A bankruptcy judge in Chicago found a loophole in circuit authority allowing a debtor to confirm a so-called fee-only chapter 13 plan, while a bankruptcy judge in Anniston, Ala., put the brakes on an effort by a chapter 13 debtor to prosecute a countrywide class action.
In the Chicago case, Bankruptcy Judge Jack B. Schmetterer acknowledged that the First, Fifth and Eleventh Circuits bar fee-only chapter 13 plans. While most courts reject a per se prohibition, some courts employ a “totality of the circumstances” analysis, while others place a “heavy burden” on the debtor.
Finding a legitimate reason for chapter 13 as opposed to chapter 7, Judge Schmetterer held that the plan was filed in good faith and was confirmable because the debtor owed $5,000 on parking tickets that were dischargeable in chapter 13 under Section 1328(a) but not dischargeable in chapter 7 under Section 523(a)(7).
In December, Bankruptcy Judge Janice Miller Karlin of Topeka, Kan., wrote a 107-page opinion with a ringing endorsement of the right of indigents to file chapter 13 petitions when they need bankruptcy relief but cannot pay chapter 7 lawyers’ fees up front. Click here to read ABI’s report on Judge Karlin’s opinion, In re Wark.
Bankruptcy Judge James L. Robinson of Alabama held that a chapter 13 debtor cannot mount a nationwide class action in the form of an adversary proceeding in bankruptcy court. He followed now-retired Bankruptcy Judge Thomas Bennett, who presided over the mammoth Jefferson County municipal bankruptcy. Judge Robinson held that he lacked jurisdiction to certify a nationwide case.
Judge Robinson also held that class certification was not warranted in a district-wide suit because there were only six potential class members, thus causing the complaint to fail the numerosity test.
In addition, Judge Robinson held that a debtor in successive cases cannot seek monetary damages in an adversary proceeding in an earlier chapter 13 case for stay violations occurring during a later chapter 13 case.
The Chicago decision on fee-only plans is In re Banks, 15-9819 (N.D. Ill. Feb. 8, 2016); the Alabama case on class actions is Finley v. Carrington Mortgage Services LLC (In re Finley), 08-0192 (N.D. Ala. Feb. 9, 2016).