In four interesting consumer cases over the last week, the debtors won three times and lost once, with two of the victories at the expense of their own lawyers. The loss involved the hotly contested question of whether a homeowner can use bankruptcy to escape costs associated with a property the lender will not foreclose.
Bankruptcy Judge James L. Garrity Jr. of Manhattan followed an opinion by his now-retired colleague Judge Allan L. Gropper, who had held that a debtor cannot confirm a chapter 13 plan over the lender’s objection when the plan would compel the transfer of title to the holder of the mortgage. Judge Garrity’s decision contains a useful summary of the opinions coming down on both sides of the issue.
Among other things, Judge Garrity said that forcing title onto a lender would transform a secured creditor’s rights into an obligation.
In Louisiana, the lawyer in an unsuccessful chapter 13 case hoped to avoid the consequences of the Supreme Court’s decision last year in Harris v. Viegelahn by lobbing in a fee application before the case converted to chapter 7. Once converted, Harris would enable the debtor to receive all undistributed funds held by the trustee, leaving nothing for the debtor’s counsel fees.
Bankruptcy Judge Jeffrey P. Norman held that Harris allows the debtor to recover undistributed money at the lawyer’s expense. He conceded that local rules to the contrary are no longer valid after Harris.
Bankruptcy Judge Jason D. Woodward of Aberdeen, Miss., reached the same result. He said that Harris “left no doubt” that a chapter 13 trustee is stripped of authority to make disbursements to creditors after conversion to chapter 7. He admitted that the “result is harsh” because the lawyers performed legal services based on an assumption that the fees would be paid over time through the plan.
Bankruptcy Judge Craig A. Gargotta of San Antonio ruled in favor of the debtor in clarifying the two-year gap required for receiving a discharge in a second chapter 13 filing. The case involved the interpretation of Section 1328(f)(2), which says that a court cannot grant a second discharge in chapter 13 if the debtor received a discharge “in a case filed under chapter 13 of this title during the 2-year period preceding the date of such order.”
Judge Gargotta concluded that a debtor is precluded from having a second chapter 13 discharge if the new case was filed within two years of the filing date in the first case.
In four interesting consumer cases over the last week, the debtors won three times and lost once, with two of the victories at the expense of their own lawyers. The loss involved the hotly contested question of whether a homeowner can use bankruptcy to escape costs associated with a property the lender will not foreclose.