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By: Christpher J. Hunker

St. John's Law Student

American Bankruptcy Institute Law Review Staff

The Ninth Circuit Court of Appeals has ruled that a voluntary Chapter 13 bankruptcy filed by above-median income debtor with no “projected disposable income” is not subject to the “applicable commitment period” prescribed by 11 U.S.C. § 1325.

[1]

  In so ruling, the Court agreed with the Trustee’s interpretation of “applicable commitment period” as mandating a temporal requirement.

[2]

  Nevertheless, the Court found that the “applicable commitment period” is inapplicable where the debtor can show a negative or zero “projected disposable income” as calculated on Form B22C.

[3]

  Thus, an above-median income debtor can escape the required five-year “applicable commitment period” if, at the time of filing for Chapter 13 bankruptcy, the debtor can prove that his “projected disposable income” would be zero or a negative number.

By: Christina Kormylo

St. John's Law Student

American Bankruptcy Institute Law Review Staff

The addition of section 1115 to the Bankruptcy Code by the 2005 BAPCPA amendments created an exception to the “absolute priority rule” for individual Chapter 11 debtors according to the bankruptcy court in In re Tegeder.

[1]

  In Tegeder, the general unsecured creditor class did not accept the Chapter 11 plan proposed by an individual debtor who was engaged in business, thereby triggering the “cram down” provisions of 11 U.S.C. § 1129(b).

[2]

 Although all other requirements for plan confirmation under section 1129(a) were met, the U.S. Trustee argued that the debtor, as a holder of interests junior to the dissenting class, could not retain any property pursuant to the absolute priority rule of section 1129(b)(2)(B)(ii).

[3]

  The absolute priority rule, as amended by BAPCPA, states, “the holder of any claim or interest that is junior to the claims of such class will not receive or retain . . . any property, except that in a case in which the debtor is an individual, the debtor may retain property included in the estate under section 1115.”

[4]

  Addressing the effect of the cross-reference to section 1115, the Tegeder court held that the absolute priority rule does not prevent a plan’s confirmation where both pre- and post-petition assets are retained by an individual debtor.

[5]

  The court explained that the 2005 BAPCPA amendment and the addition of section 1115 created an exception to the rule, allowing an individual debtor to retain property included in the estate.

[6]

By: Brian Lacoff

St. John's Law Student

American Bankruptcy Institute Law Review Staff

In a decision of importance to Chapter 13 debtors’ attorneys, the Bankruptcy Court for the District of New Jersey ruled that an undersecured creditor, Ford Motor Credit Co., was entitled not only to adequate protection payments, but that the section 507(b)

[1]

“super-priority” status of the inadequate adequate protection provided during the case meant that the Chapter 13 plan had to pay those amounts before paying any of the debtor’s attorneys fees.

[2]

Ford Motor Credit objected to the debtor’s Chapter 13 plan for failure to provide adequate protection payments, violating 11 U.S.C. §§ 361, 1325 and 1326.

[3]

  The debtor modified the plan to include adequate protection payments, but objected to the creditor’s contention that those payments had super-priority over debtor’s attorney fees.

[4]

  The court agreed with Ford Motor Credit, reasoning that the creditor, having a lien on the debtor’s property, must be afforded protection against the daily depreciation of its property.

[5]

By: Robert Ryan

St. John's Law Student

American Bankruptcy Institute Law Review Staff

Firmly adopting the “exclusive” view of claim objections, the Tenth Circuit Bankruptcy Appellate Panel in B-Line, LLC v. Kirkland

[1]

held that a claim could not be disallowed under 11 U.S.C. § 502

[2]

for failure to submit supporting documentation with a proof of claim since that is not one of the grounds expressly stated in the statute.

[3]

  Although Federal Rule of Bankruptcy Procedure 3001 requires that supporting documentation be provided with a proof of claim,

[4]

neither the Rule nor the statute clearly states what to do if a creditor fails to submit supporting documentation.

[5]

 The court held that section 502(b) provided an exclusive list of reasons why a claim should be dismissed, reasoning that the “shall allow … except” command in section 502(b) and the absence of an expansive term like “including” indicated that the list was exclusive.

[6]

  Since the Rules cannot modify substantive rights, technical defects in the proof of claim are not grounds for objection.

[7]

By: James Lynch

St. John's Law Student

American Bankruptcy Institute Law Review Staff

Although the Bankruptcy Abuse Protection Act of 2005 (“BAPCPA”) largely eliminated the so-called “ride through” option for security interests in personal property, the Connecticut Bankruptcy Court in In re Caraballo

[1]

held that the option remains available for liens secured by real estate.  Under the ride through, a debtor whose real estate mortgage is not in default does not have to reaffirm the debt or surrender the real estate, but can retain the real estate by continuing to make the scheduled mortgage payments.

[2]

  Thus, since the debtor in Caraballo was not in default, the Court disapproved the debtor’s mortgage reaffirmation agreement as not being in her best interests “because she could retain the subject real property without reaffirming the [d]ebt.”

[3]

By: Paola Chiarenza

St. John's Law Student

American Bankruptcy Institute Law Review Staff

Although the “means test” added by the 2005 BAPCPA amendments

[1]

was designed to ensure that chapter 13 debtors repay creditors as much as they can afford, the Bankruptcy Court for the Southern District of New York followed a plain language approach to hold that in determining a debtor’s disposable income the proper deduction is the full amount of the rental allowance set forth in the objective IRS Standards, even though the actual rental expense is lower.

[2]

  After surveying numerous approaches to addressing the section 1325 (b)(3) and section 707 (b)(2)(A)(ii)(I) directives regarding disposable income, the Court noted that there is “no clear consensus” as to whether the IRS Standard or a lower actual amount applies.

[3]

By: Elizabeth Filardi

St. John's Law Student

American Bankruptcy Institute Law Review Staff

In Morris v. St. John National Bank,

[1]

the Tenth Circuit concluded that a bankruptcy trustee who successfully avoids a lien under the Bankruptcy Code does not automatically assume all the rights the original lienholder may have against the debtor.

[2]

Here, the debtors borrowed $3,050 from the bank, using their 1980 Pontiac Trans Am as security.

[3]

 On the date the debtors filed for bankruptcy, they still owed the bank $3,237.50 on the loan, but the fair market value of the car was only $2,000.

[4]

  The Trustee successfully avoided the bank’s lien on the car.  While §551 preserved the lien for the benefit of the estate,

[5]

the issue was whether bankruptcy law permitted the trustee to recover the full amount owed or whether the trustee was limited to the value of the bank’s security interest in the car itself.

[6]

  The Tenth Circuit concluded that a trustee who avoids a lien pursuant to 11 U.S.C §544 and preserves it under §551 is limited to the value of the lien and does not acquire the bank’s right to collect any debt amount beyond the value of the security interest.

[7]

Consequently, the trustee’s recovery was limited to the $2,000 value of the secured interest on the debtor’s car and could not recoup the full $3,237.50 value owed on the loan at the time of the bankruptcy filing.