The Consumer Bankruptcy Journal Winter 2016 by The Warren Group

CONSUMER BANKRUPTCY

JOURNAL Official Publication of the National Association of Consumer Bankruptcy Attorneys | Winter 2016

Inside This Issue:

Darrell Castle, NACBA Member & Recent Candidate for POTUS NACBA Takes On 11th Circuit Judicial Estoppel Doctrine Why the Gap Between Judges & Attorneys Over Fees? NACBA Comments on Proposed Amendments to FRBP 3015 & New Rule 3015.1

FULL TEXT NOW ONLINE!

NEW

May 2016 Edition Written by Henry Sommer, the nationâ&#x20AC;&#x2122;s leading consumer bankruptcy author, the text is fully up to date including expert guidance on completing the all-new official forms effective 2016.

Order Now at

www.nclc.org/bookstore

CONTENTS

Volume 3, No. 4 | Winter 2016

ARTICLES

Comments of the NACBA.................................................. Washington Update............................................................ NACBA Takes on 11th Circuit Judicial Estoppel Doctrine........ Meet Darrell Castle........................................................................... 8 Proven Steps to Double Your Referrals...................................... Motion to Compel the Trustee to Abandon Debtor’s Business From Chapter 7 Bankruptcy Estate.................... Gary was a Great Lawyer When he was Sober; Now He’s Gone............................................................................ The Gap Between Judges & Attorneys Over Fees......... Motion to Compel the Trustee to Abandon Real Estate Propoerty............................................................................. Tolling Events in Tax Discharge.......................................... The Private Right of Action................................................ Nevada Personal Injury Exemption Applies on a PerClaim Basis........................................................................... NCBRC Cases In Review.................................................... Help Lower Income Seniors and Disabled Persons.........

NACBA Officers Edward Boltz, President Jim Haller, Vice President John Colwell, Secretary Ike Shulman, Treasurer NACBA Directors Carol Colliersmith, Marietta, GA Gene Melchionne, Waterbury, CT Richard “Hal” Nemeth, Cleveland, OH Daniel Press, McLean, VA Pamela Stewart, Houston, TX Tara Twomey, Monterey, CA

Director of Events Rachael Hodgen Membership & Marketing Associate Cat Matsuda Digital Communications Associate Chere Williams Advertising Rates & Inquiries NACBA.org/media-kit

Executive Director Dan LaBert

Contact Phone: 800.499.9040 Fax: 202.331.8535 Email: admin@nacba.com

Legislative Director Maureen Thopmson

EDUCATE, ADVOCATE, LITIGATE | nacba.com

National Association of Consumer Bankruptcy Attorneys

Winter 2016

4 18 20 22 26 30 32 34 38 40 44 46 47 50

The Consumer Bankruptcy Journal is the official publication of the National Association of Consumer Bankruptcy Attorneys, 2200 Pennsylvania Avenue NW, 4th Floor, Washington, DC 20037. The quarterly publication showcases consumer bankruptcy related material, Supreme Court updates, profiles of NACBA members and programs, previews of NACBA events, as well as, commentary on topics of interest to bankruptcy attorneys. Consumer Bankruptcy Journal reserves the right to edit for style, length, and continuity. To author an article contact the NACBA Executive Director at dan.labert@nacba.com or a member of the NACBA Board of Directors.

CONSUMER BANKRUPTCY JOURNAL

COMMENTS OF THE NACBA Regarding the Proposed Amendments to FRBP 3015 and New Rule 3015.1 October 3, 2016

ACBA appreciates the opportunity to comment on the new “compromise” proposal regarding form chapter 13 plans that was first advanced by a group of creditor attorneys and bankruptcy judges and that has now been proposed, with modifications, by the Advisory Committee. These comments follow up and expand on the testimony offered to the Committee on September 27, 2016, by Jenny Doling, Norma Hammes, and James “Ike” Shulman. From our perspective, the proposal is not a compromise, but rather embodies a concept that is radically different from the original proposal. To the extent some NACBA members supported the original proposal for a national form plan, it was because they believed that many unofficial local form chapter 13 plans had provisions that infringed on the rights of debtors and that a national plan would eliminate that problem. The “compromise” goes in exactly the opposite direction, and would have the effect of giving an official imprimatur to those local plans, which they have never had before. Indeed, because almost all bankruptcy courts have adopted local chapter 13 plans, that is almost the only thing that the proposal will do with respect to plans. It does not even require the uniformity of format that was one of the principal objectives of the proposal for a national plan. There is simply no reason why the rules should legitimize plans that in some cases do not even comply with the law. As is evident from our earlier comments and the testimony of our witnesses, we are particularly concerned that any form plan not limit the debtor’s fundamental right to propose a plan under § 1321 of the Code. It is the debtor, not the Court 4

CONSUMER BANKRUPTCY JOURNAL

or the trustee, who is to propose a plan, and that plan may have any appropriate provision not inconsistent with title 11. At a minimum, if a rule to require use of local forms is adopted, the comments should make clear that no local plan can limit the debtor’s substantive rights or the debtor’s right to propose and obtain timely confirmation of a plan that contains alternative provisions not inconsistent with the Code or Rules. Further, the comments should emphasize that there should be no presumption that the provisions of a form plan are in some way better than other provisions, nor should there be additional procedural hurdles, such as special hearings not required when the form plan is proposed, to prove that nonstandard provisions are proper. In particular, a debtor should, without question, be able to use provisions from the proposed national form that have been thoroughly debated and approved by the Advisory Committee. NACBA recognizes that the Advisory Committee has done a great deal of work on this project, but we fear that in trying to salvage something from this work it is now falling victim to the “sunk costs” fallacy. We urge you to reject the proposal to permit districts to mandate the use of local form plans, at least if it does not include the safeguards described above that would protect the debtor’s ultimate right to propose a plan under Code § 1321. Stay Termination Upon Surrender Should Be An Optional Plan Provision Proposed Rule 3015.1(d)(5) states that a Local Form chapter 13 plan must include a separate plan provision that provides for “surrendering property that secures a claim with request that the stay be terminated as to Winter 2016

the surrendered collateral.” NACBA does not oppose a rule that requires a separate paragraph in the Local Form that deals with surrender of collateral. However, the rule should not require that the debtor request that the stay be terminated. By requiring such a request, the rule adopts a legal position as to the effect of surrender and impermissibly exceeds the scope of a procedural rule. The proposed rule also imposes a mandate that is not set out in the Bankruptcy Code. Section 1325(a)(5) (C) states simply that the plan provides that “the debtor surrenders the property securing such claim to such holder.” It does not require the debtor to request stay termination as to the collateral. The Advisory Committee should not impose a requirement on debtors that does not exist under the Code, particularly when courts are divided on the procedural requirements and substantive effect of surrender. A request for stay termination in the plan raises significant procedural concerns and imposes costs on the debtor. Requests for stay relief are governed by section 362(d) and Rule 4001(a). If the request for stay termination is made in the plan, the proposed plan will be treated as a motion under Rule 4001(a), and made in accordance with Rule 9014 and the service requirements under Rule 7004. If the plan is served when the petition is filed or shortly thereafter, in most districts the stay will terminate automatically under section 362(e) thirty days after the request is made, even before the court has conducted a confirmation hearing. If the plan is somehow not deemed effective as a request when the plan is filed, but rather at some later point such as when the plan is considered by the court at confirmation,

National Association of Consumer Bankruptcy Attorneys

the advance notice and hearing requirements under Rule 9014 may not be satisfied. Moreover, in many cases the debtor will incur the additional costs associated with the enhanced service requirements under Rule 7004(h), as many secured creditors are insured depository institutions. By forcing the debtor to make a request for stay termination that is not required by the Code, rather than have it listed on a Local Form as an available option, the proposed rule takes away the debtor’s right to propose the specific content of the plan. Moreover, there are good reasons why a debtor should not be compelled to seek stay termination. It is not uncommon for debtors to provide for surrender of collateral in the plan and at the same time be actively involved with the secured creditor in negotiating a loan modification or some other form of loss mitigation. It makes no sense for a debtor in that situation to request stay termination. It would also be inconsistent with the procedural rules that some bankruptcy courts have established for loss mitigation mediation programs. For these reasons NACBA requests that proposed Rule 3015.1(d)(5) be revised to provide that a Local Form plan may list a request for stay termination as an available option to the debtor, but shall not mandate that such a request be made in connection with surrender. Requests for Determination of Amount of Secured Claim and Avoidance of Judicial Liens Proposed Rule 3012(b), which would become effective at the same time as proposed Rule 3015.1, provides that a request to determine the amount of a secured claim may be made in a motion, in a claim objection, or in a plan filed in a chapter 12 or 13 case. Proposed Rule 4003(d), also to become effective at the same time, provides that a request for lien avoidance under section 522(f) made be made by motion or by a chapter 12 or 13 plan. Although these proposed rule amendments clearly provide that a debtor may make

such requests in the plan, and such requests are included as optional plan provisions in the proposed Official Form Chapter 13 Plan, proposed Rule 3015.1 does not require that Local Form plans include an option for the debtor to make a Rule 3012(b) or Rule 4003(d) request. NACBA believes that many districts will adopt a Local Form plan that will include express provisions permitting Rule 3012(b) and Rule 4003(d) requests. However, based on the comments submitted by a few bankruptcy judges about the Official Form Chapter 13 Plan, it is likely that a minority of districts will adopt a Local Form without such provisions. Debtors in those districts should not be required to make a Rule 3012(b) or Rule 4003(d) request as a nonstandard plan provision. It is nonsensical that an unambiguous procedural right that is permitted under the Bankruptcy Rules should be treated as “nonstandard.” Debtor attorneys and their clients in those districts will likely incur the additional costs of filing separate motions simply to avoid the additional scrutiny of “nonstandard” provisions. Moreover, the detailed information required to make a make a Rule 3012(b) or Rule 4003(d) request, as evidenced by sections 3.2 and 3.4 of the proposed Official Form Chapter 13 Plan, will make it difficult to draft such provisions as “nonstandard” provisions for those debtor attorneys who persist in attempting to make the requests in the plan. It will also result in a wide variance of valuation and lien avoidance provisions, detracting from the uniformity goals of the rule amendments and making it difficult for secured creditors to review plans in those districts. NACBA requests the Advisory Committee to amend proposed Rule 3015.1(d) to include a requirement that the Local Form plan shall contain a separate paragraph that gives the debtor the option to make a Rule 3012(b) and Rule 4003(d) request. Notice and Opportunity for Public Comment

National Association of Consumer Bankruptcy Attorneys

Winter 2016

Proposed Rule 3015.1(a) provides that a single Local Form plan may be adopted by a district “after public notice and opportunity for public comment. “NACBA supports this requirement but believes that the Advisory Committee should provide more guidance on the notice and comment procedure. At a minimum, the Committee Note should state that the opt-out consideration and adoption of a Local Form should be conducted pursuant to Bankruptcy Rule 9029. NACBA is concerned that some districts may take the view that Rule 9029 is not applicable if the district is adopting a form rather than a local rule. The adoption of a Local Form plan is a significant matter affecting chapter 13 practice and should be subject to the Rule 9029 requirements. Proposed Rule 3015(c) provides that the Official Form Chapter 13 Form must be used unless a district adopts a Local Form that complies with proposed Rule 3015.1. Although perhaps implied in the rule amendments, NACBA believes the Advisory Committee should explicitly provide in the Committee Note that the district’s decision to opt out, not just the proposed Local Form, should be subject to notice and comment. Districts should be required to include in the notice seeking comment a copy of the proposed Official Form Chapter 13 Form, and the notice should solicit comment on the advisability of adopting a proposed Local Form rather than the Official Form. While many districts include consumer debtor attorney representation on local rules committees, NACBA does not believe that this is done in all districts. Once again, the significance of the Local Form adoption on debtors’ rights and chapter 13 practice warrants a departure from local procedures, at least for those districts that do not actively incorporate consumer attorney representation on local rules committees. NACBA urges the Advisory Committee to indicate in the Committee Note or in some other form the expectation that districts will solicit participation from the consumer debtor CONSUMER BANKRUPTCY JOURNAL

COMMENTS OF THE NACBA bar for any committee that is formed to advise the court in the development of a Local Form. Note also, that including representation from the consumer bar on a committee is just the first step in assuring that debtors’ rights are protected in the drafting of a local model plan. See paragraph 7 below, Development of Local Model Plans, addressing the results of NACBA’s recent survey.

seven months (assuming the Supreme Court can promulgate the rules by May 1, 2017).

NACBA is also concerned that the

Review of Content of Existing Local Model Plans

NACBA suggests that districts that have decided to opt out and indicate that additional time is needed should be given an additional six months, until June 1, 2018, in which they would have the option to continue using any existing local model chapter 13 plan.

posted on bankruptcy court websites or the authorized trustees’ sites, 90 of them are mandatory in all chapter 13 cases filed. Five jurisdictions have no model plans, and four have recommended – but not actually mandated – model plans. The model plans make up 643 pages, which are attached hereto as pdfs in three parts. Several bankruptcy courts are now in the process of updating their existing model plans or adopting model plans for the first time, so these numbers are in transition. 1. Length of model plans The model plans ranged in length from a single page to more than 16 pages (much of which is single-spaced text). Plans with font size approximating 10 points were the easiest to read: larger fonts diminished the data density too much, and some of the plans used fonts that were so small they were very difficult to read. It is important to note that the longer the text in the plan, the less likely it is that the debtor or the creditor will have the patience or attention to read more than the first page or two. Therefore, all the good intentions to intensively explain the consequences of the plan are likely in vain.

Debtors in those districts should not be required to make a Rule 3012(b) or Rule 4003(d) request as a nonstandard plan provision. It is nonsensical that an unambiguous procedural right that is permitted under the Bankruptcy Rules should be treated as “nonstandard.”. truncated schedule the Advisory Committee is using for adoption of the proposed rules is causing local districts to rush to adopt a Local Form without engaging in thoughtful development of a form and careful consideration of comments. By its own actions spanning several years, the Advisory Committee is well aware that the subject of the proposed rules, including the adoption of an Official Form Chapter 13 Plan and the opt-out compromise, have been controversial. Despite this unsettled history, the Advisory Committee is expecting local districts to decide whether to opt-out, develop a Local Form, provide notice, solicit comment, review comment, make final changes, and obtain approval from the District Court, all in a period of approximately 6

CONSUMER BANKRUPTCY JOURNAL

In September 2016, NACBA undertook a review of the model plans currently in effect across the country, and surveyed its members regarding their experiences with their own courts’ model plans which they use every day, and the content of the provisions required by them. NACBA received data from128 survey respondents in 39 states, the District of Columbia, and Puerto Rico, which included 62 court districts. The court districts within which these respondents practice comprise 83% of all chapter 13 cases filed in 2015. In its review of local plans, NACBA found that (excluding Guam and the Virgin Islands) of the 99 model plans Winter 2016

NACBA urges that if the proposed rules are adopted, the comments include a reminder that a local model plan should be a brief as possible, display operative data visibly, and utilize a reasonable sized font (not too big and not too small). 2. Excessive notices The longer model plans usually contain extensive descriptions of the meaning of bankruptcy code sections and numerous notices to creditors about the deadlines applicable to them and what their rights are. Many of these lengthy passages are likely to be in

National Association of Consumer Bankruptcy Attorneys

COMMENTS OF THE NACBA violation of 28 U.S.C. § 2075 and FRBP 9029. These excessive notices are not, by any means, required by the Supreme Court’s ruling in United Student Aid Funds v. Espinosa, 130 S.Ct. 1367 (2010), but that decision appears to be the basis for many of the lengthier portions of these model plans. We believe these notices are not only unnecessary, but are actually harmful to debtors, enlarge creditors’ rights, and obscure the operative content of the plan. NACBA urges that if the proposed rules are adopted, the comments include a reminder to avoid notices that duplicate parts of the 341 notice, explanations of the law, and restatements of data that are included in the petition or schedules. 3. Adding to or deviating from model plan provisions The mandatory model plans have several different methods of accommodating (or not) the debtors’ right to propose their own plans pursuant to 11 U.S.C. § 1321. The most glaring violation of § 1321 appears in four jurisdictions, where debtors are strongly admonished against adding or changing any provisions in the model plan without first moving for and obtaining a court order permitting them. Thirteen model plans allowed editing the text throughout the plan, indicating the changes with boldface, underlines, or strike-outs. Four model plans did not seem to have any place to add provisions. The vast majority of the plans used language similar to the proposed National Plan, which limits the changes or additions to a specific section and voids any other changes in the plan. The treatment of additional provisions was unclear in seven plans. The ability of debtors to propose specific provisions and strikeout or change provisions within model plans is crucial. To effectively prevent debtors from so doing is an egregious violation of their basic bankruptcy rights. Quite a few of the local rules mandating their model plans state that the debtor’s plan must “substantially conform” to the

model plan – which gives the impression that the debtor is still allowed some leeway to propose his/her own plan, as provided in § 1321. In practice many debtors’ attorneys find that this rule provision is of no effect and the judges and trustees are not amenable to any deviation at all from the model plan. As generally indicated in the Summary above, NACBA urges that if the proposed rules are adopted, local model plans be required to permit the debtor to edit, add, delete, and change the text of the plan, with clear notations of those changes; and to prohibit the court and trustee from delaying plan confirmation or otherwise procedurally disadvantaging debtors who do this. 4. Re-vesting provisions Re-vesting provisions are, to some, among the least “interesting” of the types of plan provisions; however, they are extremely important to the outcome of many debtors’ cases. The Code provides that unless otherwise provided in the plan, property of the estate revests in the debtor upon plan confirmation, but it permits the debtor a whole range of possibilities that are completely ignored by most mandatory model plans. 11 U.S.C. § 1322(b)(9) permits the debtor to provide for vesting “on confirmation of the plan or at a later time, in the debtor or in any other entity.” 77% of the model plans either provided only one revesting provision or provided none, which would default to revesting on plan confirmation. 17% offered two revesting options. Only 6% of the model plans allowed the debtor to specify a revesting provision, like the National Model Plan does. The current group of mandatory model plans seriously abridge debtors’ rights in this regard as well. NACBA urges that if the proposed rules are adopted, local model plans be required to offer re-vesting options which include the ability for the debtor to describe his/her own provision. 5.

National Association of Consumer Bankruptcy Attorneys

Specification

Projected Winter 2016

Disposable Income (PDI) and Best Interest of Creditors (BIOC) Test Calculations Many mandatory model plans require the debtor to state the results of the PDI and BIOC tests within the plan. However, some model plans go beyond that to specifying a formula and form to use to calculate those tests. Of the mandatory model plans, 17% specify BIOC calculations that are arguably incorrect and 14% of the mandatory model plans prescribe calculations for PDI or designate the use of PDI arguably incorrectly. Because the debtor is theoretically the proponent of the filed plan, s/he could well be bound by these calculations and results – even if they do not comply with the Code (See Espinosa). NACBA urges that if the proposed rules are adopted, comments encourage the avoidance of mandatory worksheets specifying PDI and BIOC calculations. 6. Methods of Determining Dividends on General Unsecured Claims Nationwide, the great variation in methods of specifying the dividends to be paid on general unsecured claims provided in mandatory model plans is almost beyond imagination. The following options – including combinations of them – are included in the mandatory model plans. Because some plans offer several options, the sum of the identified plan provisions exceeds the number of model plans. a. 26 plans specified or allowed specifying this option: “funds left over after secured, priority, and administrative claims are paid” [on general unsecured claims] b 26 other plans allowed specifying this option: “funds left over after secured, priority, and administrative claims are paid,” combined with one or more other option c. 24 plans specified: “no less than __” d. 36 plans specified or allowed specifying: “$____”, a dollar dividend combined with one or more other option e. 2 plans allowed specifying: “$____”, a dollar dividend f. 33 plans specified or allowed specifying: “____%”, a percent CONSUMER BANKRUPTCY JOURNAL

COMMENTS OF THE NACBA of allowed claims filed dividend g. Only 4 plans allowed the debtor to specify the method for determining the dividend on general unsecured claims The widespread use of “funds left over after …” and “no less than” provisions creates a serious problem for Chapter 13 debtors, as documented by NACBA’s survey. Even though a debtor may be absolutely entitled to propose a plan with no dividend for general unsecured claims, if the mandatory plan contains these provisions, the plan will almost inevitably pay dividends – if only accidentally – on general unsecured claims. And, in many cases, the Chapter 13 Trustee is allowed to increase this dividend at his/her whim. The same argument applies when the PDI or BIOC tests result in a calculated dollar amount that must be paid on general unsecured claims. In these plans, this calculated amount is merely the starting point, from which the dividend is allowed to grow – despite not being required by law. In addition, many plans provide a hardwired calculation of trustee’s fees at 10%, a level which is permitted but not often utilized. Since the actual trustee’s fees are often considerably less than 10%, this provision frequently produces a surplus that “waterfalls” to the general unsecured creditors even though the debtor is not required to pay them anything. These plans prevent the debtor from proposing a plan that the debtor desires, is entitled to, and without which his/her basic bankruptcy rights are seriously abridged. The majority of local plans currently mandated include these various damaging provisions that also have the effect of enlarging creditors’ rights in violation of 28 U.S.C. § 2075. NACBA’s members reported the devastating results of mandatory plans of this nature. Of the 52 respondents who reported that nearly all of their chapter 13 cases were required to pay dividends on general unsecured claims (95-100% of their chapter 13 cases), 8

CONSUMER BANKRUPTCY JOURNAL

most of them reported that large numbers of these cases would not be required to pay any dividend for general unsecured claims because they passed both the PDI and BIOC tests. In fact, 58% of these respondents said that at least half of their cases would not have to pay any dividend at all, based upon the PDI and BIOC tests. And, 21% of the 52 respondents said that at least 90% of their cases would not have to pay any dividend at all, based upon the PDI and BIOC tests. These disturbing discrepancies are most likely due to the trickle-down diversion of the overestimated trustees’ fees required by the plan to be paid by the debtor, or simply a long-standing policy of individual judges and trustees to demand a certain dividend in all cases. The widespread systemic effect of plan provisions specifying dividends on general unsecured claims in mandated local plans across the board abridges debtors’ rights and enlarges creditors’ rights in violation of 28 U.S.C. § 2075. It takes no leap of the imagination to believe that where funds which could be used by debtors for basic needs are taken from them and diverted to general unsecured claims, this places those debtors’ plans that much closer to failing due to some unexpected expense during their three- to five-year plan terms. NACBA urges that if the proposed rules are adopted, local model plans be required to offer options for specifying the dividend on general unsecured claims, which include the ability for the debtor to describe his/her own provision.

Trustee to design it. Sometimes there is a committee selected by the judge(s) which produces a result that is edited by the judge(s). Sometimes a draft is published for comment, but often not. When a committee is involved, usually there will be an assortment of “stakeholders” selected by the judge to participate (e.g., creditors’ attorneys, trustee(s), and one or two debtors’ attorneys). The fallacy of the concept that a committee of stakeholders should be empowered to develop a mandatory model plan is demonstrated in this scenario. By definition, the majority of the members of the committee are unlikely to have ever prepared a Chapter 13 case and plan, and are also generally unfamiliar with the provisions of 11 U.S.C. §§ 1321, 1322, 1325(a) and (b). Therefore, the development of the plan is likely to resemble a horsetrading negotiating process completely divorced from the statutory framework specified by the Code for the content of chapter 13 plans. This effect is borne out by the comments of survey respondents who were familiar with the process for developing the local model plan. The vast majority of them said that there was little or no discussion of assuring the debtors’ rights under 11 U.S.C. §§ 1321, 1322, 1325(a) and (b). NACBA urges the Advisory Committee, if the proposed rules are adopted, to include a clearly worded instruction that the content of any model plan be reviewed for specific compliance with 11 U.S.C. §§ 1321, 1322, 1325(a) and (b) prior to adoption.

7. Development of Local Model Plans The process of developing the model plans that have become mandatory has varied substantially across the country, as reported by respondents to NACBA’s survey. Sometimes a judge simply announces it. Sometimes the judge authorizes the Chapter 13 Winter 2016

National Association of Consumer Bankruptcy Attorneys

COMMENTS OF THE NACBA COMMENTS OF THE NATIONAL ASSOCIATION OF CONSUMER BANKRUPTCY ATTORNEYS Regarding the Proposed Amendments to FRBP 3015 and New Rule 3015.1 October 3, 2016 Summary NACBA appreciates the opportunity to comment on the new “compromise” proposal regarding form chapter 13 plans that was first advanced by a group of creditor attorneys and bankruptcy judges and that has now been proposed, with modifications, by the Advisory Committee. These comments follow up and expand on the testimony offered to the Committee on September 27, 2016, by Jenny Doling, Norma Hammes, and James “Ike” Shulman. From our perspective, the proposal is not a compromise, but rather embodies a concept that is radically different from the original proposal. To the extent some NACBA members supported the original proposal for a national form plan, it was because they believed that many unofficial local form chapter 13 plans had provisions that infringed on the rights of debtors and that a national plan would eliminate that problem. The “compromise” goes in exactly the opposite direction, and would have the effect of giving an official imprimatur to those local plans, which they have never had before. Indeed, because almost all bankruptcy courts have adopted local chapter 13 plans, that is almost the only thing that the proposal will do with respect to plans. It does not even require the uniformity of format that was one of the principal objectives of the proposal for a national plan. There is simply no reason why the rules should legitimize plans that in some cases do not even comply with the law. As is evident from our earlier comments and the testimony of our witnesses, we are particularly concerned that any form plan not limit the debtor’s fundamental right to propose a plan under § 1321 of the Code. It is the debtor, not the Court or the trustee, who is to propose a plan, and that plan may have any appropriate provision not inconsistent with title 11. At a minimum, if a rule to require use of local forms is adopted, the comments should make clear that no local plan can limit the debtor’s substantive rights or the debtor’s right to propose and obtain timely confirmation of a plan that contains alternative provisions not inconsistent with the Code or Rules. Further, the comments should emphasize that there should be no presumption that the provisions of a form plan are in some way better than other provisions, nor should there be additional procedural hurdles, such as special hearings not required when the form plan is proposed, to prove that nonstandard provisions are proper. In particular, a debtor should, without question, be able to use provisions from the proposed national form that have been thoroughly debated and approved by the Advisory Committee.

National Association of Consumer Bankruptcy Attorneys

Winter 2016

CONSUMER BANKRUPTCY JOURNAL

COMMENTS OF THE NACBA NACBA recognizes that the Advisory Committee has done a great deal of work on this project, but we fear that in trying to salvage something from this work it is now falling victim to the “sunk costs” fallacy. We urge you to reject the proposal to permit districts to mandate the use of local form plans, at least if it does not include the safeguards described above that would protect the debtor’s ultimate right to propose a plan under Code § 1321. Stay Termination Upon Surrender Should Be An Optional Plan Provision Proposed Rule 3015.1(d)(5) states that a Local Form chapter 13 plan must include a separate plan provision that provides for “surrendering property that secures a claim with request that the stay be terminated as to the surrendered collateral.” NACBA does not oppose a rule that requires a separate paragraph in the Local Form that deals with surrender of collateral. However, the rule should not require that the debtor request that the stay be terminated. By requiring such a request, the rule adopts a legal position as to the effect of surrender and impermissibly exceeds the scope of a procedural rule. The proposed rule also imposes a mandate that is not set out in the Bankruptcy Code. Section 1325(a)(5)(C) states simply that the plan provides that “the debtor surrenders the property securing such claim to such holder.” It does not require the debtor to request stay termination as to the collateral. The Advisory Committee should not impose a requirement on debtors that does not exist under the Code, particularly when courts are divided on the procedural requirements and substantive effect of surrender. A request for stay termination in the plan raises significant procedural concerns and imposes costs on the debtor. Requests for stay relief are governed by section 362(d) and Rule 4001(a). If the request for stay termination is made in the plan, the proposed plan will be treated as a motion under Rule 4001(a), and made in accordance with Rule 9014 and the service requirements under Rule 7004. If the plan is served when the petition is filed or shortly thereafter, in most districts the stay will terminate automatically under section 362(e) thirty days after the request is made, even before the court has conducted a confirmation hearing. If the plan is somehow not deemed effective as a request when the plan is filed, but rather at some later point such as when the plan is considered by the court at confirmation, the advance notice and hearing requirements under Rule 9014 may not be satisfied. Moreover, in many cases the debtor will incur the additional costs associated with the enhanced service requirements under Rule 7004(h), as many secured creditors are insured depository institutions. By forcing the debtor to make a request for stay termination that is not required by the Code, rather than have it listed on a Local Form as an available option, the proposed rule takes away the debtor’s right to propose the specific content of the plan. Moreover, there are good reasons why a debtor should not be compelled to seek stay termination. It is not uncommon for debtors to provide for surrender of collateral in the plan and at the same time be actively involved with 10

CONSUMER BANKRUPTCY JOURNAL

2 Winter 2016

National Association of Consumer Bankruptcy Attorneys

COMMENTS OF THE NACBA the secured creditor in negotiating a loan modification or some other form of loss mitigation. It makes no sense for a debtor in that situation to request stay termination. It would also be inconsistent with the procedural rules that some bankruptcy courts have established for loss mitigation mediation programs. For these reasons NACBA requests that proposed Rule 3015.1(d)(5) be revised to provide that a Local Form plan may list a request for stay termination as an available option to the debtor, but shall not mandate that such a request be made in connection with surrender. Requests for Determination of Amount of Secured Claim and Avoidance of Judicial Liens Proposed Rule 3012(b), which would become effective at the same time as proposed Rule 3015.1, provides that a request to determine the amount of a secured claim may be made in a motion, in a claim objection, or in a plan filed in a chapter 12 or 13 case. Proposed Rule 4003(d), also to become effective at the same time, provides that a request for lien avoidance under section 522(f) made be made by motion or by a chapter 12 or 13 plan. Although these proposed rule amendments clearly provide that a debtor may make such requests in the plan, and such requests are included as optional plan provisions in the proposed Official Form Chapter 13 Plan, proposed Rule 3015.1 does not require that Local Form plans include an option for the debtor to make a Rule 3012(b) or Rule 4003(d) request. NACBA believes that many districts will adopt a Local Form plan that will include express provisions permitting Rule 3012(b) and Rule 4003(d) requests. However, based on the comments submitted by a few bankruptcy judges about the Official Form Chapter 13 Plan, it is likely that a minority of districts will adopt a Local Form without such provisions. Debtors in those districts should not be required to make a Rule 3012(b) or Rule 4003(d) request as a nonstandard plan provision. It is nonsensical that an unambiguous procedural right that is permitted under the Bankruptcy Rules should be treated as “nonstandard.” Debtor attorneys and their clients in those districts will likely incur the additional costs of filing separate motions simply to avoid the additional scrutiny of “nonstandard” provisions. Moreover, the detailed information required to make a make a Rule 3012(b) or Rule 4003(d) request, as evidenced by sections 3.2 and 3.4 of the proposed Official Form Chapter 13 Plan, will make it difficult to draft such provisions as “nonstandard” provisions for those debtor attorneys who persist in attempting to make the requests in the plan. It will also result in a wide variance of valuation and lien avoidance provisions, detracting from the uniformity goals of the rule amendments and making it difficult for secured creditors to review plans in those districts. NACBA requests the Advisory Committee to amend proposed Rule 3015.1(d) to include a requirement that the Local Form plan shall contain a separate paragraph that gives the debtor the option to make a Rule 3012(b) and Rule 4003(d) request. National Association of Consumer Bankruptcy Attorneys

Winter 2016

CONSUMER BANKRUPTCY JOURNAL

COMMENTS OF THE NACBA Notice and Opportunity for Public Comment Proposed Rule 3015.1(a) provides that a single Local Form plan may be adopted by a district “after public notice and opportunity for public comment. “NACBA supports this requirement but believes that the Advisory Committee should provide more guidance on the notice and comment procedure. At a minimum, the Committee Note should state that the opt-out consideration and adoption of a Local Form should be conducted pursuant to Bankruptcy Rule 9029. NACBA is concerned that some districts may take the view that Rule 9029 is not applicable if the district is adopting a form rather than a local rule. The adoption of a Local Form plan is a significant matter affecting chapter 13 practice and should be subject to the Rule 9029 requirements. Proposed Rule 3015(c) provides that the Official Form Chapter 13 Form must be used unless a district adopts a Local Form that complies with proposed Rule 3015.1. Although perhaps implied in the rule amendments, NACBA believes the Advisory Committee should explicitly provide in the Committee Note that the district’s decision to opt out, not just the proposed Local Form, should be subject to notice and comment. Districts should be required to include in the notice seeking comment a copy of the proposed Official Form Chapter 13 Form, and the notice should solicit comment on the advisability of adopting a proposed Local Form rather than the Official Form. While many districts include consumer debtor attorney representation on local rules committees, NACBA does not believe that this is done in all districts. Once again, the significance of the Local Form adoption on debtors’ rights and chapter 13 practice warrants a departure from local procedures, at least for those districts that do not actively incorporate consumer attorney representation on local rules committees. NACBA urges the Advisory Committee to indicate in the Committee Note or in some other form the expectation that districts will solicit participation from the consumer debtor bar for any committee that is formed to advise the court in the development of a Local Form. Note also, that including representation from the consumer bar on a committee is just the first step in assuring that debtors’ rights are protected in the drafting of a local model plan. See paragraph 7 below, Development of Local Model Plans, addressing the results of NACBA’s recent survey. NACBA is also concerned that the truncated schedule the Advisory Committee is using for adoption of the proposed rules is causing local districts to rush to adopt a Local Form without engaging in thoughtful development of a form and careful consideration of comments. By its own actions spanning several years, the Advisory Committee is well aware that the subject of the proposed rules, including the adoption of an Official Form Chapter 13 Plan and the opt-out compromise, have been controversial. Despite this unsettled history, the Advisory Committee is expecting local districts to decide whether to opt-out, develop a Local Form, provide notice, solicit comment, review comment, make final changes, and obtain approval from the District

CONSUMER BANKRUPTCY JOURNAL

Winter 2016

National Association of Consumer Bankruptcy Attorneys

COMMENTS OF THE NACBA Court, all in a period of approximately seven months (assuming the Supreme Court can promulgate the rules by May 1, 2017). NACBA suggests that districts that have decided to opt out and indicate that additional time is needed should be given an additional six months, until June 1, 2018, in which they would have the option to continue using any existing local model chapter 13 plan. Review of Content of Existing Local Model Plans In September 2016, NACBA undertook a review of the model plans currently in effect across the country, and surveyed its members regarding their experiences with their own courts’ model plans which they use every day, and the content of the provisions required by them. NACBA received data from128 survey respondents in 39 states, the District of Columbia, and Puerto Rico, which included 62 court districts. The court districts within which these respondents practice comprise 83% of all chapter 13 cases filed in 2015. In its review of local plans, NACBA found that (excluding Guam and the Virgin Islands) of the 99 model plans posted on bankruptcy court websites or the authorized trustees’ sites, 90 of them are mandatory in all chapter 13 cases filed. Five jurisdictions have no model plans, and four have recommended – but not actually mandated – model plans. The model plans make up 643 pages, which are attached hereto as pdfs in three parts. Several bankruptcy courts are now in the process of updating their existing model plans or adopting model plans for the first time, so these numbers are in transition. 1.

Length of model plans The model plans ranged in length from a single page to more than 16 pages (much of which is single-spaced text). Plans with font size approximating 10 points were the easiest to read: larger fonts diminished the data density too much, and some of the plans used fonts that were so small they were very difficult to read. It is important to note that the longer the text in the plan, the less likely it is that the debtor or the creditor will have the patience or attention to read more than the first page or two. Therefore, all the good intentions to intensively explain the consequences of the plan are likely in vain. NACBA urges that if the proposed rules are adopted, the comments include a reminder that a local model plan should be a brief as possible, display operative data visibly, and utilize a reasonable sized font (not too big and not too small). 2.

Excessive notices The longer model plans usually contain extensive descriptions of the meaning of bankruptcy code sections and numerous notices to creditors about the deadlines applicable to

National Association of Consumer Bankruptcy Attorneys

Winter 2016

CONSUMER BANKRUPTCY JOURNAL

COMMENTS OF THE NACBA them and what their rights are. Many of these lengthy passages are likely to be in violation of 28 U.S.C. § 2075 and FRBP 9029. These excessive notices are not, by any means, required by the Supreme Court’s ruling in United Student Aid Funds v. Espinosa, 130 S.Ct. 1367 (2010), but that decision appears to be the basis for many of the lengthier portions of these model plans. We believe these notices are not only unnecessary, but are actually harmful to debtors, enlarge creditors’ rights, and obscure the operative content of the plan. NACBA urges that if the proposed rules are adopted, the comments include a reminder to avoid notices that duplicate parts of the 341 notice, explanations of the law, and restatements of data that are included in the petition or schedules. 3.

Adding to or deviating from model plan provisions The mandatory model plans have several different methods of accommodating (or not) the debtors’ right to propose their own plans pursuant to 11 U.S.C. § 1321. The most glaring violation of § 1321 appears in four jurisdictions, where debtors are strongly admonished against adding or changing any provisions in the model plan without first moving for and obtaining a court order permitting them. Thirteen model plans allowed editing the text throughout the plan, indicating the changes with boldface, underlines, or strike-outs. Four model plans did not seem to have any place to add provisions. The vast majority of the plans used language similar to the proposed National Plan, which limits the changes or additions to a specific section and voids any other changes in the plan. The treatment of additional provisions was unclear in seven plans. The ability of debtors to propose specific provisions and strike-out or change provisions within model plans is crucial. To effectively prevent debtors from so doing is an egregious violation of their basic bankruptcy rights. Quite a few of the local rules mandating their model plans state that the debtor’s plan must “substantially conform” to the model plan – which gives the impression that the debtor is still allowed some leeway to propose his/her own plan, as provided in § 1321. In practice many debtors’ attorneys find that this rule provision is of no effect and the judges and trustees are not amenable to any deviation at all from the model plan. As generally indicated in the Summary above, NACBA urges that if the proposed rules are adopted, local model plans be required to permit the debtor to edit, add, delete, and change the text of the plan, with clear notations of those changes; and to prohibit the court and trustee from delaying plan confirmation or otherwise procedurally disadvantaging debtors who do this. 4.

Revesting provisions Revesting provisions are, to some, among the least “interesting” of the types of plan provisions; however, they are extremely important to the outcome of many debtors’ cases. The Code provides that unless otherwise provided in the plan, property of the estate revests in

CONSUMER BANKRUPTCY JOURNAL

Winter 2016

National Association of Consumer Bankruptcy Attorneys

COMMENTS OF THE NACBA the debtor upon plan confirmation, but it permits the debtor a whole range of possibilities that are completely ignored by most mandatory model plans. 11 U.S.C. § 1322(b)(9) permits the debtor to provide for vesting “on confirmation of the plan or at a later time, in the debtor or in any other entity.” 77% of the model plans either provided only one revesting provision or provided none, which would default to revesting on plan confirmation. 17% offered two revesting options. Only 6% of the model plans allowed the debtor to specify a revesting provision, like the National Model Plan does. The current group of mandatory model plans seriously abridge debtors’ rights in this regard as well. NACBA urges that if the proposed rules are adopted, local model plans be required to offer revesting options which include the ability for the debtor to describe his/her own provision. 5.

Specification of Projected Disposable Income (PDI) and Best Interest of Creditors (BIOC) Test Calculations Many mandatory model plans require the debtor to state the results of the PDI and BIOC tests within the plan. However, some model plans go beyond that to specifying a formula and form to use to calculate those tests. Of the mandatory model plans, 17% specify BIOC calculations that are arguably incorrect and 14% of the mandatory model plans prescribe calculations for PDI or designate the use of PDI arguably incorrectly. Because the debtor is theoretically the proponent of the filed plan, s/he could well be bound by these calculations and results – even if they do not comply with the Code (See Espinosa). NACBA urges that if the proposed rules are adopted, comments encourage the avoidance of mandatory worksheets specifying PDI and BIOC calculations. 6.

Methods of Determining Dividends on General Unsecured Claims Nationwide, the great variation in methods of specifying the dividends to be paid on general unsecured claims provided in mandatory model plans is almost beyond imagination. The following options – including combinations of them – are included in the mandatory model plans. Because some plans offer several options, the sum of the identified plan provisions exceeds the number of model plans. a. 26 plans specified or allowed specifying this option: “funds left over after secured, priority, and administrative claims are paid” [on general unsecured claims] b 26 other plans allowed specifying this option: “funds left over after secured, priority, and administrative claims are paid,” combined with one or more other option c. 24 plans specified: “no less than __” d. 36 plans specified or allowed specifying: “$____”, a dollar dividend combined with one or more other option National Association of Consumer Bankruptcy Attorneys

Winter 2016

CONSUMER BANKRUPTCY JOURNAL

COMMENTS OF THE NACBA e. f. g.

2 plans allowed specifying: “$____”, a dollar dividend 33 plans specified or allowed specifying: “____%”, a percent of allowed claims filed dividend Only 4 plans allowed the debtor to specify the method for determining the dividend on general unsecured claims

The widespread use of “funds left over after …” and “no less than” provisions creates a serious problem for Chapter 13 debtors, as documented by NACBA’s survey. Even though a debtor may be absolutely entitled to propose a plan with no dividend for general unsecured claims, if the mandatory plan contains these provisions, the plan will almost inevitably pay dividends – if only accidentally – on general unsecured claims. And, in many cases, the Chapter 13 Trustee is allowed to increase this dividend at his/her whim. The same argument applies when the PDI or BIOC tests result in a calculated dollar amount that must be paid on general unsecured claims. In these plans, this calculated amount is merely the starting point, from which the dividend is allowed to grow – despite not being required by law. In addition, many plans provide a hard-wired calculation of trustee’s fees at 10%, a level which is permitted but not often utilized. Since the actual trustee’s fees are often considerably less than 10%, this provision frequently produces a surplus that “waterfalls” to the general unsecured creditors even though the debtor is not required to pay them anything. These plans prevent the debtor from proposing a plan that the debtor desires, is entitled to, and without which his/her basic bankruptcy rights are seriously abridged. The majority of local plans currently mandated include these various damaging provisions that also have the effect of enlarging creditors’ rights in violation of 28 U.S.C. § 2075. NACBA’s members reported the devastating results of mandatory plans of this nature. Of the 52 respondents who reported that nearly all of their chapter 13 cases were required to pay dividends on general unsecured claims (95-100% of their chapter 13 cases), most of them reported that large numbers of these cases would not be required to pay any dividend for general unsecured claims because they passed both the PDI and BIOC tests. In fact, 58% of these respondents said that at least half of their cases would not have to pay any dividend at all, based upon the PDI and BIOC tests. And, 21% of the 52 respondents said that at least 90% of their cases would not have to pay any dividend at all, based upon the PDI and BIOC tests. These disturbing discrepancies are most likely due to the trickle-down diversion of the overestimated trustees’ fees required by the plan to be paid by the debtor, or simply a long-standing policy of individual judges and trustees to demand a certain dividend in all cases. The widespread systemic effect of plan provisions specifying dividends on general unsecured claims in mandated local plans across the board abridges debtors’ rights and enlarges creditors’ 16

CONSUMER BANKRUPTCY JOURNAL

Winter 2016

National Association of Consumer Bankruptcy Attorneys

COMMENTS OF THE NACBA rights in violation of 28 U.S.C. § 2075. It takes no leap of the imagination to believe that where funds which could be used by debtors for basic needs are taken from them and diverted to general unsecured claims, this places those debtors’ plans that much closer to failing due to some unexpected expense during their three- to five-year plan terms. NACBA urges that if the proposed rules are adopted, local model plans be required to offer options for specifying the dividend on general unsecured claims, which include the ability for the debtor to describe his/her own provision. 7.

Development of Local Model Plans The process of developing the model plans that have become mandatory has varied substantially across the country, as reported by respondents to NACBA’s survey. Sometimes a judge simply announces it. Sometimes the judge authorizes the Chapter 13 Trustee to design it. Sometimes there is a committee selected by the judge(s) which produces a result that is edited by the judge(s). Sometimes a draft is published for comment, but often not. When a committee is involved, usually there will be an assortment of “stakeholders” selected by the judge to participate (e.g., creditors’ attorneys, trustee(s), and one or two debtors’ attorneys). The fallacy of the concept that a committee of stakeholders should be empowered to develop a mandatory model plan is demonstrated in this scenario. By definition, the majority of the members of the committee are unlikely to have ever prepared a Chapter 13 case and plan, and are also generally unfamiliar with the provisions of 11 U.S.C. §§ 1321, 1322, 1325(a) and (b). Therefore, the development of the plan is likely to resemble a horse-trading negotiating process completely divorced from the statutory framework specified by the Code for the content of chapter 13 plans. This effect is borne out by the comments of survey respondents who were familiar with the process for developing the local model plan. The vast majority of them said that there was little or no discussion of assuring the debtors’ rights under 11 U.S.C. §§ 1321, 1322, 1325(a) and (b). NACBA urges the Advisory Committee, if the proposed rules are adopted, to include a clearly worded instruction that the content of any model plan be reviewed for specific compliance with 11 U.S.C. §§ 1321, 1322, 1325(a) and (b) prior to adoption.

National Association of Consumer Bankruptcy Attorneys

Winter 2016

CONSUMER BANKRUPTCY JOURNAL

WASHINGTON UPDATE By Maureen Thompson NACBA Legislative Director

his is the latest issue of our weekly update from Washington, designed to keep NACBA members informed about significant and relevant activity on the part of Congress, regulatory agencies and interest groups/think tanks. Feedback should be directed to Maureen Thompson.

Sherman (D-CA)– a member of the House Financial Services Committee – introduced legislation that will give Wells Fargo customers who were victims of a fraudulent account scheme their day in court. Wells Fargo is using the forced arbitration clauses it tucked away in the fine print of contracts customers signed when they opened legitimate accounts to block them from Obviously, the big news out of suing over the fraudulent accounts. Washington is the election results. Read more about the bill here. NACBA members who joined us for the November 18 webinar, “The 2016 Senator Mike Enzi (R-WY), chairman of Election: What Now?” heard NACBA the Senate Budget Committee reacted leaders and our representatives in to a General Accountability Office Washington answer the questions (GAO) report on the cost of Department about what to expect in 2017 from of Education’s Income Driven the Administration, Congress and the Repayment (IDR) plans for student courts. We are planning to issue a loans (see “In the Agencies) by harshly special repot next week after President- criticizing the Department, which is Elect Trump announces his full roster responsible for calculating the cost of cabinet picks. We will focus not of the program. “This Administration only on what to expect from the White has been manipulating the terms of House come January, but also the the student loan program without the key agencies of interest to NACBA: consent of Congress, while shirking its Department of Justice, Consumer statutory duty to carefully assess the Financial Protection Bureau, and the cost impact of those changes,” Enzi Department of Education, as well as said in a statement. “It will be crucial to the leadership and key committees in consider updates to the Federal Credit Congress. Reform Act because Congress is not receiving credible, transparent cost Continue reading for non-election news data under the existing statute, as this out of Washington this week. report suggests.”

ON THE HILL Congress remains focused on Wells Fargo. Senator Sherrod Brown (D-OH) – ranking member on the Senate Banking Committee – and Representative Brad 18

CONSUMER BANKRUPTCY JOURNAL

A group of 21 current and former members of Congress filed an amicus brief in support of the Consumer Financial Protection Bureau’s (CFPB) petition filed with the D.C. Circuit Winter 2016

seeking a rehearing of its decision in CFPB v PHH Corporation. Read the brief here. IN THE AGENCIES The Government Accountability Office (GAO) released a report critical of the Department of Education’s approach to estimating the cost of income-based student loan repayment plans, which allow borrowers to make student loan payments based on how much they make. According to the GAO report, these plans will cost more than twice as much as the Education Department expected them to. The Education Department’s approach to estimating the costs of the repayment plan “do not ensure reliable budget estimates,” the GAO report says. The Education Department responded to the GAO report, saying it “generally concurs” with the findings, but noted that “the decisions made (and critiqued in this report) were based on existing staff and systems resources available, assessed impact, and consideration for conservatism.” “The lifecycle of a student loan is exceedingly complex, with a multitude of projection paths and outcomes,” the department’s response said. “Estimating the federal cost of student loans is a task we take very seriously, and we are constantly seeking to enhance and refine our cost estimation models.” On November 18, the CFPB petitioned the U.S. Court of Appeals for the District

National Association of Consumer Bankruptcy Attorneys

WASHINGTON UPDATE of Columbia Circuit (D.C. Circuit) for an en banc review of PHH v. CFPB. The petition, which was expected, argues that this case represents “what may be the most important separation-ofpowers case in a generation.” You can read the petition here. More from the CFPB… the CFPB has taken action against B&B Pawnbrokers, Inc. for deceiving consumers about the actual annual cost of its loans. In a lawsuit filed in federal court, the CFPB alleged that B&B Pawnbrokers broke the law by misstating the charges associated with pawn loans. The CFPB’s lawsuit seeks to end B&B Pawnbrokers’ illegal practices, get restitution for the consumers it harmed, and impose penalties. You can read the lawsuit here. In good news for consumers, the Internal Revenue Service (IRS) aims to include as many homeowners as possible in a taxable-income exclusion

set to expire at the end of the year. According to Notice 2016-72, the IRS will accept debt reduction modifications as long as the borrower receives a trial offer by the sunset of the Home Affordable Modification Program, set for Dec. 30, 2016. The program was created to encourage banks to lower monthly mortgage payments to help homeowners stave off foreclosure after the subprime mortgage crisis. “This is trying to capture as many people as possible in the folks that can benefit from that tax assistance,” Sarah Bolling Mancini, of counsel at the National Consumer Law Center Inc., told Bloomberg BNA Nov. 28. The IRS guidance focuses on the programs that allow homeowners to reduce the principal balance on their loans, not programs that just reduce interest rates or stretch repayment terms, Mancini said. Homeowners must receive a trial period plan from their bank before Jan. 1, 2017, but

don’t need to complete the plan or enter into a permanent version before the deadline, the IRS said. Typically, a bank will send out a letter saying a homeowner is approved for a trial plan, and the homeowner must then make a trial payment for the next three months before a permanent version will be offered, Mancini said. FROM THE INTEREST GROUPS A group of 10 consumer advocacy organizations has also filed an amicus brief in support of the Consumer Financial Protection Bureau’s (CFPB) petition filed with the D.C. Circuit seeking a rehearing of its decision in CFPB v PHH Corporation. Read the brief here. OTHER For easy access, here is a link to the CFPB Ombudsman’s webpage. There you will find their 2016 Annual Report, which you may find informational as well as a useful as a resource.

Rediscover the lost art of human interaction. Solo and small firm clients don’t want to talk to a machine. Which is why firms like yours rely on Ruby, the highly trained team of offsite receptionists who handle all your calls with the perfect mix of friendliness and professionalism.

866-611-RUBY (7829) or visit callruby.com/nacba

National Association of Consumer Bankruptcy Attorneys

Winter 2016

CONSUMER BANKRUPTCY JOURNAL

NACBA Takes On 11th Circuit Judicial Estoppel Doctrine

CBRC has filed an amicus brief in the Eleventh Circuit on behalf of the NACBA membership to address the issue of that circuit’s approach to judicial estoppel. Slater v. U.S. Steel, No. 12-15568 (filed October 24, 2016). Twenty one months after filing an employment discrimination suit in federal district court against her former employer, U.S. Steel, Sandra Slater filed for bankruptcy. (The original case was filed under chapter 7 and later converted to chapter 13). She failed to list the pending federal case in her bankruptcy schedules. U.S. Steel then moved the district court to bar the discrimination suit based on the doctrine of judicial estoppel. The district court granted the motion and Ms. Slater appealed. The Eleventh Circuit affirmed with a concurring opinion by Judge Tjoflat in which he agreed that the holding was compelled by the Eleventh Circuit decisions in Burnes v. Pemco Aeroplex, Inc., 291 F.3d 1282 (11th Cir. 2002), and Barger v. City of Cartersville, 348 F.3d 1289 (11th Cir. 2003), but argued that those cases were wrongly decided. He maintained that application of Eleventh Circuit judicial estoppel precedent led to the resulted that: “U.S. Steel is granted a windfall, Slater’s creditors are deprived of an asset, and the Bankruptcy Court is stripped of its discretion.” Slater v. U.S. Steel Corp., 820 F.3d 1193, 1235 (11th Cir. 2016). The court then vacated that decision and granted Ms. Slater’s motion for reconsideration en banc. In its brief, NACBA argues that, as interpreted by Burnes and Barger and their progeny, the doctrine of judicial estoppel has strayed from its original purpose of protecting the integrity of the judicial process and become an inappropriate remedy for debtor error 20

CONSUMER BANKRUPTCY JOURNAL

or misconduct. The Eleventh Circuit applies a twoprong test for application of judicial estoppel under which: 1) there must be an inconsistent position taken under oath and in a prior proceeding, and 2) there must be a motive to conceal the claim. In its brief, NACBA argues that the way these prongs are applied in the Eleventh Circuit renders the application of judicial estoppel non-discretionary. Under the holdings in Burnes and Barger, when a debtor omits a legal claim from her bankruptcy, even if that omission is inadvertent, she has taken an inconsistent position that may not be corrected once that position is challenged. Also, so long as the debtor knows of the claim or has a motive to conceal it, “intentional manipulation” of the bankruptcy process is likewise inferred as a matter of law. This lack of judicial discretion is counter to the Supreme Court’s admonition in New Hampshire v. Maine, 532 U.S. 742 (2001), that judicial estoppel not be rigidly applied. Generally, the brief argues that it is usually the district court in the prior legal action that makes the decision as to the application of the doctrine even though the non-disclosure takes place in the bankruptcy court. By putting judicial estoppel in the hands of the district court, the procedures available in bankruptcy, such as amendments to schedules and reopening of closed cases under flexible circumstances, are rendered useless. Moreover, expansion of the Burnes/ Barger doctrine in Robinson v. Tyson Foods, Inc., 595 F.3d 1269, 1274 (11th Cir. 2010), has made judicial estoppel even more burdensome to chapter 13 debtors by requiring them to amend their schedules to reflect postpetition legal claims notwithstanding Winter 2016

that neither the Code nor Bankruptcy Rules impose such a requirement. This judicially-imposed obligation punishes the unwary or innocent debtor and creates a windfall opportunity for savvy defendants. Finally, the brief makes the case that the Burnes/Barger doctrine has evolved away from its ostensible purpose of preventing inconsistent legal positions, and is instead used to punish fraud which should more appropriately be dealt with by other provisions in the bankruptcy code and rules. A better approach to cases such as Slater, the brief contends, would be a challenge to the debtor’s standing. In chapter 7, unless the asset is abandoned, the trustee would be the party with standing to pursue a pre-petition legal claim, and in chapter 13, the debtor’s standing to pursue the claim would continue with any recovery benefitting the estate. In the event of actual fraud on the part of the bankruptcy debtor, there are ways to address that conduct without resort to inappropriate judicial estoppel. Such remedies may include denial of discharge and/or sanctions within the bankruptcy proceeding, or even criminal charges in particularly egregious cases. The brief proposes that if judicial estoppel continues to apply in these cases, the court should temper its application to eliminate automatic inferences with respect to inconsistencies and malicious intent. At minimum, judicial estoppel should not prevent a chapter 7 trustee from pursuing the debtor’s legal action. In short, discretion as to the application of judicial estoppel should be restored to the bankruptcy court. NACBA is grateful to J. Erik Heath for authoring the brief.

National Association of Consumer Bankruptcy Attorneys

NBCRC NEEDS YOUR SUPPORT! NCBRC is dedicated to protecting the integrity of the bankruptcy system and preserving the rights of consumer bankruptcy debtor. NCBRC provides assistance either by working directly with debtorsâ&#x20AC;&#x2122; attorneys or by filing amicus briefs in courts throughout the country. NCBRC depends on your generous donations to write briefs, provide litigation support and offer educational programs.

AMICUS BRIEFS | IMPACT LITIGATION | EDUCATION The most effective way to support NCBRC is with a direct donation at www.ncbrc.org.

Donate Today!

www.ncbrc.org | 2200 Pennsylvania Avenue, 4th Floor | Washington, DC 20037

meet darrell castle NACBA Member and 2016 Presidential Nominee of the Constitution Party

By Dan LaBert

NACBA Executive Director

While we can always expect American politics to shift in one direction or another, the one constant that remains for many Americans is the dominance by two parties has been paralyzing. According to a September 2016 Gallup poll, 57%, continue to say that a third major U.S. political party is needed, while 37% disagree, saying the two parties are doing an adequate job of representing the American people.

Platoon Leaders class in Quantico, Virginia. Following graduation, he was commissioned as a 2nd Lieutenant in the United States Marine Corps. Darrell trained under then 1st Lieutenant, Oliver North. After graduation from Basic School,

During the 2016 U.S. Presidential election, while many people were campaigning for Donald or Hillary, or choosing the role of #NeverTrump or #NeverHillary, Attorney Darrell L. Castle Esq. was nominated by the Constitution Party as their candidate for POTUS.

Military Service: Darrell came of age during the Viet Nam War. During his years at East Tennessee State University, he enrolled in the Reserve Officers Training Corps (ROTC) for two years and attended the Marine Corps 22

CONSUMER BANKRUPTCY JOURNAL

War is a life-changing event and Darrell’s experiences during those years contributed to his strong belief that war should not be entered into capriciously; and, that the decision to go to war must be made according to constitutional provisions. He firmly believes in upholding Article I Section 8 of the U.S. Constitution, which makes it clear that only Congress can declare war, and that those powers are not granted to the president. He left the Marine Corps a very different person than when he went in. Legal Career:

Darrell L. Castle Esq., is a longtime member of NACBA. His consumer bankruptcy practice is based in Memphis, Tennessee. About Darrell Castle

having served as a Marine in the Korean War.

Darrell’s unit received a unit citation for being deployed in five different theaters of operation at the same time. He was promoted to 1st Lieutenant and received orders to the Far East for 13 months. His service in Viet Nam followed a family military tradition; his oldest brother serving in the Army during World War II, another brother Winter 2016

In 1984, Darrell opened a private firm, which later grew into Darrell Castle and Associates, based in Memphis, Tennessee. Since then, he has opened firms in Milwaukee, Wisconsin; Detroit, Michigan; Kansas City, Missouri; and St. Louis, Missouri. With over 25 years of legal experience, he has earned much respect. His current focus is on consumer bankruptcy and personal injury, but Darrell Castle and Associates also represents clients in the areas of social security/disability and workers’ compensation. (www. darrellcastle.com)

National Association of Consumer Bankruptcy Attorneys

MEET DARRELL CASTLE Religion: Darrell has a strong Christian religious ethic. He has served as a deacon and deacon chairman in his local church. In 1998, Darrell and Joan stretched out their hand to serve others, and founded Mia’s Children Foundation (www. miaschildren.org), a Christian mission in Bucharest, Romania which ministers to homeless gypsy children. NACBA Interview (NACBA) Can you tell us a little bit about your history with NACBA, and your career as a bankruptcy attorney? (Castle) In about 1988 I converted exclusively to bankruptcy practice although I had some experience during my years in solo practice before that. The practice grew and beginning in 1994 I had the opportunity to open bankruptcy offices in Milwaukee, Detroit, St. Louis and Kansas City. I sold the last of those offices about four years ago so I’m exclusively in Memphis now. (NACBA) How did your legal background and bankruptcy work lead to an interest in national politics? Was there a pivotal event in your life that led to your interest in running for political office? (Castle) The practice of law gave me the income and time to become one of the founders of the Constitution Party in 1992. There were five of us who founded the Party around the inspiration of one man. All of the other four are dead now so I am the surviving link to the founding of the Party. My interest in national politics came about from a love for the U.S. Constitution and the rule of law in general. I saw the rule of law slipping away and so I joined with the four gentlemen I mentioned to found a new political party that would uphold the original intent of the Constitution.

There was no single event but I would have to say that my experience with the War in Vietnam changed me and eventually led to my belief that the nation would not be taken in the correct direction by the two mainstream parties.

(NACBA) What is the take of the Constitution Party on such thinks as student loan debt relief, more latitude for individuals faced with enormous financial pressures due to catastrophic medical bills?

(NACBA) How did your work as a bankruptcy attorney prepare you for a run for President?

(Castle) In my campaign, I took the position that student loans should be dischargeable in bankruptcy like any other unsecured debt and that all government guarantees of loans should be halted. That would bring education costs in line with reality very quickly.

(Castle) My work as a bankruptcy attorney showed me what life in middle and lower America was really like. When the politicians in Washington tell us how the economy is booming I usually say, why don’t you come and spend a couple of hours in my office and you’ll see what its really like. (NACBA) What is the “Constitution Party” and how does it differ or lineup with mainstream political parties on some of the key policy debates of our time, Wall Street reform, health care and national security, etc.? (Castle) The Constitution Party believes that the U. S. Constitution is the supreme law of the land in America. States can do what they want within the boundaries of the Bill of Rights, etc. but the federal government is limited.

National Association of Consumer Bankruptcy Attorneys

Winter 2016

(NACBA) What was the process that led you to decide to run for President of the United States? How did that come about? (Castle) My party nominates its candidates for President by national convention. Our convention was held in April and I was nominated from the floor. There were eight candidates and I won on the first ballot. Many people in the Party obviously thought that I would be the best candidate and I agreed to accept the nomination and do my best. (NACBA) Did you talk on campaign trail about your experiences as a CONSUMER BANKRUPTCY JOURNAL

MEET DARRELL CASTLE

bankruptcy attorney? (Castle) Yes, I did occasionally talk about my experience as a bankruptcy lawyer because it illustrates my understanding of economics and how the economy is functioning in America today. It also gives me experience with ordinary people and the troubles they face every day of their lives. (NACBA) You seemed to have done surprisingly well in certain parts of the country – particularly in Michigan – what led to that? (Castle) I have always had a good rapport with the people of Michigan. I was a candidate for Vice President of the United States in 2008 and Michigan was the leading vote state for me. It is easy to campaign there amidst all the closed factories. This time I went out 24

CONSUMER BANKRUPTCY JOURNAL

to 36th Street in Grand Rapids where I worked after I was discharged from the Marine Corps and I gave a talk in the weed patch that used to be Fisher Body number 2 for General Motors. People need jobs and they remember that they once had them. This year Pennsylvania was our leading vote state but Michigan was right up there. (NACBA) What about your campaign experience will you bring back to your day-to-day work?

(NACBA) What are your future plans? What will your role be going forward with the Constitution Party? (Castle) That is hard to say right now. I have a lifetime seat on the executive committee which I plan to keep. I will probably stay active in trying to recruit Republicans to join with us and build our Party. I will be 72 in 2020 so we’ll see.

(Castle) Campaigning gives you a chance to speak to all kinds of people in all kinds of situations. I spoke off-thecuff and to large groups many times. It also schooled me in debate. I learned that I could hold my own and that I deserved to be there. I still believe that the American people would have been far better off had I been elected. Winter 2016

National Association of Consumer Bankruptcy Attorneys

Are you one step from moving a couch into your office? I’ve been there. • Working till 2 or 3 in the morning just to keep up; • Sacrificing more vacations, anniversaries and birthdays than I care to remember; • Cringing when my kids tugged on my shirt tail to go on the school field trip, and I had to say “No” again; And all this in the name of building my business? Really? Look, you and I both know that there’s a better way hidden, but how do you uncover it? Finding the time to devote to discovering the secrets of running a successful law firm is nearly impossible. Yet, if you don’t find the time you’re doomed to sleeping on the couch. I compare it to teenagers that can’t get a car because they don’t have a job and can’t get a job because they don’t have a car. It occurs to me that you have three choices: 1. Do nothing and expect different results, which is insanity! 2. Do what you can with the time you have and it will feel like you’re a locomotive stuck in a swamp. 3. Take a short cut and talk to someone who’s already unlocked the secrets — bingo! I know how to build a practice that supports your life style rather than undermining it. So, if you’d like to potentially double your business and get your life back; grab a free copy of my shook (short book) The Attorney’s Guide to Personal and Financial Freedom today. In this book, I cover the systems you need to create the law firm of your dreams. There’s no catch, there’s no gimmick and yes, I’m giving you a copy at no cost. Why would I do such a thing? Well, first, to provide value. And second, to allow you to get to know who I am and what I teach attorneys just like you. My guiding passion is to work with as many like-minded entrepreneurial attorneys who want to take action on the principles I teach in order to get real measurable results. If that sounds like you, get your copy today. This book isn’t for you if: • You’re looking for an easy button. One doesn’t exist, and I’ll never promise to offer one. • You believe law to be a “calling” and not a business. Nothing wrong with that, but we simply won’t relate to each other.

If you own a law firm or know someone who does, I urge you to request a free book. Discover the secrets to predictable profits in any practice area. I do need to warn you though. This book isn’t for everyone. If you’re looking for an easy button, one doesn’t exist, and I’ll never promise to offer one. If you believe law to be a “calling” and not a business, this book won’t help you. There is nothing wrong with that, but we simply won’t relate to each other. Or if you’ve got it all figured out, life is perfect; and you’re reading this magazine from the beach, with plenty of money in the bank and your business is growing while you’re gone. On the other hand, if you’re ready to take action and learn what it takes to build the practice you’ve always dreamed of…don’t buy that couch just yet. My team can help you develop and implement the same strategies that have been tested in hundreds of law firms across the country. This free book could change your life and the life of your firm forever.

• You’ve got it all figured out, life is perfect; and you’re reading this magazine from the beach, with plenty of money in the bank; and your business is growing while you’re gone. On the other hand, if you’re ready to take action and learn what it takes to build the practice you’ve always dreamed of, don’t buy that couch just yet. A better idea is to grab a copy of my book. You’ll be happy you did.

Please hurry! This offer contains time-sensitive information.

Visit www.YourLawFirmSecret.com today for your FREE book. Automating the Success of Any Law Firm Office of Richard James | 1355 S. Higley Rd. Suite 108, Gilbert, AZ 85296 | 602-396-4511 | YourLawFirmSecret.com

8 PROVEN STEPS TO DOUBLE YOUR REFERRALS By Stephen Fairley

CEO, The Rainmaker Institute

Two-time international bestselling author, Stephen Fairley is CEO of The Rainmaker Institute, LLC, the nation’s largest law firm marketing company specializing in marketing and lead conversion for small to medium law firms. Over 18,000 attorneys nationwide have benefited from learning and implementing the proven Rainmaker Marketing System. Over the last 16 years, he has become a nationally recognized legal marketing expert and been named, “America’s Top Marketing Coach.” He has spoken numerous times for over 35 of the nation’s largest state and local bar associations and has a large virtual footprint with his highly successful Rainmaker legal marketing blog and has over 200,000 followers on Facebook, Twitter and LinkedIn. For more information, please visit www.TheRainmakerInstitute. com or call 888.588.5891.

or many bankruptcy law firms, referrals are the gold standard when it comes to obtaining new clients. However, too many lawyers rely on random referrals, which is just what the term implies...referrals that may or may not come. A strong referral base is only built over a period of time and is based on cultivating long-term, meaningful relationships with referral sources. Most referral sources will only send you referrals if they know you will make referrals back to them. There are five fundamental keys to 26

CONSUMER BANKRUPTCY JOURNAL

increasing referrals: 1. Do not try to be a generalist. The fastest way to lose referrals from other professionals is by practicing several different kinds of law. In fact, every practice area you add over your primary one will cost you many, many referrals over time. For example, if most of your practice is bankruptcy and occasionally you take on a family law matter for an existing client, but you introduce yourself at networking events and on your website as someone who does bankruptcy and family law, every divorce attorney will now see you as a competitor, not a potential referral source. 2. Actively build relationships with at least five to ten new referral sources each year. I know, it’s easier said than done, but the best way to have your practice “crash and burn” is to totally rely on a handful of referral sources. As the saying goes, “it’s not a matter of if, but when” one or more of your referral sources will dry up. Make it your goal to meet and develop at least one new referral source per month then cultivate that relationship by staying connected every month. Remember, referrals are a numbers game. Not every referral source will be in a position to send you a referral every month, so if you are relying on three to five people to send

Winter 2016

you a bulk of your business you can rest assured that you will have some really slow months. The most vibrant practices have a constant influx of new referral sources on a regular basis. 3. Keep in touch with them on a consistent basis, at least five to ten times per year. This can be a combination of a “reconnecting” email, commenting on their LinkedIn or Facebook post, sending out a monthly newsletter, making a phone call, going to lunch, sending small thank you gifts, and quarterly visits to their office twice per year. If you want to build a thriving network of attorney referral sources you must be prepared to go out of your way to generate referrals for them as well. Developing a relationship is a two-way process. It can’t just be you asking your legal peers for referrals when you see them. It requires regular contact and you showing as much concern for their business as you are asking them to show for yours. 4. Send a thank you card/gift for every single referral they make. I recently sent a referral to a new Google pay per click company I just met here in the Valley. Within a week I had received a thank you note and a box of brownies…and so did my assistant. It

National Association of Consumer Bankruptcy Attorneys

8 PROVEN STEPS TO DOUBLE YOUR REFERRALS was a very nice touch and made a big impression on me. Since then I’ve sent them three more referrals. Say ‘thank you’ every single time, regardless of whether you land the client or not. 5. Do not just rely on other attorneys for referrals. Many of an attorney’s best referral sources can be outside of the legal industry. For example, if you are a bankruptcy attorney, develop relationships with psychologists and marriage and family counselors because we know financial stress impacts people on multiple levels, including their mental health. If you have a criminal defense practice, connect with substance abuse therapists. If you are a real estate attorney, seek to build relationships with commercial real estate brokers. If you are a business attorney, attend networking events filled with CPAs. If you are an estate planning attorney, reach out to financial advisors and planners. Be willing to look outside of your existing network to other non-legal professionals.

include LinkedIn, Superpages.com, Avvo.com and your local or state trade associations. 3. Write up a letter of introduction to serve as a template. Here’s an example of a letter you would send to non-competing attorneys:

Here is the 8 step system I have taught thousands of attorneys to create a referral network: 1. Identify your best possible referral sources. These will be other attorneys you don’t compete with and non-legal professionals who work with a similar clientele as you do. I’ve mentioned several examples above. Keep in mind that you want to choose those that have a growing business (not at the end of their career, winding things down), maintain close connections with their clients, do excellent work, have a great reputation (both online and offline), that you feel comfortable with, and that describe their best clients in similar terms as you.     2. Create a database of 100-200 professionals in your local area. This should include every person who has ever referred someone to you as well as your identified best possible referral sources. Some good resources National Association of Consumer Bankruptcy Attorneys

REFERRAL LETTER TO NONCOMPETING ATTORNEYS WITH A DIVORCE PRACTICE My name is __________of the law firm _____________ in (city, state). I’m writing to see if you would be interested in getting together with me to learn about each other’s services and respective target markets. It is my hope that such a meeting can lead to the creation of a referral relationship that would benefit both of our firms. We have been in business since ______, and we focus our practice on (your area of practice). Many of our clients ask us for referrals to trusted and experienced divorce attorneys who can help them with divorce and post-divorce issues. For our part, we are constantly looking to expand our network of professional advisors in the local area, from whom we can identify potential referrals for our clients. For more information about our firm, we invite you to visit our website at: ________________ In the next week you’ll receive a call from our office to see if you are interested in getting

Winter 2016

together in person. I look forward to meeting you soon, face-to-face. Sincerely,  4. Have your assistant mail out 10-20 letters per week on your letterhead. Do not send a bunch of letters at once -- pace yourself. Many attorneys ask if it has to be a mailed letter. No, it does not, but in many cases you will get a better response. Most professionals will open a letter from an attorney. There is an overreliance on email and fewer people are sending mail these days so it stands out. Email can get lost. You may also want to try sending an “In mail” using LinkedIn, if you are a proficient user of LinkedIn. 5. For each letter you send out, plan on having your assistant make three to four calls to try and reach the person you sent the letter to. The purpose of your call is two-fold: to see if they are interested in getting together and to set a face to face appointment if they are. This is not direct solicitation or a sales pitch – it is simply a followup call to see if they are interested in meeting with you face-to-face. Call them once per week for three to four weeks before giving up. Prepare a simple phone script for your assistant and make sure he or she has the answers to simple questions about your law firm: ·

How long have you been in practice / business?

Who is your ideal client?

Where are you located?

What’s your primary practice area?

What’s your website URL?

How did you find my name / contact information?

CONSUMER BANKRUPTCY JOURNAL

8 PROVEN STEPS TO DOUBLE YOUR REFERRALS Be sure your assistant asks a few questions of your potential referral source: ·

Who is your ideal client? What kind of client do you enjoy working with the most? Do you currently have a ________ attorney you refer cases / clients to? Are you open to discussing developing a referral relationship with a law firm like ours if there’s a good connection?

some tips:

6. The goal is to set three to six face-to-face meetings per month. At the face-to-face meeting you want to spend 80% of the time getting to know them and their practice to determine if it’s a good fit. Ask them LOTS of questions: ·

How did you first get started in _____?

What do you like best / least about your work?

Do you seek to make referrals to other non-competing professionals?

What’s the biggest challenge you are facing?

How do you find most of your clients?

How many clients do you serve in a typical year?

What does your typical client look like?

Where is your office located?

If they are not interested, tell them, “No problem. I’m sorry to have bothered you. We will immediately remove you from our list of referral sources.” Here’s the truth...the vast majority will WELCOME your call! We have made thousands of follow up calls for our clients and scheduled hundreds of face to face meetings for them and only a handful have said ‘No.’ Remember— this is NOT a sales pitch—it’s just lunch! Another option is to set up a brief meeting at first just to see if there’s a good connection. Offer to meet them at their office for 30 minutes (lower risk and very convenient for them plus you get to see their office and meet their team). The first meeting or two needs to be face to face in order to establish rapport and build the relationship. Your assistant will need to call each contact three to four times just to get through. Don’t get discouraged! Remember, they are very busy 28

professionals just like you.

CONSUMER BANKRUPTCY JOURNAL

And the most important referral question of all: How would I know if someone would be a great referral for you? 7. Invite them to a second meeting if the first meeting goes well. If your initial meeting goes well, immediately invite them to a second one where you can go into more detail about your practice area and how the two of you could start cross-referring some business. Remember—you cannot promise them referrals, you cannot guarantee referrals, nor can you pay them a referral fee (unless they are an attorney and you meet your state’s guidelines)! However, the vast majority of them don’t want a referral fee and their professional code of ethics doesn’t allow one either. What they want is a referral back from you. 8. Follow up! When it comes to getting more referrals from other professionals, the fortune is in the follow-up! Here are Winter 2016

Send an email immediately after you meet with them. Send it the same day when possible.

Send a handwritten thank you card or form letter about 2-3 days after your initial meeting.

After your meeting put a “to do” or task item in your Outlook for approximately 6-8 weeks after your initial meeting.

Set up “lunch and learns” where several professionals informally get together over lunch to exchange leads, discuss business, and encourage each other.

Make your next meeting more about the relationship than business. Meet at the golf course, over drinks or a casual place.

Send them a copy of your published articles.

Create and send out a separate monthly newsletter just for Referral Sources

Use social media to stay connected – invite them to connect to you on LinkedIn, Facebook, Twitter, etc.

At the Rainmaker Institute, we have taught this easy step-by-step system to thousands of bankruptcy attorneys and they have used this exact process to quickly build networks of 50-60 new referral sources in 90 days. Imagine what would happen to your law practice if you could have 10, 20, 30, or even more new referral sources every single year who consistently send you new clients. You can make it happen if you create a referral system that delivers real – not random – results.

National Association of Consumer Bankruptcy Attorneys

Do You Want To Build A 7-Figure Lifestyle Law Firm That Works Even When Youâ&#x20AC;&#x2122;re On Vacation?

TOP 5 REASONS TO ATTEND! Over 65 Proven Strategies To Market Your Law Firm Discover Secret Strategies 7-Figure Lawyers Use Build An Online Presence Get More Leads Learn How To Go From A Job To A Business Convert More Contacts Into Contracts

Atlanta Los Angeles Las Vegas Miami Dallas

www.RainmakerRetreat.com

Nov 11 - 12 Dec 9 - 10 Jan 13 - 14 Feb 10 - 11 Mar 10 - 11

Motion to Compel the Trustee to Abandon Debtor’s Business from the Chapter 7 Bankruptcy Estate By Gary Ray Fraley, Esq. CA State Bar Board of Legal Specialization Certified Bankruptcy Law Specialist Sacramento, California

(This article is part of “Countdown of the Top 12 Malpractice Mistakes Made by Bankruptcy Attorneys” ongoing column)

problem is that the stock is not exempt normally, except in a “wildcard” exemption state and then only to the extent of the available dollar limit.

Mistake #3: Not making a “Motion to Compel the Trustee to Abandon Debtor’s Business” from the Chapter 7 bankruptcy estate.

Now, let us look at the other alternative, filing “Motion to Compel Abandonment of Debtor’s Business.”

It is surprising how many times I have seen attorneys post on various blogs that they just had a how it feels to not file a Motion to Compel the Trustee to Abandon Debtor’s Business during a bankruptcy. Bankruptcy Trustee close their client’s business down and they do not understand why that happened. Clients are not particularly happy with their bankruptcy attorney when their business is shut down. That is especially true when they were not told that this might happen. This article addresses this issue, and how to reduce that risk. One way would be to incorporate the client’s business before filing a Chapter 7 Bankruptcy. However, that can leave your client with a corporation that they do not want, along with the issues that come with having a Corporation. This may not be an option. The second 30

CONSUMER BANKRUPTCY JOURNAL

“Motion to Compel Abandonment of Debtor’s Business.” During a Bankruptcy And How it Works Like the prior article about failing to file a “Motion to Compel the Trustee to Abandon Real Property” from the bankruptcy estate, the “Motion to Compel the Trustee to Abandon Debtor’s Business” is basically the same motion. However, this “Motion to Compel Abandonment of Debtor’s Business” is used for a very different purpose. The Motion to “Compel Abandonment of Real Property” is to protect from the Trustee taking increases in value in the exempt home for the benefit of creditors. The “Motion to Compel Abandonment of Debtor’s Business” is to allow the client to keep their business open and operating. In Chapter 13 bankruptcy, there are specific provisions that allow the Winter 2016

Debtor to run many types of sole proprietorship businesses including ones with inventory and employees. In Chapter 7 bankruptcy, there is no comparable provision. If you read Chapter 11 U.S. Code § 721 – “Authorization to operate business,” the code allows the Bankruptcy Trustee, with Court Approval, to temporarily operate a business. That is so it can be liquidated as a business for more money than the assets could be sold for individually. That benefits the bankruptcy estate and the creditors. There is no provision in the Bankruptcy Code that allows the Debtor to run a business. In fact, there is no provision that even allows the Bankruptcy Court to even approve of the Debtor running a business. Of course, Bankruptcy Trustees are not interested in running a business such as landscaping, cleaning pools, janitorial services, hair styling, bookkeeping, selling real estate, practicing law and such. In fact, many of the service businesses that sole proprietors run require special licenses that the trustee simply does not have and cannot obtain. Most of these service businesses require skills that

National Association of Consumer Bankruptcy Attorneys

ABANDON DEBTOR’S BUSINESS the Trustee does not have. I have never seen a Bankruptcy Trustee that wanted to clean a pool or mow a lawn.

Shortening Time and coordination with the Bankruptcy Trustee to agree to the release of the business.

The Bankruptcy Trustee also has another concern. If the Bankruptcy Trustee allows a business to continue to operate in violation of bankruptcy law, and the debtor harms someone while running the business, the Bankruptcy Trustee can be liable for the damages.

In some Districts, the Bankruptcy Trustee might allow the Debtor to operate long enough for the Motion to Compel the Trustee to Abandon Debtor’s Business heard. My experience is that you are more likely to keep the business open if the business follows some simple rules and you do your job quickly.

Why Should You File a “Motion to Compel Abandonment of Debtor’s Business” During a Bankruptcy? So, for many reasons, the Bankruptcy Trustee has no reason or desire to allow the Debtor to run the business. Your client may have a business that, if shut down for the length of the bankruptcy case, would cease to exist. Many businesses will lose their clients if they cannot operate during that period. As such, you need to act quickly to keep the business open.

The first thing a Bankruptcy Trustee wants to know is if there are any nonexempt assets in the business that you want to keep open. One example of that might be customer lists. Another would be assumable leases that are significantly below the market. However, those are not common issues. This is where you pick up the phone and call the Trustee as soon as possible.

Technically, you cannot keep a Bankruptcy Trustee from shutting down a sole proprietorship business. That is something you should advise your client in writing and get a signed waiver that the client understands that is a potential of happening.

You should have the list of the assets of the business on your asset schedule and show that the business assets are exempt. I suggest that you have the assets photographed by your clients. Then send them by email to the Bankruptcy Trustee.

The good news is that you can get the business out of the bankruptcy estate rather quickly if it has no value to the bankruptcy estate. That is where a “Motion to Compel Abandonment of the Debtor’s Business” comes in.

The primary things that are typically exempt are the debtor’s tools of trade. Remember that inventory is not a tool of the Debtor’s trade. However, in some cases inventory may be exempted using a state’s “wildcard exemptions.” If the “assets” are not exempt, show the Bankruptcy Trustee that the business and assets have no value to the Bankruptcy Estate.

In many Bankruptcy Court Districts in the United States, a Bankruptcy Trustee will always shut the business down immediately. If they follow the law, that is what they should do. Then you need to file the “Motion to Compel Abandonment of Debtor’s Business” immediately. You should get it heard as quickly as possible and get the Bankruptcy Court Order abandoning the business back to the Debtor so they can reopen the doors of the business. This may require an Order

personal liability if the Trustee allows the business to stay open pending the hearing on the Motion to Compel Abandonment. I always have my client obtain and have proof of liability insurance. We offer to put the Bankruptcy Trustee on the liability insurance as an additional insured. Other things that Bankruptcy Trustees are going to want is for the business to: Have no employees; Be a service business; Not be dealing materials;

with

hazardous

Not operating an inherently dangerous business; Has all licenses and permits necessary to legally operate the business; and You immediately file a Motion to Compel Abandonment of Debtor’s Business. I have found that, at least in my Bankruptcy District, if you do all of the above, the Bankruptcy Trustees have allowed the business to continue to operate pending the Court hearing. In fact, in many instances, the Bankruptcy Trustees will actually file a Statement of Non-opposition to my motion. If you are prepared, and you have prepared your client, this will typically not be a huge problem. At worst, if prepared, the business may be shut down for 2-3 weeks. Often you may not have the Bankruptcy Trustee shut it down at all.

I also invite the Bankruptcy Trustee to come and immediately inspect any physical assets of the business so that the Bankruptcy Trustee can see for themselves that there is no value for the Bankruptcy Estate. The second thing the Bankruptcy Trustee is concerned about is their

National Association of Consumer Bankruptcy Attorneys

Winter 2016

CONSUMER BANKRUPTCY JOURNAL

GARY WAS A GREAT LAWYER when he was sober; now he’s gone By Brian Cuban Esq. BrianCuban.com Dallas, Texas

This article first appeared at http:// abovethelaw.com/

ummer 2013: A muggy, hot morning headed over the 100-degree mark, not unusual for a Dallas summer. I’m taking my usual drive to my favorite Starbucks. I drive past the same bus stop every day. To the average commuter, the bus stop had nothing to set it off from any other. Just one more city hub with people waiting to go to different parts of their lives: jobs, family, shopping. This particular bus stop always catches my attention, because to me it symbolizes more. I know it as a way-station for those in various stages of drug and alcohol recovery and descent. The apartment complex across the street houses many recovering addicts. It’s cheap (by Dallas standards) and within walking distance of a local AA group. The bus line also takes people close to several sober-living homes. Different stories from all walks of life confirm that addiction does not discriminate. This morning, I see one such story with whom I’m intimately familiar standing at the bus stop. It’s my old colleague, Gary, waiting for the bus. Also a lawyer, Gary has an undergraduate 32

CONSUMER BANKRUPTCY JOURNAL

degree from Boston College, summa cum laude, near the top of his class at Antioch School of Law, and then on to a great sports-related job with NBC in New York City. He wasn’t just a lawyer; he was a distinguished lawyer I’d met Gary in 2003 (four years before I got sober) when we both worked of-counsel to a local Dallas firm. At the time, I was trying to hold my life together between addiction, failed marriages, and an eating disorder. Being “high-functioning” was a blessing and a curse. In my mind, I needed no help despite the daily snorting of cocaine in the bathroom of the firm or on my office desk. It provided just the pickup I needed sometimes, and it all made perfect sense to me. I viewed my law firm bathroom/coke breaks as a performance enhancer that would allow me to do my job better. To make me a more confident attorney, if only for a few moments. I tried a case with Gary — a bench trial contract matter. It was the last time I’d appear in court to litigate a case. Sober and brilliant, Gary ran the show. I admired his skill, but didn’t envy him. Being in the courtroom made me sick to my stomach. A sickness only alcohol and cocaine could cure. I couldn’t wait Winter 2016

to be done with trial. But Gary was truly talented, and he knew exactly what he was doing. We had a good result. Then Gary disappeared. He’d done so sporadically over the years since I first met him. I knew what that meant. Gary would go through stretches of stellar representation of his clients, and then there’d be periods of complaints of neglect, and even rumors that he’d show up to client meetings apparently high. Then an arrest on an outstanding warrant in the middle of a court hearing. Gary’s story was generally known among the local attorneys in recovery.

On this day, Gary doesn’t see me drive by him at the bus stop. He’s staring at the ground, just waiting. I’ve called him recently and noticed that his voicemail was full. I know what that means. I suspect many addicts and their families know what that means. Gary has “gone out.” He’s not sober. I pull a U-turn so I can drive up alongside and offer him a ride. He gets in. He’s been to an AA meeting and is headed to the transitional living sober home where he’s a resident. The only thing standing between him and living on the street.

National Association of Consumer Bankruptcy Attorneys

GARY WAS A GREAT LAWYER After he gets in the car, Gary asks if I know he’s been disbarred. I’d seen it in the local legal periodical. As often happens with lawyers and addiction, some money due to his clients never made it to them. State Bars take a dim view of stealing from clients, and addiction is no excuse. It’s a surprisingly common story, and there’s an unsurprisingly common explanation from Gary. It’s all a big mistake, he claims. He’s lost everything, but he’s still in denial, still trying to cling to a reputation that was far in the past long before news of his disbarment broke in the legal periodicals. I don’t say anything in response to Gary’s excuses. I understand. I was once full of them.

He also tells me he’s sober and working as an attorney — he’s licensed in New York. I bite my tongue. Am I ethically bound to say something about his disbarment in Texas to the State Bar of New York? I struggle with the conflict between my view as a lawyer and as a person in recovery. It’s not my recovery. It’s his. I congratulate Gary on the progress he’s made.

On the way to the transitional home, we stop at a diner, and I buy Gary lunch. We talk about nothing in particular. We’ve previously spoken many times of relapses, failed stints in rehab, going to AA meetings together, and “one day at a time.” What more can I say to him? The feeling of helplessness so many trying to help know so well.

I get a Facebook message from Gary. The message is cheerful and includes a photo of a plane ticket to Dallas for the watch party.

Then, as I drop him off, he makes a request. Just a few bucks, he says, “until I get back on my feet.” For a few months, it becomes our routine. The bus stop. The drive. The excuses. The money. I just listen to what Gary has to say. Then one day, he’s gone again. I give him a call, and his voicemail is full again. I worry. I check with the sober house, and he’s no longer there. He’s tested positive for drugs and has been kicked out. He’s gone. Onto the streets. July 2013: My cell phone rings. A 516 area code — Long Island, where some of Gary’s family lives. It’s Gary. He’s moved back home. Maybe he’s thinking that returning to family and roots will save him. I’d had the same experience, if only instinctively, when I moved from Pittsburgh to Dallas to live with my brothers. If recovery were only that simple.

November 2013: I recently appeared on the Katie Show, a now off-the-air talk show featuring Katie Couric, to talk about my battle with body dysmorphic disorder, and of course that includes my recovery from addiction. I’m now preparing for a “watch party” at a local restaurant.

time for many like Gary, whether its addiction, depression, or another mental health challenge. One piece of encouragement. One kind word. One life empowering moment can light that path up. Your friend, family member, legal colleague, or fellow law student. Find the words. They are waiting. http://www.americanbar.org/groups/ lawyer_assistance.html http://collegiaterecovery.org/programs/ http://www.aa.org/ http://www.smartrecovery.org/ http://www.celebraterecovery.com/

It’s the last time I hear from him. The message comes from his ex-wife, and the Google explosion of his name tells the story. At age 54, Gary has been fatally struck by a tractor trailer. He was walking along the middle of the highway when it happened. It’s unknown whether he’d been drinking, but it doesn’t matter. He’s gone. He never “got it” in recovery. It’s not that he didn’t want it. He tried. He tried every day. Gary’s struggles with drugs and alcohol did not define who he was. He was a lawyer, a friend, a husband, a sibling. In his passing, he also helped me. I know my recovery is only as good as today. I also know that I can never stay silent when I see someone struggling. Even if the words are ultimately not heeded, I need to find them. I need to educate myself so that I can at least help light up the dark path so many experience. As we enter the holiday season and we are giving thanks for all the wonderful things in our lives, let’s also be mindful that it is a dark, triggering

National Association of Consumer Bankruptcy Attorneys

Winter 2016

CONSUMER BANKRUPTCY JOURNAL

WHY THE GAP BETWEEN JUDGES AND ATTORNEYS OVER FEES? By Cathy Moran, Esq. Moran Law Group Mount View, California

This article first appeared at http://www. bankruptcysoapbox.com/

ery few bankruptcy judges ever represented average individuals in bankruptcy before they became judges. Fewer were sole practitioners, who must rely on the fees they earn and collect to stay in business. Those two factors seem to create the chasm between bench and bar over attorneys’ fees in consumer bankruptcy cases.

This post starts from the experiences of a colleague who sought approval for fees toward the end of a Chapter 13 case. That fee application resulted in a written opinion denying in part the request for fees over and above the flat fee or “no look” fee available in this district. Some assumptions underlying the written opinion are ill considered; having been written down, the view of the judge writing may attract a following beyond the facts of the case in question and beyond the realities that consumer bankruptcy lawyers face.

opinion, from the attorney’s fees side of the gulf between bench and bar. The fee is “too high” In reducing the fees requested, the judge writes that the fee is “too high,” because the work was “the ordinary sort of counseling associated with any chapter 13 filing”. So? The unstated assumption is that whatever counseling is required is subsumed in the no-look fee. It may be “ordinary”, but it’s still part of what an attorney owes her client and necessary to maintain a good working relationship with the debtor. Particularly, when the communication is initiated by the debtor and it’s the debtor who will pay the fees as approved, what’s the attorney to do? Let’s face it: clients are not the same. They have different levels of basic knowledge; different problems from case to case; and different “stuff” happening in their lives.

So, here’s my perspective on the 34

CONSUMER BANKRUPTCY JOURNAL

Winter 2016

Some clients are needy, illogical, insecure, and forgetful. Some have situations more complicated than others. Families, jobs, and health get in the way. If the court gets to exercise hind sight on the necessity of the counseling, without having met or interacted with the client, the attorney is left with unpalatable choices. ·

Ration counseling and responsiveness to the debtor

Represent only rational, organized, educated, and unstressed debtors

Render the necessary service at the attorney’s expense

None are appealing alternatives from my point of view. I strive to provide good service and make a modest living. Those choices conflict with my goals. Services are “administrative” The second basis the court used for denying a part of the request was an assessment that many of the

National Association of Consumer Bankruptcy Attorneys

THE GAP BETWEEN ATTORNEYS AND JUDGES services for which the attorney billed the minimum increment of one tenth of an hour were “momentary” or “administrative.”

If the court really contends that isn’t necessary to good representation, I’m open to some continuing education on how it’s to be done.

skinny, says the old saw. Opting out of the no look fees and waiting even longer for payment makes eating less easy.) No look fees require a crystal ball

Those deprecated services included review of claims filed, communication received, or “other administrative tasks.” My view is different.

Much of this problem lies in the seductive qualities of the no-look fee.

None of those listed and discounted services are ones that can be delegated to staff. How is an attorney to manage the case and know when issues arise if she doesn’t review claims filed, read the emails received, or examine a notice of mortgage payment change? It’s not clear if the court contends that those tasks don’t have to be done, can be delegated to others, or are simply noncompensable.

The no look fee adopted in the Northern District of California fixes a maximum fee for Chapter 13 representation that an attorney may charge without making a formal written application to the court for review and approval of fees. The Rights and Responsibilities agreement provides that an attorney may apply for additional fees if the amount of the “no look” fee doesn’t fairly compensate the attorney for the services rendered. The “no look” fee appeals to the court, because the bench is relieved of reviewing routine applications for compensation; it appeals to attorneys because it is quick, simple, and relieves the debtor of paying for the cost of preparing a fee application. Generally, the lower the transactions costs to the debtor, the more likely the debtor is to successfully complete the plan. The difficulty arises when the case takes more time and effort than the no look fee covers. The Rights and Responsibilities require that any application for additional fees establish” that said fees and costs are merited and have not been compensated within the amounts previously ordered.” An attorney can opt out of the no-look fee regime and seek approval of fees in the same manner as in Chapter 11 cases (where the debtor’s budget is invariably much larger than that of an individual debtor). Not only does opting out add to the fees the debtor must pay, but it pretty much assures that no compensation is paid to debtor’s counsel between the filing of the case and months after the plan is confirmed. (One can never be too

The fundamental, but fallacious, premise of the no look fee is that the attorney can accurately assess the qualities of the client and the course of the case at the first meeting with the client. If the attorney is to opt out of the no look fees, and seek compensation through the traditional fee application, that choice must be made at the outset of the representation.

I’m reminded of the apocryphal response of Michelangelo to the question of how he turns a slab of stone into his masterpiece of David: It is easy. You just chip away the stone that doesn’t look like David. Yeah. Applied to lawyering, some part of the representation of debtors involves identifying the facts that don’t drive the case. Reviewing the notice of mortgage payment change, so you know whether the servicer is accurate or overreaching. Reading the correspondence that comes in so you know how others see the situation. Analyzing a claim is see if it’s sufficiently supported, within the statute of limitations, and consistent with the debtor’s representations. You look at the paper, and decide whether it’s part of your case, or can be chipped away like excess stone.

How the “no look” fee works

National Association of Consumer Bankruptcy Attorneys

Winter 2016

Thirty-six years of doing this, and I can’t tell which clients will be responsive, collected, and cooperative over the five years of a Chapter 13. I can’t tell whether there will be objections to confirmation, interruptions of income, changed circumstances, or adversaries to be defended. How can I tell up front how much “ordinary counseling” will be required? Periodic billing in a payment-free world The judge writing about the case that triggered this post raised a couple of issues not presented in the application for fees or at the hearing on the application. One was using periodic statements to the client as a means of communicating with the client about the services being rendered that aren’t immediately visible to the client. The Rights and Responsibilities statement contains a provision that absent court order, attorneys’ fees are to be paid through the plan. So sending a periodic bill to the client is only a means of communication, since the client is not to pay the statement. I’ve tried this, in an attempt to provide clients with visibility into the state of CONSUMER BANKRUPTCY JOURNAL

THE GAP BETWEEN ATTORNEYS AND JUDGES their account. It was a nightmare. Two things emerged. One, no matter that the cover letter that we sent out with the statement said “this is for information only”, a fair number of recipients sent money. Or called to say they couldn’t send money. Or raged that they wouldn’t send money. They entirely missed the point that the statement was for information only. As an experiment in client communication, it failed horribly. The second defect in the process involved the fact that the time entries were unedited. When we review time records in preparation of a fee application, we edit the time entries for clarity of description and for whether the time spent was properly billable. We zero out some charges; we discount bills if it seems there is a disconnect between the time spent and the result achieved. But we don’t invest that time until we’ve decided to file a fee application. So the client was seeing what was a rough draft of a bill. It wasn’t our proposed bill. So it was confusing and upsetting to some clients.

duration and feasibility of the plan, the admonition to counsel to file fee applications “earlier and with more frequency” runs counter to a local, judge-made rule about fee applications.

Poor story telling may be responsible for the outcome in the case in question. To the extent that’s the case, the applicant is challenged to put more flesh on the bones of the time records.

The judges’ guidelines for compensating attorneys for the cost of preparing a fee application attempt to mandate a cap on that cost at 5% of the amount sought. That may work well in a Chapter 11 where the fees are in the tens of thousands of dollars; it is artificial and ill-suited to modest Chapter 13 cases.

Personally, I relish writing the narrative in a fee application, because it’s often the only chance I get to tell judges what it’s like, behind the scenes, in a consumer bankruptcy practice. I see this as an educational opportunity, running from bar to bench, rather than vice versa.

The application we are discussing sought $6275 in fees. Five percent of that sum is $314. That is seldom enough to cover the real cost of preparing the application, which requires drafting a narrative, slicing and dicing the fees involved between different professionals and different matters, and providing notice to creditors and the client. Imagine that counsel had sought those same fees in two applications: the guideline for the preparation of the application would allow $157 for each application. The client would incur the cost of the attorney’s appearance at two hearing rather than one.

We stopped doing it.

Until that cap on the cost of preparing a fee application is made consistent with the real world of consumer practice, following the court’s admonition to apply early and often would increase the uncompensated time that debtor’s counsel commits to a case.

Apply for fees early and often

Time for story-telling

The court’s second point raised sua sponte went to the timing of the fee application toward the end of the case. Setting aside the issue of the impact of the fees sought on the

That’s the view from this side of the gap about attorneys’ fees and the bankruptcy regimen for getting paid.

The only communication it seemed to effect was the confused or combative phone calls about the statement.

CONSUMER BANKRUPTCY JOURNAL

Winter 2016

But we need to be mindful that an attorney owes the client a duty of loyalty. Too often, if I were to be utterly candid in my narrative of the case, I’d write that the client is ill-organized, unsophisticated or worse, pig headed, afraid, or distracted. That all may be true, but getting paid fairly shouldn’t require attorneys to belittle or judge our clients in the process. That’s my story and I’m sticking to it.

National Association of Consumer Bankruptcy Attorneys

/ƚ͛Ɛ ĂďŽƵƚ ƟŵĞ͘ tĞďͲďĂƐĞĚ ďĂŶŬƌƵƉƚĐǇ ĮůŝŶŐ ƐŽŌǁĂƌĞ͕ ŝŶƚĞŐƌĂƚĞĚ ǁŝƚŚ ůĞŐĂů ƌĞƐĞĂƌĐŚ͘ dŽƉ&Žƌŵ Θ &ŝůĞ ďǇ &ĂƐƚĐĂƐĞ ŝƐ Ă ƉŽǁĞƌĨƵů ďĂŶŬƌƵƉƚĐǇ ĮůŝŶŐ ƐŽŌǁĂƌĞ ƚŚĂƚ ĚĞůŝǀĞƌƐ Ă ĨĂƐƚ ĂŶĚ ĞĸĐŝĞŶƚ ďĂŶŬƌƵƉƚĐǇ ĐĂƐĞ ŵĂŶĂŐĞŵĞŶƚ ĞǆƉĞƌŝĞŶĐĞ͘ ĂŶŬƌƵƉƚĐǇ ĐĂƐĞ ƉƌĞƉĂƌĂƟŽŶ ŝƐ ƐŽ ŵƵĐŚ ĞĂƐŝĞƌ ǁŝƚŚ ŐƵŝĚĞĚ ĨŽƌŵ ĚƌĂŌŝŶŐ ĂŶĚ ĞůĞĐƚƌŽŶŝĐ ĮůŝŶŐ͘ EŽǁ͕ ǀĞƌƐŝŽŶ ϭϰ͘Ϭ ŽīĞƌƐ ĂĐĐĞƐƐ ƚŽ ƚŚĞ ŵŽƐƚ ĐƵƌƌĞŶƚ ŶĂƟŽŶĂů ĂŶĚ ůŽĐĂů ďĂŶŬƌƵƉƚĐǇ ĨŽƌŵƐ ƐŽ ǇŽƵ ĐĂŶ ďĞ ĐŽŶĮĚĞŶƚ ŝŶ ǇŽƵƌ ĮůŝŶŐ ĂĐĐƵƌĂĐǇ͘

Prepare and File Electronically Prepare and file schedules and forms electronically through a simple e-filing interface. Easily download new and revised forms. Prepare the Proof of Claim form as well as post-petition motions, orders and notices. Also expand your ability to take on new types of filings with comprehensive, up-to-date Chapter 13 plans.

In-Depth Form Interview Questions Form data entry interview questions with contextual guidance assist you every step of the way so you can finish your form faster and more accurately.

Review Forms While You Work on Them Easily review forms with a question-and-answer summary for each form, preview the form with your answers and spell-check the information you’ve entered directly from the data entry interview.

New Form Alerts Be alerted as soon as federal and local form updates are available to be confident you’re using the most up-to-date information, and help ensure that your filing is accepted.

Due Diligence Resources, Current Exemption and ECF Compliance Help verify that your client’s position is vetted by leveraging due diligence data and reports. Access the latest exemption laws for all jurisdictions and maintain full compliance with all current versions of CM/ECF used by the courts.

Motion to Compel the Trustee to Abandon real estate property

By Gary Ray Fraley, Esq. CA State Bar Board of Legal Specialization Certified Bankruptcy Law Specialist Sacramento, California

(This article is part of “Countdown of the Top 12 Malpractice Mistakes Made by Bankruptcy Attorneys” ongoing column) MISTAKE #2: Not making a “Motion to Compel the Trustee to Abandon Real Property” to remove the exempt home from the bankruptcy estate. Note: This article focuses on California bankruptcy attorneys and may reference California and 9th Circuit law. However, most of the concepts presented here are applicable to bankruptcy attorneys everywhere. The 12 issues presented are not necessarily in order of importance. To put the following into perspective, you have to understand that in California, the so-called “California Homestead Exemption” does not protect the home. It protects a dollar amount of equity in the home. This is true in many other States but some have much greater protections for the home than in California where many homes are at the top limits of the exemption amounts. Often bankruptcy attorneys are very pleased with themselves when they file a Chapter 7 bankruptcy and they have been able to exempt most if not all of 38

CONSUMER BANKRUPTCY JOURNAL

the client’s assets. That happens to include the client’s home. The clients, of course, are pleased with this. Their home, the most important thing they have, is safe from the Bankruptcy Trustee and their creditors, or it seems that way. For whatever reason, the case drags on and the home increases in value. Suddenly the bankruptcy attorney gets a call from their client. The client tells the bankruptcy attorney that the Bankruptcy Trustee just told them that the Trustee is going to sell their home to pay creditors. “No way!” the bankruptcy attorney says. “We exempted it.” “The Trustee can’t touch it.” Why a Motion to Compel the Trustee to Abandon Real Property is Needed “Yes way!” In any bankruptcy, no matter where what state you are in, the “exempt assets” are assets of the bankruptcy estate. It stays that way until the Bankruptcy Trustee abandons the assets and the case is closed. The problem with this is that the home may well increase in value while the bankruptcy estate is open. This is happening in many states and cities in the United States nowadays. Unless the home is removed from the Winter 2016

bankruptcy estate, the equity in the home can rapidly exceed the available homestead exemption. Since Bankruptcy Trustees make more money if they have non-exempt assets to administer, many are finding excuses to keep the bankruptcy case open as long as possible. The Bankruptcy Trustee hopes the home will increase in value. If it does, then the Bankruptcy Trustee can reach the non-exempt equity. Equity that was not there when the case was filed. The most common excuse for doing so is that they have to keep the case open to see if the debtor might be entitled to a tax refund. Of course, the tax returns are not going to be prepared until next year. I have seen at least one case where the Bankruptcy Trustee was going to keep the case open and administer a bankruptcy estate for $86 in non-exempt cash. Really? I doubt it was the cash that interested the Bankruptcy Trustee. It was the increasing home equity that had the Bankruptcy Trustee’s eye. Fortunately, you can avoid this happening to you or your client. You can file a “Motion to Compel the Trustee to Abandon the Real Property.” If the Bankruptcy Court grants it, the motion

National Association of Consumer Bankruptcy Attorneys

ABANDON REAL ESTATE PROPERTY “compels” the Bankruptcy Trustee to give the exempt house back to the Debtor. Once the home is no longer part of the Bankruptcy Estate, if the value goes up above the exempt amount it does not matter. The increase in value belongs to your client. What Judges Think About Motion to Compel the Trustee to Abandon Real Property I was at a Bankruptcy seminar where there was a question and answer session with several Bankruptcy Judges. One of the questions for the panel was “What was the most common malpractice mistake bankruptcy attorneys make?” The Judges agreed that it was bankruptcy attorney’s failure to file a Motion to Compel Abandonment to remove the home from the bankruptcy estate. One Judge said he was sick to

his stomach when he had to tell a husband and wife in their 80’s that the Bankruptcy Trustee did have the right to sell their home and kick them out. The Bankruptcy Judge explained to them that, because their home had increased in value, there was now equity above what the homestead exemption protected. Because of that, the Bankruptcy Trustee could sell their home. Would you want to be that bankruptcy attorney? Probably not. Especially when the clients find out they could have kept their home, had the bankruptcy attorney just filed a Motion to Compel the Trustee to abandon the home at the beginning of the case. Some bankruptcy attorneys like the one I described, simply do not know about the issue. Other bankruptcy attorneys know the issue, but are afraid they will lose the potential client if they charge

National Association of Consumer Bankruptcy Attorneys

Winter 2016

more than the bankruptcy attorney down the street charges for the added services. Not filing a Motion to Compel Abandonment for your clients may be fine in clearly “no asset” cases if the home is upside down in value and there is no chance of any reachable non-exempt equity in the foreseeable future. In many cases however, you put your client at great risk if you do not file a Motion to Compel Abandonment of the home. I have found that, once explained, clients are generally willing to pay for the extra services involved to protect their most important asset, their home. I see many bankruptcy attorneys miss the boat on this issue. The Bankruptcy Trustee’s sure know about it. You should too.

CONSUMER BANKRUPTCY JOURNAL

TOLLING EVENTS IN TAX DISCHARGE

By Morgan D. King, Esq. Morgan King Company & Morgan King Law Offices Dublin, California

ssuming you have at least an acquaintance with the 5 rules that must all be satisfied in order to discharge income taxes1, here are some issues to watch for. Discharge of taxes and interest2 on the taxes is governed by, among other things, three “temporal” conditions. The first two rules addressed here are the 3-year and the 240-day rules, to wit; the most recent due date for the taxpayer to file his or her tax return must be over 3 years before the bankruptcy is filed;3 And, the tax assessment must have occurred over 240 days prior to the bankruptcy.4 The Bankruptcy Code at 11 U.S.C. § 507(a)(8)(G)5 provides that certain events that are typically under the control of the taxpayer may stop the clock on (or “suspend” or “toll”) either or both of these periods. If a client has done any of the tolling events while one or both of the time periods are pending, the respective time period is extended for the time the tolling event is pending6, plus an additional 90 days.7 Prior bankruptcy or IRS Collection Due Process Appeal

CONSUMER BANKRUPTCY JOURNAL

Tolling events specified in the Bankruptcy Code include a prior bankruptcy, and a prior IRS Collection Due Process Appeal (“CDP”). A literal reading of the Code provides that a bankruptcy or an IRS Collection Due Process Appeal or any other event “… during which a governmental unit is prohibited under applicable nonbankruptcy law from collecting at tax as a result of a request by the debtor for a hearing and an appeal of any collecting action taken or proposed …” Hence a bankruptcy filed less than 3 years from the due date makes the taxes nondischargeable.8 Note that technically it is not a prior bankruptcy per se that tolls either of the time periods, but only the time collection is prohibited, i.e., the time the stay is in effect. For example, in the case of a prior bankruptcy for a one-time serial filer, tolling will expire in 30 days without a court order extending the stay, and in the case of a 2-time serial filer, tolling does not commence at all unless the court orders the stay to be in effect.9 The IRS Collection Due Process Appeal procedure provides that if a taxpayer receives a final notice of intent to levy, he/she has 30 days in which to Winter 2016

appeal the pending levy;10 the appeal is a request for a hearing and an appeal and hence halts collection while the appeal is being processed.11 Be alert that what may be overlooked in some cases dealing with a state income tax that may have something equivalent to an IRS CDP. IRS Offer-in-Compromise A 3rd tolling event prescribed by the Code is an offer-in-compromise12 that is filed while the 240-day assessment period is pending; this event adds the time the offer is pending plus 30 days.13 This is true only as long as the IRS is considering whether to accept or reject the offer, because while the making of any offer halts levies, ordinarily an OIC by itself is not a request for a hearing and an appeal; 14 however, if the OIC is rejected and the taxpayer appeals the rejection, then tolling would occur because, unlike the mere making of the offer, an appeal is a request for a hearing and an appeal and levy is prohibited while the appeal is pending.15 Collection prohibited by confirmed plan The Code also provides that where collection is prohibited by a confirmed plan, tolling may happen in the same

National Association of Consumer Bankruptcy Attorneys

TOLLING EVENTS IN TAX DISCHARGE manner. Hence, when proposing a chapter 13 plan counsel should consider the effect of 11 U.S.C. § 1327 that provides that property of the estate revests with the debtor unless otherwise provided for by the plan. Premature purposes

filing

for

discharge

Failure to add time during which collection is tolled, plus 90 days, in applying the time rules is easily overlooked. For example, the court in McDaniel16 stated “Bankruptcy counsel did not consider the toll period when calculating the time to file the case, and as a result counsel had filed the bankruptcy petition too early.” In that case the debtor had filed two prior bankruptcy cases. In another case, counsel filed the chapter 7 petition only 7 days short of the eligible discharge date.17 The prior bankruptcy had stopped the clock on the 240-day period. Partial prohibition of tax collection Does a partial prohibition of collection result in tolling? If the stay protects the property of the estate but not the debtor personally, can it be said that collection was prohibited, such that it tolls the time? See, for example, In re Dowden18, which struggled with the question of what, exactly, are the consequences of relief from stay. Penalties are not affected In another case the issue was, does tolling of the tax also toll the time period for discharge of the penalties, and the interest on the penalties, arising from such things as failure to pay, or timely file a return, for that tax? The court held19 that the provision for discharge of penalties is governed by a different section and is not affected by a tolling event. Hence, tolling of the tax does not affect the time period for discharge of penalties prescribed at Bankruptcy Code § 523(a)(7), which is that the

event causing the penalty occurred over three years before the bankruptcy is filed.

the equation.26 The extent to which equitable tolling may apply in any particular case is not certain.

Another “premature” issue

Effect of filing an amended return

In some cases, the bankruptcy may be filed on the eve of the expiration of the federal or state statute of limitations (“SOL”) for collection. For example, in Hoffman20 the petition was filed 4 months before the expiration of the IRS 10-year limitations to collect.21 The question arises, was the taxpayer apprised that by waiting only 4 months the taxes and liens might go away without having to file a bankruptcy?22 Counsel should not be too hasty filing bankruptcy without at least glancing at the debtor’s opportunity for expiration of the SOL.

The question of whether the filing of an amended tax return before the time periods expire stops the clock on the running of the time period as to the original return. Few courts have addressed this issue, but those have held that the respective time period as to the original return is not tolled or negated by the filing of an amended return.27

Tolling the 2-year rule The Bankruptcy Code has no language prescribing the tolling of the 2-year rule, to wit, that the taxpayer must have filed his/her return more than 2 years before the bankruptcy is filed in order to be discharged.23 Hence, the author has lectured for years that “nothing tolls the running of the 2-year period.” However, the IRS has in some cases taken the position that notwithstanding there is no Code language tolling the 2-year period, it may be tolled in the case of a prior bankruptcy based on equitable tolling. Equitable tolling was the basis for the original rule that the 3-year period was tolled by a prior bankruptcy, before the Code adopted such language, by the Supreme Court in Young v. United States24. In plain terms, equitable tolling is just a fancy way to say the IRS should have a “… fair opportunity to collect taxes”25 before they become dischargeable. In dicta the court in Putnam stated that equitable tolling does not allow the IRS to sleep on its rights, i.e., wait too long to attempt collection.. In another case, the court took the opposite approach, ruling that the lack of prompt collection by the taxing entity while it had the chance removed equitable tolling from

National Association of Consumer Bankruptcy Attorneys

Winter 2016

Another “serial filing” issue The issue of tolling is subject to unsettled law on some of the respective questions. Issues for which the cases are not settled include serial filings of tolling events raising the question, do you add 90 days to each tolling event, or only once?28 Use a checklist It’s fair to say that many cases of tolling will not involve these kinds of issues. Nevertheless, counsel is wise to at least have a checklist of them to help spot potential problems.

(Endnotes) 1 These rules are thoroughly explored in the author’s book, King’s Discharging Taxes in Consumer Bankruptcy Cases (KingLawPublishing. com aka BankruptcyBooks.com and Kings Press), commencing at Part 2, ¶ 2.9, Tolling Effects. 2 The rule on discharge of the interest that attaches to a particular tax liability is, the interest follows the tax. Hence, if the tax is dischargeable, so is the concomitant interest. 3 This date is typically April 15 or October 15 of the year following the taxable year. 4 The date of assessment CONSUMER BANKRUPTCY JOURNAL

TOLLING EVENTS IN TAX DISCHARGE appears on the taxpayer’s IRS “Account Transcript” as either code “150,” “290,” or “300.” 5 This section starts out addressing an issue totally unrelated to tolling; Congress just closed its eyes and threw the tolling language in, and it stuck in subparagraph “G.” 6 What, exactly, constitutes “pending” is sometimes obscure? King, ¶ 2.9(d)(1)(iii). 7 See the “hanging” paragraph inserted into the code as part of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act, to wit, 11 U.S.C. § 507(a)(8)(G), referencing § 507(a)(8)(i) and (ii). 8 U.S. v. Dental Care Assoc (E.D.Wash 2016) 9 In re Tubman 364 B.R. 574 (Bankr.Md. 2007), In re Burnette, (Bankr. E.D.N.C. 2009); 10 CDP appeal may also be requested in the case of a notice of lien; 26 USC § 6320. 11 26 U.S.C. § 6330(a) and (b). Lastra v. United States, (Bankr.N.M. 2012). 12 The IRS has the OIC opportunity for taxpayers, but do

CONSUMER BANKRUPTCY JOURNAL

not overlook a state taxing entity’s equivalent of an IRS OIC, which would be subject to the same analysis. 13 11 U.S.C. § 507(a)(8)(ii)(I). 14 But where an OIC is made in conjunction with a CDP, the CDP tolls the period. 15 11 U.S.C. § 6332(k)(1). 16 In re McDaniel, 363 B.R. 239 (Bankr.M.D.Fla. 2007) 17 In re Sanger-Morales (Bankr. Or 2015). In that case the debtor averred that she had filed based on “bad advice of counsel.” The bankruptcy court denied debtor’s motion to dismiss so he could refile after the 240 period had expired. See also Kolve v. IRS 459 B.R. 376 (Bankr.N.D.Wis. 2011) in which the court determined that in a bankruptcy filed too early, the petition had been filed only 94 days too early for one tax year, and 459 days for another tax period; the debtor had filed two prior chapter 13 cases. 18 A non-tax case, In re Dowden, 429 B.R. 894 (Bankr.S.D. Ohio, 2010); In re Jones, 339 B.R. 360 (Bankr.E.D.N.C. 2006); Treas. Regs § 301.6501-(c).

Winter 2016

19 In re Mazzarella, (Bankr.N.D. 2013). 20 Hoffman v. United States (Bankr.N.D.Cal. 2016). 21 26 U.S.C. § 6502, 6503. 22 The SOL for some states may differ from the IRS 10-year SOL; The California SOL is 20 years, Cal.Rev & Tax Code § 19255 et seq. 23 11 U.S.C. § 523(a)(1)(B)(ii). 24 Young v. United States 535 U.S. 43; 122 S.Ct. 1036 (2002); Putnam v. IRS 503 B.R. 656 (Bankr.N.J. 2015); It has been said that the tolling language of 11 U.S.C. § 507(a)(8)(G) was based on Congress’ intent to codify the Young rational. 25 Maitland v. State 531 B.R. 516 (Bankr.N.J., 2015) 26 In re Jones, 657 F.3d 921, 929 (9th Cir. 2011) (addressing the dischargeability of California income taxes). 27 Maitland at 525. 28 See e.g., United States v. Montgomery, 475 B.R. 742 (Bankr.D.Kan 2012).

National Association of Consumer Bankruptcy Attorneys

FINALLY!!!

A Bankruptcy Discharge Calculator that downloads, imports and interprets IRS Transcripts directly from the IRS.* Our ProPlus IRS Transcript Downloader is included FREE of charge with purchase ($350 Value)!!! Tax Help Software is a patent pending desktop computer program that has been used by tax professionals since 2010 to improve their office procedures to save time and generate revenue. Our software has securely downloaded and analyzed over 125 million transcripts from the IRS.

TaxHelpSoftware.com *In order to download IRS Transcripts from the IRS an E-Services Account is required at the IRS and written authorization from the taxpayers is required from a 2848 or 8821 form. We offer free assistance to get signed up with IRS E-Services.

The Private Right of Action

Against Mortgage Servicers and Debt Collectors Should Survive Trump and Republican Attacks on Dodd Frank

By Marc Dann Esq. The Dann Law Firms Cleveland, Ohio

efore we all write off the CFPB and Regulations X and Z ( The Mortgage Servicing Regulations) we all need to remember that the Wells Fargo scandal is still smoldering, that the individuals most likely to be harmed by mortgage loan servicers and debt collectors are exactly the voters who put Donald Trump over the top in the recent election and that Dodd Frank is a sprawling and complicated hodgepodge of regulation and related legislation, so discussions of simply “repealing” Dodd Frank oversimplify the legislative reality. Take for example the the parts of the law that impact the clients of our firm and the clients of other consumer lawyers, the private right of action under Regs X and Z and the proposed Fair Debt Collection Regulations. These provisions these both govern a consumer business relationships that consumers did not choose. While the consumer may choose to borrow money for a house or incur debt with a creditor they have no freedom of choice about who their mortgage loan servicer or debt collector ends up being. There

CONSUMER BANKRUPTCY JOURNAL

is a strong public policy and practical argument to be made that these types relationships that must be regulated. Another argument for leaving our clients alone is that these types of cases we bring really don’t lend themselves to Class Actions, another hot point on the republican agenda. Allowing a private right of action in “forced consumer relationships” is a compelling argument that should appeal to legislators on both sides of the political spectrum.

Winter 2016

National Association of Consumer Bankruptcy Attorneys

Member DENTAL & VISION BENEFITS National Association of Consumer Bankruptcy Attorneys

Members have access to dental and vision benefits through Dominion National. It's simple online sign-up and administration on a user-friendly enrollment website.

DENTAL BENEFITS Choice between five highvalue dental options Rates starting at just $7.50 a month

Use a network dentist1 or any licensed dentist

Coverage for over 250 services including fillings, crowns, root canals, orthodontia and more

VISION BENEFITS Extensive coverage for eye exams, eyeglass lenses, frames and contact lenses Discounts on LASIK laser vision correction

Access to over 50,000 vision providers nationwide through National Vision Administrators

WHO CAN PARTICIPATE? Any individual or member company can participate

Individuals can sign-up online, over the phone or through mail

If a member company wants group coverage on a payroll deduction basis, please call 877.559.9624

TO LEARN MORE OR TO ENROLL TODAY, VISIT:

DENTAL AND VISION COVERAGE are the most-requested benefits after medical insurance.2

DominionNational.com/edental/nacba 1 Participating dentists are subject to change. 2 LIMRA (2009) A subtle shift: Examining employee benefits in the midst of economic uncertainty. The Dominion National group of companies includes Dominion Dental Services, Inc., a licensed issuer of dental plans, and Dominion Dental Services USA, Inc., a licensed administrator of dental and vision benefits. Vision plans are underwritten by Avalon Insurance Company. This policy includes limitations, exclusions and terms under which the policy may be continued in force or discontinued.

Nevada Personal Injury Exemption Applies on a Per-Claim Basis

he Nevada personal injury exemption applies to multiple claims rather than being limited to the aggregate total of all claims. Kaplan v. Dutra (In re Kaplan), No. 69065 (Nev. Dec. 1, 2016). Chapter 7 debtor, David John Kaplan, was involved in two unrelated incidents in which his back was injured. He claimed two personal injury exemptions for $16,150 each in his bankruptcy schedules. The chapter 7 trustee objected to the exemptions arguing that the debtor was entitled to a maximum $16,150 for one or more personal injury claims. Finding no state court precedent on the issue, the bankruptcy court certified the question to the Nevada Supreme Court. The Nevada statute, NRS 21.090(1) (u), exempts: “Payments, in an amount not to exceed $16,150, received as compensation for personal injury, not including compensation for pain and suffering or actual pecuniary loss, by the judgment debtor or by a person upon whom the judgment debtor is dependent at the time the payment is received.” The Nevada Supreme Court found the language of the statute, specifically the terms “payments” and “personal injury,” to be ambiguous in this context. The legislative history of the personal injury addition to the exemption statute was likewise unhelpful. So, the court turned to “reason and public policy” for guidance. Generally, the Nevada exemptions are to be liberally construed in favor of the debtor. In this case, because the personal injury exemption did not include payments for pain and suffering or actual pecuniary loss, the court concluded that the exemption applied to those funds necessary to

CONSUMER BANKRUPTCY JOURNAL

the debtor’s recovery and ability to maintain his livelihood. As multiple injuries are likely to result in a longer recovery period, it was reasonable to conclude that the exemption should be applied on a per-claim basis. Comparing In re Comeaux, 305 B.R. 802 (Bankr. E.D. Tex. 2003), with In re Phillips, 485 B.R. 53 (Bankr. E.D. N.Y. 2012), the court noted a split in the bankruptcy courts when applying the comparable federal personal injury exemption, section 522(d)(11)(D). Comeaux relied on liberal exemption construction rules, the fact that Congress did not specify that the exemption was to be applied in the aggregate, and the fact that debtors with multiple personal injury claims would need multiple exemptions, to find that the exemption applies on a perclaim basis. Phillips, on the other hand, relied on section 102(7)’s interpretive instruction that “the singular includes the plural,” to aggregate the exemption. Based on its own analysis, the Nevada Supreme Court agreed with the reasoning in Comeaux and held that “the statute entitles the debtor to an exemption for each personal injury claim, on a per-claim basis.”

Rediscover the lost art of human interaction.

Solo and small firm clients don’t want to talk to a machine. Which is why firms like yours rely on Ruby, the highly trained team of offsite receptionists who handle all your calls with the perfect mix of friendliness and professionalism. With Ruby, you’ll stand out from the competition by providing an exceptional customer experience delivered by a real, caring person.

866-611-RUBY (7829)

or visit callruby.com/nacba

kaplan-nevada-sct-cert-questiondec-2016

Winter 2016

National Association of Consumer Bankruptcy Attorneys

__________________________________________________________________ Cases in Review December, 2016 “Cases in Review” highlights recent cases that may be of particular interest to consumer bankruptcy practitioners. It is brought to you by Consumer Bankruptcy Abstracts & Research (www.cbar.pro) and the National Consumer Bankruptcy Rights Center (www.ncbrc.org).

Chapter 7—Denial of discharge: As there was no "case or controversy," the bankruptcy court lacked jurisdiction over a proceeding in which a creditor holding only a claim for a nondischargeable debt sought to deny the Chapter 7 debtor's discharge under Code § 727. Reed v. Blount, 2016 WL 6211691 (E.D. Mich. Oct. 25, 2016) (case no. 2:16-cv-11777). Chapter 7—Surrender of collateral for secured debt: Code § 521(a)(2) requires a Chapter 7 debtor who files a statement of intention to surrender the property serving as collateral for a secured claim to surrender the property both to the Chapter 7 trustee and to the creditor. Even if the trustee abandons the property, the debtor's duty to surrender the property to the creditor remains. Moreover, “surrender” requires a debtor to discontinue his opposition to a foreclosure action, and the bankruptcy court has the authority to order a debtor to cease his opposition. In re Failla, 838 F.3d 1170 (11th Cir. Oct. 4, 2016) (case no. 15-15626). Chapter 7—Surrender of collateral for secured debt: Explicitly disagreeing with In re Failla, 838 F.3d 1170 (11th Cir. Oct. 4, 2016), above, the bankruptcy court held that surrender under Code § 521(a)(2) does not require a Chapter 7 debtor to give up all rights to defend against a post-discharge foreclosure. Instead, the debtor's stated intent to surrender merely means that the debtor does not intend to reaffirm, redeem, or exempt the property. In re Ryan, --- B.R. ----, 2016 WL 6102312 (Bankr. D. Haw. Oct. 19, 2016) (case no. 1:09-bk-1604), appeal filed, Case No. 16-1391 (9th Cir. B.A.P., filed Nov. 4, 2016). ©National Consumer Bankruptcy Rights Center www.ncbrc.org

NCBRC CASES IN REVIEW Chapter 13—Confirmation of plan—Claims treatable in plan: Resolving appeals in two cases raising the same issue, the district court held that, at the time the debtors filed their Chapter 13 petitions, after their prepetition pawn transactions had matured but before their right to redeem their pawned motor vehicles had expired, the debtors still had an ownership interest in the vehicles, so that the vehicles were included in property of the estate in each case, and the pawn shop had a secured claim for the payment of the contractual redemption amount that could be modified in the debtors' proposed Chapter 13 plans. Title Max v. Northington, 559 B.R. 542 (M.D. Ga. Oct. 27, 2016) (case nos. 4:16-cv-172, 4:16-cv-174). Chapter 13—Confirmation of plan—Treatment of unsecured claims—Unfair discrimination—Student loan debt: The separate classification of the Chapter 13 debtor’s student loan debts in her proposed Chapter 13 plan did not unfairly discriminate against other unsecured creditors, and therefore was permissible under Code § 1322(b)(1), where (1) there was a good-faith, rational basis for the proposed classification, with the reason being to cure the student loan default and to improve the debtor’s prospects for reemployment as a paralegal; (2) the separate classification was necessary to the debtor’s rehabilitation; and (3) there was a meaningful payment to the class discriminated against. In re Belton, Case No. 3:16-bk-3040 (Bankr. D. S.C., Oct. 13, 2016). Dischargeability of debt—Tax debt under Code § 523(a)(1): The Internal Revenue Service failed to prove by a preponderance of the evidence that the Chapter 7 debtor failed to file a tax return for 2006, and thus the debtor's tax debt for that year was discharged. While the debtor's 2006 return was not reflected on the debtor's tax transcript, the debtor provided a firsthand account of preparing and mailing her returns for five years, including 2006, to the address the IRS provided, the IRS never answered that testimony, and the debtor's testimony was credible. In re McGrew, --B.R. ----, 2016 WL 5947239 (Bankr. N.D. Iowa, Oct. 13, 2016) (adv. proc. no. 6:15ap-9024). Proof of claim—Timeliness: In a Chapter 13 case, a creditor must file a timely proof of claim in order to participate in the distribution of the debtor's assets, even if the debt was listed in the debtor's bankruptcy schedules. A debtor's acknowledgment of a debt in a bankruptcy schedule—whether or not that amounted to a judicial admission—does not satisfy a creditor's affirmative duty to file a proof of claim. Moreover, the deadline to file a proof of claim in a Chapter 13 proceeding is “rigid,” and the bankruptcy court lacks equitable power to extend this deadline after the fact. In re Barker, 839 F.3d 1189 (9th Cir., Oct. 27, 2016) (case no. 14-60028). Property of the estate—Exemptions: Regardless of the bankruptcy court's take on ©National Consumer Bankruptcy Rights Center www.ncbrc.org 48

CONSUMER BANKRUPTCY JOURNAL

Winter 2016

National Association of Consumer Bankruptcy Attorneys

NCBRC CASES IN REVIEW the multiple amendments filed by the debtors to their schedule of claimed exemptions, the bankruptcy court assessed as inappropriately impeding the the multiple which amendments filed by the debtors to their schedule of claimed bankruptcy thebankruptcy court couldcourt not lawfully any of the equity in the the exemptions,process, which the assessedaward as inappropriately impeding debtors' exempt property to paycould the Chapter 7 trustee's The court bankruptcy process, the court not lawfully award fees. any of thebankruptcy equity in the therefore erred inproperty ruling that 7 trustee's administrative expenses could debtors' exempt to the pay Chapter the Chapter 7 trustee's fees. The bankruptcy courtbe paid from the proceeds of the sale of the debtors' homestead property where the therefore erred in ruling that the Chapter 7 trustee's administrative expenses could be trustee agreed sell the of property friendly buyer selected by the debtors paid from the to proceeds the saletoofa the debtors' homestead property wherefor thea price that was $136,000 than the an unrelated buyer; the trustee agreed to sell theless property to amount a friendlyoffered buyer by selected by the debtors for a bankruptcy court reasoned that the debtors had received a benefit that was greater price that was $136,000 less than the amount offered by an unrelated buyer; the than their $70,000 homestead exemption, so had thatreceived allowingathe trustee be paid from bankruptcy court reasoned that the debtors benefit thattowas greater the was equitable. In re Holley, --- so Fed. Appx. ----, 2016 WL 6211975 (6thfrom thanproceeds their $70,000 homestead exemption, that allowing the trustee to be paid Cir., Oct. 25, 2016) (case no.In16-1081). the proceeds was equitable. re Holley, --- Fed. Appx. ----, 2016 WL 6211975 (6th Cir., Oct. 25, 2016) (case no. 16-1081). Property of the estate—Exemptions: The portion of the debtors' federal tax refund attributable theestate—Exemptions: additional child tax credit exempt under Idahofederal law as tax a refund Property oftothe Thewas portion of the debtors' "benefit" received federal, or local assistance legislation." attributable to the "under additional childstate, tax credit waspublic exempt under Idaho law as a Examining the amendments that had been made to the legislation authorizing "benefit" received "under federal, state, or local public assistance legislation." the tax credit, the court receded fromthat its prior holding disallowing the exemption. In rethe tax Examining the amendments had been made to the legislation authorizing Farnsworth, 375 (Bankr. Idaho, Oct. disallowing 11, 2016) (case 4:15-bk-40724). credit, the 558 courtB.R. receded from itsD.prior holding the no. exemption. In re Farnsworth, 558 B.R. 375 (Bankr. D. Idaho, Oct. 11, 2016) (case no. 4:15-bk-40724). Property of the estate—Exemptions—Under state law—Extraterritorial application: Where the plain language of the Massachusetts automatic homestead Property of the estate—Exemptions—Under state law—Extraterritorial exemption wasWhere silent the as toplain its extraterritorial the bankruptcy courthomestead would application: language of theeffect, Massachusetts automatic construe it in favor of as thetodebtor as mandatedeffect, by Massachusetts law.court Accordingly, exemption was silent its extraterritorial the bankruptcy would the Massachusetts automatic exemptionby may be applied tolaw. a principal construe it in favor of thehomestead debtor as mandated Massachusetts Accordingly, the residence located outside of Massachusetts, and the debtor could claim a homestead Massachusetts automatic homestead exemption may be applied to a principal exemption for property located in Florida. Inand re St. --- could B.R. ----, 2016 WL residence located outside of Massachusetts, theJames, debtor claim a homestead 6155899 (Bankr. D. Mass., Oct. 21, 2016) (case 1:15-bk-13341). exemption for property located in Florida. In re no. St. James, --- B.R. ----, 2016 WL 6155899 (Bankr. D. Mass., Oct. 21, 2016) (case no. 1:15-bk-13341).

Winter 2016

CONSUMER BANKRUPTCY JOURNAL

HELP LOWER INCOME SENIORS AND DISABLED PERSONS By Eric Olsen, Esq. Executive Director, HELPS nonprofit law firm Salem Oregon

ower income seniors, and disabled persons with debt problems, sometimes present a dilemma for bankruptcy attorneys. Their income, social security, retirement, and disability is protected from garnishment by federal law. Even if they are buying a home they often have minimal or no equity. Many don’t really need or can afford to pay for a bankruptcy. However, if they don’t pay old debts collectors can call and make their lives miserable. Sometimes they have enrolled with a debt consolidation company and are making a payment they can’t afford and really don’t need to make. When I was running a multi-state bankruptcy firm I saw hundreds of these clients. Their numbers are growing as our population ages. The Kaiser Foundation recently reported that close to half of Americans over 65 have incomes within 200% of the poverty line and are classified as economically vulnerable. One in seven has income under the poverty line. The Consumer Financial Protection Bureau recently reported that collector harassment is the number one complaint of seniors. Sometimes there are other reasons, aside from protected income, why a bankruptcy for a senior or disabled person might not be a good option. For example, some seniors have enough equity in a home where a chapter 7 trustee might claim an interest and try to list and sell the home. These same seniors can’t afford the payment a chapter 13 would require to “protect” the home.

CONSUMER BANKRUPTCY JOURNAL

I have only seen an unsecured judgment creditor proceed against a home with excess equity on one or two occasions in nearly 40 years of practice. It just doesn’t happen. And if it does there is solution. The judgment becomes lien on real property in most states and simply sits there until the home is sold or transferred. Filing a bankruptcy and risking a trustee sale of the home or putting a senior in poverty with a chapter 13 payment probably doesn’t make sense. Sometimes seniors have other assets that exceed available bankruptcy exemptions. Assets that a chapter 7 trustee would go after if a bankruptcy were filed, but a typical unsecured judgment creditor would never touch. In real life, unsecured judgment holders seldom seek execution of a judgment against nonexempt personal property. And if they attempt to do so, again, there are solutions. Sometimes seniors owe past due income taxes. The IRS does not, as a practice, garnish pensions. Occasionally the IRS will garnish 15% of social security benefits. Lower income seniors who owe past due income taxes can often easily obtain uncollectable status with the IRS and stop any garnishment of social security. States cannot take social security or retirement monies for past state taxes. Most seniors are not aware of this, and most states do not inform them of this fact. It is easy then to see the dilemma attorneys sometimes face advising the Winter 2016

elderly and disabled who seek them out for bankruptcy. Bankruptcy often is a good solution for many reasons, however sometimes it just doesn’t make sense, let alone financially feasible. However, as consumer bankruptcy attorneys we feel a duty to help persons who contact us, especially seniors who are more helpless and vulnerable in our society. We worry what will happen to them if they don’t file when the collectors call. Is there a solution to stop constant harassment by collectors? One solution is to advise a senior about a “cease and desist” letter under the Fair Debt Collection Practices Act. A written notice sent by the debtor advising the collector to cease both written and phone contact regarding a debt. But often even when this is explained to seniors, and a template provided, they may be unable to prepare or send the letter. Most seniors have a very difficult time dealing with collectors on their own. I faced this dilemma too ever since I filed my first bankruptcy as a solo practitioner in 1978. I eventually started OlsenDaines, a relatively large multistate consumer bankruptcy firm. How to help seniors whose income was protected continued to plague me. Things became even more complicated after the bankruptcy reform act of 2005. The cost of filing went beyond the budgets of many seniors, seniors whose income was already protected. As a solution for this problem, I founded HELPS Nonprofit Law Firm. HELPS is an acronym

National Association of Consumer Bankruptcy Attorneys

HELP LOWER INCOME SENIORS for “Help Eliminate Legal Problems for Seniors and Disabled.” HELPS is now a 501 c nonprofit law firm that represents seniors and disabled persons on protected income for the purpose of having an attorney to prevent collector contact under the Fair Debt Collection Practices Act. HELPS does not represent persons in any court. HELPS sends “cease and desist” letters to collectors telling them to stop all contact with the debtor, and instead communicate with HELPS. HELPS represents seniors and disabled persons receiving protected income in all 50 states. We receive this communication on an ongoing basis, now, and years into the future. No qualified person is ever turned away. Approximately a quarter of the clients we help receive our service for free. Others pay an average of $10 or $20 per month for a specified period. They easily enroll over the phone and can get almost immediate relief from harassing collectors. We educate seniors how they can maintain their financial independence, Including assisting them in obtaining uncollectable status with the IRS and $0 student loan payment under an income contingent repayment plan. We help with form letters for prospective landlords explaining that the senior’s income is protected and available for rent. They can always call us with questions or concerns. There are far more seniors who need our help than we at HELPS could ever hope to assist. Thankfully there are many bankruptcy attorneys that already render pro bono services to the poor, lower income seniors and disabled persons. HELPS encourages bankruptcy attorneys to continue to help lower income seniors they meet in their practices. Persons receiving protected income, who simply need protection from collectors and maybe an attorney they could occasionally call. Whether the attorney wants to render this service pro bono or for a nominal

fee is of course up to them. HELPS is happy to provide any attorney with templates and forms including cease and desist letters, printed information on how attorneys can help lower income seniors obtain uncollectable status with the IRS, student loans income contingent repayments with minimal or $0 monthly payments, overlooked VA benefits, Section 8 housing, basics of reverse mortgages, and many other practical topics of concern to lower income seniors. We are always happy to consult with attorneys who have questions. There are other areas where NACBA attorneys can render valuable service to lower income seniors and disabled persons. Several years ago I attended a NACBA conference in Washington D.C. Before the convention I and many other participants participated in legislative work. We received training, then met with our respective state senators and representatives regarding national legislation. This experience and training from NACBA taught me that I could do something- it sort of broke the ice. Running HELPS full time gave me time to do some things I had wanted to do for years. The Oregon Department of Revenue, in my home state, had for years been actively collecting taxes from seniors whose only income was social security and meager pensions. They never advised these seniors that their income was protected and legally could not be garnished. Instead the state actively made demands and then filed garnishments on seniors’ bank accounts, which contained nothing but exempt social security or pensions. There was no attempt to inform these persons about their income being protected. Bankruptcy attorneys in our state were frustrated with the problem. I turned to Kent Anderson, a law school classmate and Oregon NACBA chair for help. With Kent’s mentoring, HELPS became the guiding force in passing new legislation. Oregon House Bill

National Association of Consumer Bankruptcy Attorneys

Winter 2016

2089 mandated that the Department of Revenue offer to suspend collection of state income taxes for lower income seniors and disabled person receiving federally protected income. It took lots of work. I learned the importance of involving the press. When a front page article came out in the Oregonian, our state flagship paper, exposing the problem, the bill quickly passed unanimously in both the Oregon House and Senate. This success has motivated me to pursue further legislation in this upcoming session here in Oregon. Past due property taxes in Oregon currently accrue interest at 16% per annum, inordinately harming the poor and elderly. I am actively working with legislators now to present legislation this coming session to change that immoral sum to something more fair and reasonable. I regret not having becoming involved earlier in the legislative process. NACBA members in every state probably see laws that need changing or implementing where they live. Not everything in bankruptcy needs to be done on the national level. Many times this legislation simply makes common sense. I am certain there are opportunities for attorneys everywhere to make a real difference in their own state. It is not easy, but not as hard as it might seem. Bankruptcy attorneys and NACBA continue to do incredible work helping financially struggling Americans. HELPS nonprofit law firm wants to assist NACBA members who want to protect the elderly and disabled from unwanted collector contact. We encourage NACBA members to email or call us with questions or request for forms that they may need for seniors or disabled persons they are assisting. If you are unable to help, 501(c) HELPS may be a good option. You can learn more about nationwide HELPS at www. helpsishere.org or call me personally at 855 435 7787.

CONSUMER BANKRUPTCY JOURNAL

National Association of Consumer Bankruptcy Attorneys 2200 Pennsylvania Avenue NW 4th Floor East

Telephone (800) 499-9040

Washington, D.C. 20037

Facsimile (866) 408-9515

MEMBER REWARDS PROGRAM December 1, 2016 – December 31, 2017

Member Rewards Program We value and appreciate our Members.

December 1, 2016 – December 31, 2017

Many NACBA members promote the benefits of being an NACBA member. We value and our Members. In honor of NACBA’s 25th Anniversary, weappreciate want to reward you with a $25 Amazon Gift Card! Many NACBA members promote the benefits of being an NACBA member. Introduce a new member to NACBA and we send you $25 Amazon Gift Card. only will receive a $25 Amazon Gift Card but InNot honor ofYOU NACBA’s 25th Anniversary, the NEW MEMBER will also receive a $25 Amazon Gift Card! we want to reward you with a $25 Amazon Gift Card! Introduce a new member to NACBA and we send you a $25 Amazon Gift Card.

A valid referral meets ALL 3 of these requirements:

Not only will YOU receive a $25 Amazon Gift Card but 1. Has completed and submitted membership application (reverse side). the NEW MEMBER will also receive a $25 Amazon Gift Card! 2. Has listed the referring attorney on membership application. 3. New Member dues are successfully processed. A valid referral meets ALL 3 of these requirements: 1. Has completed and submitted membership application (reverse side). Defines a NEW Member? application. 2. Has listedWhat the referring attorney on membership Member duesor arehas successfully processed. 1. She / He has never been3.anNew NACBA member not had active membership in the last two calendar years. What Defines a NEW Member? Each valid referral earns you a $25 Amazon Gift Card. She / He has never been an NACBA member or has not had active membership in the last calendar year. Not sure? Just ask! Email Dan.LaBert@NACBA.com with any questions on membership status. Each valid referral earns you a $25 Amazon Gift Card.

JOIN NACBA TODAY! The Value of NACBA Membership: • Listservs – a virtual community for consumer bankruptcy attorneys – linking you with colleagues around the country. Listserv options include: Bankruptcy, Technology & Practice, Chapter 11, and more. • Free On-line Attorney Finder Profile – list your firm specialties, website, and more on NACBA’s Attorney Finder profiles, accessible nationwide for those in need of BK relief. • Annual Conventions, Workshops & Webinars – the CLE events of choice for consumer bankruptcy attorneys nationwide. • Amicus and Litigation Support • Legislative Advocacy & Media Representation – join with NACBA and fellow members as the voice for debtor attorneys and their clients in Congress and the media. • FREE BK Online Legal Research & Practice Management Discounts (tech, travel, admin, etc.) • Quarterly Consumer Bankruptcy Journal & Monthly Emails – with timely information and tech tips. • Health, Dental & Professional Liability Insurance Coverage for Member, Staff and Families • Discounted Mailing Costs for Certificate of Service

To Receive Amazon Gift Card, You Must Complete/Return THIS application. I hereby apply for (or renew) membership in the NATIONAL ASSOCIATION OF CONSUMER BANKRUPTCY ATTORNEYS, INC. (NACBA), a District of Columbia non-profit corporation. I have read the Membership Eligibility Criteria and hereby affirm that I meet the Membership Eligibility Criteria. I agree to support the objectives of the corporation. I understand that the basic goals of the organization are to: (a) protect the rights of consumer bankruptcy debtors; (b) provide educational and networking opportunities for attorneys who primarily represent consumer bankruptcy debtors; and (c) educate policy makers regarding the needs of consumer bankruptcy debtors. I understand that a portion of my dues will not be deductible as a business expense because NACBA advocates for legislation on behalf of consumer debtors. By signing here you acknowledge that you have read and agree to NACBA’s Membership Pledge Signature required

Date

Name Email (NACBA login user name) Firm/Employer

Firm URL

Address

City

State

Zip

Bar #(s) and state(s) JD received

(year)

Phone

(law school)

Fax

Referring Attorney Join or Renew: • By emailing completed form to: admin@nacba.com • By faxing completed form to: 866.408.9515 • By mailing completed form to: NACBA Admin, Office Suite #205, 5174 McGinnis Ferry Road, Alpharetta, GA 30005  Check enclosed  Credit Card, charge as follows: Name of Card Holder Credit Card Number Signature

Exp. Date

 Membership Categories First Member of Firm filing over 500 cases per year  $550.00

First Member of Firm filing 500 or fewer cases per year  $250.00

Additional Member of an NACBA Member Firm  $175.00

Bankruptcy Judge, Trustee, Clerk  $250.00

Academic, Non-Profit, Legal Services Agency Attorney  $150.00

 Membership Eligibility Criteria Membership shall be open to the individuals set forth in 1) below who support the objectives of NACBA, subject to the exceptions set forth in 2) below: 1. Eligible groups: 2. Exceptions: a) Attorneys; a) If the individual is an attorney who is engaged in the private practice b) Active and retired bankruptcy judges; of bankruptcy law; such attorney must not primarily represent creditors c) Bankruptcy trustees; against consumer debtors in bankruptcy; and d) Bankruptcy court clerks; and b) If the individual is an attorney who is not personally engaged in the e) Agency/academic members who are attorneys not engaged in private private practice of bankruptcy law, such attorney may not be affiliated practice and who are employees of non-profit organizations, legal with a law firm or legal employer that in bankruptcy matters primarily services agencies, or educational institutions. represents creditors against consumer debtors.

You’re up and running with StratusBK... what will you do with all the time saved?

Think Plan Dream StratusBK is the practice management solution we’ve all been asking for. The first platform to streamline and improve every aspect of your practice. From client intake to marketing, StratusBK is going to make your firm better and save you a lot of time.

Stop by the Stratus Intelligence area and get a complete demo of our breakthrough practice management platform. Enjoy complimentary refreshments, charge your phone, play some blackjack and spin the wheel to win great Stratus prizes.

StratusBK from Stratus Intelligence · End-to-End Case Management · Case Preparation · Automated Calendaring with Text & Email Notification · Embedded PACER Integration · eFiling · Complete Financial Management · Due Diligence · Integration with Stratus Analytics

BY STRATUS INTELLIGENCE

20 S. Clark Street, #1520, Chicago, Il 60603 stratusintelligence.com 844-220-4656