut: Sun Trust v. Nassida- Foreclosure Hearing Finding of Valid Debt and Default was Res Judicata as to later Challenges to Debt

Summary:

Sun Trust sued to collect on deficiencies following a foreclosure in North Carolina.  The Debtors raised defenses challenging the validity of the debt and the default.  The Court of Appeals held that the determination of a valid debt and default at the foreclosure hearing was res judicata.    While the Debtors  could not have raised these equitable defenses in the hearing under N.C.G.S. §  45-21.16, they could have raised such  defenses in a proceeding to enjoin the foreclosure under N.C.G.S. § 45-21.34 (2006).  The failure by the Debtors to do so resulted in the rights of the parties to the foreclosure becoming “fixed” and therefore barred the Debtors from raising such an equitable challenge in a later proceeding in a different court.… Read More

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4th Circuit: Levin v. Wachovia- Spendthrift Trusts and 11 U.S.C. § 541(c)(2)

Summary:

Debtor was the beneficiary of two Spendthrift Trusts.  The Spendthrift Trusts, which were governed by Pennsylvania law, protected both the income and corpus/principal of the trusts for the beneficiaries.  As such,  11 U.S.C. § 541(c)(2)  provides that “[a] restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law is enforceable in a case under this title” and the trusts were outside the reach of the bankruptcy estate.

For a copy of the opinion, please see:

Levin v Wachovia- Spendthrift Trusts.pdf Read More

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Law Review: McKenzie- Getting to the Core of Stern v. Marshall: History, Expertise, and the Separation of Powers

Abstract:

This Article considers the Supreme Court’s decision in Stern v. Marshall, which limited the power of a bankruptcy judge to decide a common law claim. Stern is best understood as a combination of three arguments drawn from the Court’s prior Article III cases. The first is an argument from history — the past division of labor between the Article III judiciary and non-Article III adjudicators. The second is an argument from expertise — the appropriate selection of disputes that benefit from a specialized non-Article III forum. The third is an argument from separation of powers — the limitations on when the political branches may assign disputes outside the tenured judiciary.… Read More

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