Illinois Bankruptcy Lawyer Blog

On April 1 you can owe more money and still file for Chapter 13 bankruptcy protection (as opposed to the much more expensive Chapter 11). Debtors will also be able to spend more on certain items without being stuck with the bill as a non-dis chargeable "luxury" purchase. You can exempt more of your property now as well, effectively placing it beyond the reach of the Bankruptcy Trustee, and can give priority to more (or more expensive) obligations (resulting in some creditors getting paid first). At the same time, it will also be a little easier to force someone into involuntary bankruptcy (a back-handed way of keeping them from wasting assets that could be used to pay you). In all, these changes and a number of others affect § 104(b) of the Code.

examples of the April 1 changes:

§ 109(e) Eligibility for Chapter 13: unsecured liquidated debt went from $307,675 to $336,900; secured liquidated debt went from $922,975 to $1,010,650

§ 101(3) Non-Exempt Property: went from $150,000 to $164,250

§ 707(b) Dismissal or Converstion to Chapter 11 or 13 (means test)

(2)(A)(i)(I) $6,000 is raised to $6,575

(2)(A)(i)(II) $10,000 is raised to $10,950

Recently I joined the Bankruptcy listserve maintained by author and webmaster Morgan King, and a piece on the means test caught my eye. In the discussion he focused on household or family size, which determines whether you can file Chapter 7 liquidation or must enter into a Chapter 13 reorganization. Of course the $64.00 question is whether we count family members or people living under the same roof to set the applicable median income? Mr. King's thoughts, excerpted by permission, are as follows (emphasis added by me):

... the more people who can be counted ... the more likely it is the debtor"s income will fall below the median. It is likely that a household will have more people in it than a family; household includes anyone living under the same roof whether related by blood or marriage, or not, and could include distant relatives, sub-lessees, friends, and the like ... the US Trustee [takes the] position that only individuals in a family unit as defined by the IRS can be counted ... meaning blood relations or dependents. See US Trustee Median Income Table (omitting the word "household") and Census Bureau website (using the term "household population").

Mr. King disagrees with the U.S. Trustee. He says the Bankruptcy Code is clear enough in §707(b)(6) and (7) (using the term "household median income") and §101(39A) (defining "median family income" by reference to US Census Bureau data) that we need look no further: all members of a single household should be counted to determine the proper standard of income to be applied to a debtor. But the cases are divided, so expect a patchwork of decisions to develop on a District by District, Court by Court, and case by case basis. This means that every debtor and debtor's Attorney is on their own to decipher local rules, custom, and practice.

Are you a Debtor, Debtor"s Attorney, or Case Trustee frustrated by the BAPCPA"s confusing standards and often awkward results? You are not alone. Learn more about the new bankruptcy law at M. Hedayat & Associates, P.C. or e-mail me at mmhedayat1@gmail.com to tell your story. All contacts are confidential.

Of all the tricks and traps in the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), one of the nastiest is the burden-shifting that has gone on with respect to the automatic stay. Once upon a time creditors had to come to Court to put a debtor out of house and home -- now the burden is on the debtor in certain cases to say why they shouldn't, and to do it so that other creditors become aware of it! A pair of cases from Florida and Tennessee say it all.

In re Covert, 355 B.R. 327 (Bkrtcy.N.D.Fla. 2006). (Lewis M. Killian, Jr., Judge).

Debtor"s counsel filed a motion to extend the automatic stay on the 30th day after filing the petition and the Court denied it, noting that

Taken together, this means the Court has no jurisdiction to extend the stay unless a motion is brought within 5 days of filing the case. The Court was particularly moved by the plight of the creditors who would be deprived of due process if notice were not properly given. Due process? How's that for irony?

In re Wilson, 336 B.R. 338 (Bankr. E.D. Tenn., 2005). (Stair, JR., Judge).

Debtors filed their petition Nov. 1 and their motions to extend the stay Nov. 7 giving notice of a hearing on Nov. 23. Court denied the motions based on local rules which required that motions be set for hearing "at least 20 but no more than 40 days after service" unless authorized by the rule [not applicable] or by court order. E.D. Tenn. LBR 9013-1(f). Once more the Court's sympathies lie with the creditors who were not afforded due process.

Are you a Debtor, Debtor"s Attorney, or Case Trustee frustrated by the BAPCPA"s confusing standards and often awkward results? You are not alone. Learn more about the new bankruptcy law at M. Hedayat & Associates, P.C. or e-mail me at mmhedayat1@gmail.com to tell your story. All contacts are confidential.

Gillespie v. TransUnion Corp., No. 06-2576 (3/16/07). Appeal, N.D. Ill., E. Div. Aff'd.

Dist. Ct. did not err in granting defendant-consumer reporting agency's motion for summary judgment in action alleging that defendant's failure to reveal "purge date" when plaintiffs requested copies of their credit histories violated Fair Credit Reporting Act. Under sec. 1681g(a)(1) of that act, the defendant is required to disclose only information included in plaintiffs' consumer reports and not everything in defendant's consumer files that pertain to plaintiffs.

1st cir

In Re: Ontos, Inc. (03/01/07 - No. 06-1512)

Order approving a bankruptcy trustee's stipulation for waiver and release of claims arising out of a bankrupt company's fraudulent transfer is affirmed where: 1) creditors only have standing to pursue claims for fraudulent conveyance during bankruptcy proceedings when a trustee or debtor in possession unjustifiably fails to pursue the claim, which was not the case here; 2) there is no breach of fiduciary duty to creditors that is not derivative of a breach to the corporation; and 3) fraudulent conveyance claims pursued against an alter ego or successor corporation are derivative in nature, and therefore the property of the bankruptcy estate.

2nd cir

In Re: Bethlehem Steel Corp. (03/02/07 - No. 06-1478)

In case where appellant was terminated as debtor's employee without cause during the pendency of debtor's Chapter 11 bankruptcy proceedings, denial of claim for priority payment is affirmed over contention that a portion of the early retirement benefits due appellant under two retirement plans is a severance payment entitled to priority as an administrative expense.

3rd cir

In re: Am. Pad & Paper Co. (03/02/07 - No. 05-1379, 05-1380, 05-1381, 05-1382)

In the context of the statute of limitations on avoiding powers in bankruptcy cases, section 546(a)(1)(B) of the Bankruptcy Code is amenable to a "plain language" analysis, and the circuit court declines to read section 701, relating to interim trustees, into the specific statutory provisions delineated therein.

4th cir

Kreisler v. Goldberg (02/26/07 - No. 05-2238)

In a voluntary Chapter 11 case, denial of plaintiff's motion for sanctions for an alleged violation of the automatic stay, to void ejectment and turn over property and rents collected, is affirmed as the automatic stay did not apply to actions against plaintiff's non-bankrupt subsidiary corporation.

Nunnery v. Rountree (02/27/07 - No. 05-1123)

Reversal of bankruptcy court's determination that a judgment debt defendant owes plaintiff was not dischargeable in bankruptcy is affirmed. Since defendant did not obtain money, property, services, or an extension, renewal, or refinancing of credit via her fraud on plaintiff, the exception to discharge does not apply.

9th cir

In re: Reynoso (02/27/07 - No. 04-17190)

In an appeal arising from an adversary proceeding initiated by the U.S. Trustee in a bankruptcy case, a judgment against a seller of web-based software that prepares bankruptcy petitions is affirmed where the bankruptcy appellate panel correctly found that the seller had committed fraudulent, unfair, or deceptive conduct, and had engaged in the unauthorized practice of law. In a question of first impression in the Ninth Circuit, a software-provider may qualify as a bankruptcy petition preparer under 11 U.S.C. section 110(a)(1).

10th cir

In re: Regan (02/28/07 - No. 05-1307)

In a bankruptcy case, a decision reversing a determination that a debt owed to a supplier of roofing materials and supplies by debtors was nondischargeable is reversed where the Colorado Supreme Court's proper construction of the Colorado Mechanic's Lien Trust Fund Statute was dispositive of the issue of whether the debt was dischargeable

Are you the average consumer debtor? If so then you are 38 years old, filing with your spouse (44%) or as a single woman (30%) or man (26%). You are probably better educated than the general population, and suffered a recent job loss (2/3's of the time) or a serious health problem (1/2 the time). In fact, there is less than a 10% chance that you are filing for any reason other than job loss, a medical event, or divorce (the big 3). Chances are you also live in Tennessee, Utah, Georgia, or Alabama -- the bankruptcy capitals of America.

Source: The Fragile Middle Class: Americans in Debt; Elizabeth Warren, Harvard Law School

*** You have just stumbled across the #3 viewed posting averaging over 175 visits a day**************

Alison D. Bauer and William F. Gray Jr.

Special to Law.com, February 28, 2007

Analysts predict that the number of bankruptcies will increase in 2007, enabling secured lenders, distressed fund managers and strategic acquirers to find significant opportunities to purchase financially challenged assets in Chapter 11 reorganization cases.

Buying assets through a Chapter 11 process affords advantages -- principally, the ability to purchase assets "free and clear" under a court order -- but is also fraught with many pitfalls for the unwary. We highlight here some of these advantages and pitfalls and look at recent trends.

There are three ways to buy assets from a Chapter 11 estate: through a sale under §363 of the Bankruptcy Code (§363 sale)[FOOTNOTE 1], under a Chapter 11 plan of reorganization or from a post-confirmation liquidating trust.

This article focuses on sales under §363, which allows a buyer to obtain court approval of a purchase cheaper and faster (and with the advantages and protections of a court order largely intact) than through a reorganization plan or from a post-confirmation trustee.

A §363 sale transfers the acquired assets free and clear of any liens, claims and encumbrances. The power of the §363 order to cleanse troubled assets propels many acquirers to condition their purchases on the Chapter 11 filing of troubled sellers to obtain its benefits. The flip side of these advantages is that the bankruptcy sale process is public, and the sale is almost always subject to higher and better offers at an auction.

RECENTLY PROMULGATED COURT GUIDELINES

On Sept. 5, 2006, the U.S. Bankruptcy Court for the Southern District of New York adopted Guidelines for the Conduct of Asset Sales (the Guidelines)[FOOTNOTE 2] to expedite the review and determination of applications to conduct asset sales. Although applicable only in the Southern District of New York, the Guidelines are helpful in understanding the sale process, generally, and represent the beginning of an effort to streamline and harmonize the bankruptcy sale process nationally.

ANYTHING AND EVERYTHING CAN BE FOR SALE

Any asset of a Chapter 11 estate may be sold through a §363 sale. The flexibility of the process is reflected in the growing number of sales of intangible property, mirroring the increasing commercial importance of these assets. Trustees and debtors-in-possession[FOOTNOTE 3] have realized that the sale of intellectual property can maximize value in a bankruptcy case. As intangible assets such as trademarks, brand names, patents, customer lists and copyrights become more prevalent in §363 sales, financial or strategic investors may look to bankruptcy sales to secure potentially valuable intellectual property at a discount.

In January 2007, for example, Sony outbid three competitors to purchase 28 patents from the Chapter 7 debtor Ipix for $3.6 million.[FOOTNOTE 4] Sony had initially offered $2.2 million, but the auction process generated spirited bidding that drove the final purchase price $1.4 million higher than the original offer. Sony purchased the assets free and clear of any liens, claims, encumbrances or disputes, but at a higher auction-driven price than it had hoped for -- a transaction that showed the advantages and disadvantages of the §363 sale process.

The Bankruptcy Code is evolving to deal with issues that are peculiar to intellectual property. Purchasers of intangible assets should be aware of a dramatic change to the §363 sale process in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which limits the sale of personally identifiable information, such as customer lists, to take privacy concerns into account. The change requires a hearing for such a sale; compliance with applicable nonbankruptcy law, especially regarding the privacy of consumer information; and either application of the debtor's privacy policy terms or appointment of a consumer privacy ombudsman under §322 of the Bankruptcy Code.

AUCTION PROCESS

Once they have determined which assets to sell, debtors usually attempt to find a "stalking horse" bidder. Experience shows that the presence of a stalking horse bidder generally yields greater value than an open auction. The stalking horse sets a bidding floor and, as we shall see later, is rewarded with special bidding protections. The stalking horse is used to attract competing bidders who are willing to acquire the same assets on the same terms and conditions but at a "higher and better" price. The stalking horse has the advantage of defining the transaction -- it sets the price and the other terms and conditions of the asset-purchase agreement and has a better opportunity to conduct due diligence than later bidders. In exchange for the risk of spending time and money only to be outbid at auction, the stalking horse can negotiate for the bankruptcy court to approve certain bid protections in advance of the sale.

THE SALE MOTION

Once a sale has been agreed to, the debtor files motions with the Bankruptcy Court, seeking entry of two orders. The first order is the Sale Procedures Order, which seeks the approval of procedures for the sale and auction process, including proposed protections for the stalking horse. The Sale Approval Order is the second order, and it seeks approval of the sale itself to the successful bidder at the auction. (The Guidelines require that the motion provide an explanation if no auction is contemplated or the debtor has not or will not actively solicit higher and better offers.)

When time is critical, parties often file the Sale Approval motion after a term sheet is agreed upon so that the sale notice period starts running. The parties then negotiate the asset-purchase agreement before the hearing. This practice will likely be curtailed because the Guidelines require that the form of proposed purchase agreement that is acceptable to the debtor, whether or not executed, be attached to the motion.

BREAKUP AND TOPPING FEES

It is now common practice for a stalking horse bidder to be paid a "breakup" fee in case the transaction is not consummated because another bidder wins at auction or through some other default of the debtor.

A "topping" fee, which is a payment to the unsuccessful stalking horse of the difference between its bid and the winning bid, is rarely accepted by a seller or approved by a court.

The allowance of any breakup/topping fee is determined on a case-by-case basis. Generally, as set forth in the Guidelines, the breakup fee is paid from the proceeds of a higher or better transaction entered into with the successful bidder. Thus, to be the higher and better offer, the competing bid must exceed the stalking horse bid plus the breakup or topping fee. Provisions regarding these fees must be disclosed in detail in the sale motion. Breakup fees have been approved typically in the range of 1 percent to 5 percent of the purchase price.

The amount of the breakup fee is determined by the court and usually involves a balancing test that weighs the need for the fee to entice the stalking horse bidder against the chilling effect of the additional cost on competing bidders.

Several standards to determine the allowance of breakup fees have emerged: the business judgment rule, a stricter "best interests of the estate" test and allowance of the fee as an administrative expense under §503(b), based on the court's determination that the fee is necessary to preserve the value of the estate or that the claimant confers a demonstrable benefit to the estate. Reimbursement of expenses also falls under this canopy and can vary widely so long as the stalking horse demonstrates that its activities conferred some benefit to the estate, regardless of the stalking horse's self-interested motive.[FOOTNOTE 5]

BIDDING PROCEDURES

Although the Bankruptcy Court for the Southern District of New York stated that it did not address substantive legal issues in the Guidelines, the Guidelines dictate that the court will entertain a motion for bidding procedures if, according to a reasonable business judgment, these procedures are likely to maximize the sale price. "Such procedures must not chill the receipt of higher and better offers and must be consistent with the seller's fiduciary duties."[FOOTNOTE 6] The Guidelines recommend that bidding procedures include steps for the qualification of bidders, who would be required to deliver financial information by a stated deadline to the debtor and other key parties, and to submit a good faith deposit.

Courts have also allowed potential purchasers to submit a good-faith deposit to conduct due diligence but not necessarily be bound to an auction or an asset-purchase agreement. Under the arrangements, in essence, the potential purchasers are paying for an option to purchase the assets. Such arrangements are, of course, subject to court approval and appropriate confidentiality agreements.

The bidding procedures may deal with a wide variety of issues: the time and manner of notice of the sale, qualification of bidders, due diligence, bidding increments, deposits, etc. The Sale Procedures Order may also provide that the debtor-in-possession accept and close with a "backup buyer" -- the second-highest qualified bid if the winning bidder fails to close the transaction before the drop-dead date.

BIDDING INCREMENTS

The initial bidding increment should be more than any proposed breakup or topping fee or expense reimbursement. As suggested in the Guidelines, higher bidding increments should not be so large that they chill further bids or so low that they provide insubstantial consideration to the estate.

LOCKUP, NO-SHOP OR NO-SOLICITATION PROVISIONS

Generally, lockup provisions requiring the sale to the buyer and no-shop or no-solicitation clauses forbidding the debtor from seeking other bidders are not allowed in the bankruptcy context. However, the Guidelines allow such provisions "in unusual circumstances, if they are necessary to obtain a sale, they are consistent with the debtor's fiduciary duties and they do not chill the receipt of higher or better offers."[FOOTNOTE 7] In those cases, the provisions must be prominently disclosed in the sale motion.

Nevertheless, modified no-shop clauses entailing that the seller not actively shop assets, but may respond to good faith inquiries, on notice to the stalking horse, have been routinely approved.

ENFORCEMENT OF PROCEDURES

The private sale route is available in bankruptcy but strongly disfavored. The Guidelines suggest that the Sale Procedures motion explain the rationale for not conducting an auction. Courts will typically not consider bids made after the auction has closed absent irregularities in the conduct of the auction or reasonable and material confusion during the bidding.[FOOTNOTE 8] Unsuccessful bidders typically lack standing to appeal a bankruptcy court's sale unless they are creditors or purchase another creditor's claims before the auction; so it is important that the sale procedures are vetted before the auction.

EXTRAORDINARY PROVISIONS

The Guidelines require disclosure of "extraordinary provisions" pertaining to the conduct of §363 sales. These provisions are frowned upon and would ordinarily not be approved without good cause or compelling circumstances, as well as reasonable notice. Such provisions include sales to insiders, employment agreements with management, private sales (no auction) or no-shop or no-solicitation provisions, unusually short deadlines, limited notice, no good faith deposit required of bidders, interim arrangements with a proposed purchaser, such as interim management arrangements, tax exemptions under §1146 of the Bankruptcy Code and the sale of avoidance actions.

The §363 sale process can be sticky and full of pitfalls, but with knowledge, perseverance and skilled advisers, savvy buyers may be able to squeeze unrealized values from someone else's lemons. Experienced bankruptcy counsel should be retained to guide the seller or potential purchaser through the myriad procedural requirements of the Bankruptcy Code, Bankruptcy Rules and local court rules, and through legal substantive issues in order to reap the benefits of a successful §363 sale.

William Gray Jr. (wgray@torys.com) and Alison Bauer (abauer@torys.com) are partners in the restructuring and insolvency group in the New York office of Torys LLP.

::::FOOTNOTES::::

FN1 11 U.S.C. §363.

FN2 Available at U.S. Bankruptcy Court for the Southern District of New York, http://www.nysb.uscourts.gov/orders/m331.pdf.

FN3 Debtor-in-possession is the technical term for a debtor that continues to own and operate its business during the Chapter 11 case without the appointment of a trustee.

FN4 Ipix, No. 03-bk-31932 (Bankr. E.D. Tenn. filed April 8, 2003).

FN5 In re Women First Healthcare, Inc., 332 B.R. 115 (Bankr. D. Del. 2005); In re Tama Beef Packaging Inc., 321 B.R. 396 (B.A.P. 8th Cir. 2005).

FN6 Guidelines, supra note 2, at 3.

FN7 Guidelines, supra note 2, at 5.

FN8 But see Corporate Assets, Inc. v. Paloian, 386 f. 3d 761 (7th Cir. 2004) (affirming bankruptcy court's decision to reopen auction when changes to the sale agreement were not disclosed to all bidders and sale procedures gave debtor broad discretion to reject bids before bankruptcy court approval of the sale).

-------------------------------------------------------------------------------------------------

View your Home or Office Security System

from your Internet-Enabled PDA or PDA-Phone!

-------------------------------------------------------------------------------------------------

Bankruptcy: In re Doctors Hospital of Hyde Park, Inc., 00 B 11520

Adversary: Doctors Hospital of Hyde Park, Inc. v. Dr. James H. Desnick, et al., 02 A 00363

Issued: March 2, 2007

Judge: Jack B. Schmetterer

One of the key roadblocks to bankruptcy ushered in by the BAPCPA is the means test, which compares the income of would-be consumer debtors to the median income in the State in which they live. Make more than the "median income" in your State and you (or you and your spouse filing jointly) must enter into a Chapter 13 repayment plan no matter how much Chapter 7 might be called for because your income is overwhelmed by your payment obligations. The new law even says that if a debtor even tries to file Chapter 7 when they make more than the median State income they are presumed to be acting in bad faith and their cases must be converted to a repayment plan or dismissed. In other words: it is fraud.

The critical determination of whether a consumer debtor can file Chapter 7 liquidation or must enter into a Chapter 13 repayment plan all depends on the standards applied by the U.S. Trustee, and as it turns out even they have trouble making up their minds. For example, standards for median income levels have been revised at a fast and furious pace since coming out in 2005. The latest revisions are no exception and you can see them here on the U.S. Trustee's website.

The flip side of the median income standard is the IRS National Standards for Living Expenses and Local Standards for Transportation, Housing, and Utilities. These are the maximum expenses that can be taken by Chapter 13 debtors to reduce their plan payments. These items will be updated later in the year.

Potential Loophole: Since median income standards have been raised but expense standards have not yet been changed (presumably they will be tightened downward when they change), debtors may be able to take advantage of the lag time and either file Chapter 7 more easily (becuase they can make more and still file liquidate) or make lower plan payments in a Chapter 13 reorganization (becaue they can take a higher monthly expense deduction from their income).

Are you a Debtor, Debtor's Attorney, or Case Trustee frustrated by the BAPCPA's confusing standards and often awkward results? You are not alone. Learn more about the new bankruptcy law at M. Hedayat & Associates, P.C. or e-mail me at mmhedayat1@gmail.com to tell your story. All contacts are confidential.

Ross v. RJM Acquisitions Funding LLC, No. 06-2059

Court: 7th Circuit Federal Court of Appeals

Issued: March 13, 2007

Issues: Debt collector issued demand letter to former bankruptcy debtor relating to a debt that had been discharged in the case. Debtor took the issue to the District Court and lost -- the court said there was no violation of the Fair Debt Collection Practices Act (FDCPA) where a debt collector did its homework before issuing a demand letter. The 7th Circuit Court of Appeals agreed that this was a bona fide error under 15 USC sec. 1692k(c) -- a computer search done before issuing the demand did not reveal that this debt had been discharged, and the plaintiff had filed for bankruptcy protection under a different first name, making such research even more difficult for the creditor.

Decisions like this can be deceptive. Most of the time when a collection agency pursues a debt that was discharged in bankruptcy the reason is that it has not done its homework. Learn more about protecting your rights at M. Hedayat & Associates, P.C. or e-mail me at mmhedayat1@gmail.com to tell your story. All contacts are confidential.

In re Kmart Corp. et al., 02-2474

Court: Northern District of Illinois

Division: Eastern

Judge: Susan Pierson-Sonderby

Issued: February 14, 2007

Issues: Phillip Morris and Bank of New York (among others) seek to assert claims against Kmart (among others) for lease obligations. Kmart asserts the cap on lessor damages contained in code section 502(b)(6) as well as the concepts of claim preclusion (also referred to as res judicata) and issue preclusion (also referred to as collateral estoppel). The Court rules in favor of Phillip Morris for the most part and looks past the limitation on landlord damages because the sophisticated nature of the contracts involved makes these "leases" something other than conventional landlord/tenant vehicles.

Ft. Myers Historic, LP v Economou et al., 05 A 1582

Issued: February 28, 2007

Judge: Jacqueline P. Cox

Bankruptcy: In re Economou, 05 B 13171

This case revolves around issues of attorney-client privilege and discusses the common-interest and crime fraud exceptions to the general rule of privilege.

What do you get when you cross the trillion-dollar home mortgage market with the loosest credit standards this side of Las Vegas? How about $11 billion in write-offs by one bank alone? And that's just the beginning. Household Savings (HSBC) began unloading billions in non-performing home mortgages - a move that reflects the growing uptick in bankruptcies and will surely be copied by other banks as the oversold mortgage market winds down and collapses in pockets.

Coincidentally, the loans being written off are the very same ones pushed on the public just recently by an army of brokers working for, you guessed it, HSBC and others like it. Not that this is really anything new. One industry observer ponted out recently that HSBC faced escalating losses from thousands of low-income families unable to repay their loans and defaulting on both their first and second mortgages. HSBC admitted it had seriously underestimated the number of defaults -- including loans obtained just 6 months before a default.

The loans now being unloaded and shunned by HSBC include features once loved by the home mortgage industry

100% - 125% financing

lies by investors claiming to "live in" their 3rd investment property

If any of this sounds familiar, it should. We deal with these kinds of situations all the time for Clients at every level of society. These predatory loans are as likely to be held by professionals as they are by members of the working class. E-mail us at mmhedayat@hotmail.com for further information or to share your story.

In Re: Iridium Operating LLC (03/05/07 - No. 05-2236)

The most important factor to consider in approving a pre-Chapter 11 settlement agreement under Bankr. R. 9019 is whether it would distribute assets of the estate in accordance with the code's priority scheme.

EDP Med. Computer Sys., Inc. v. US (03/09/07 - No. 06-0106)

The Order of a Bankruptcy Court allowing an uncontested proof of claim to stand constitutes a "final judgment on the merits" and prevents any contrary contentions under the theory of res judicata. In this case, once the government filed its tax claim without objection, another party could not seek a different outcome later on in the proceedings.

In re Linda J. Blanco

Issued: March 12, 2007

Judge: John H. Squires

Chapter 13 Debtor could not force its auto-finance company to accept the financed vehicle in full satisfaction of its obligations even though there was a deficiency remaining after sale of the vehicle. The anti-cramdown language of BAPCPA 1325(a)(9) allows Debtors to keep property they continue to pay for or surrender property they don't -- but does not allow Debtors to keep property despite not paying its full value; in that case the Creditor may pursue its State Court remedies including liquidation and pursuit of a deficiency judgment.

Beler v. Blatt, Hasenmiller, Liebsker & Moore, LLC, No. 06-2707 (6/7/07). Appeal, C.D. Ill. Aff'd.

Dist. Ct. did not err in granting defendant-law firm/debt collector's motion for summary judgment in action alleging that certain allegations made by defendant in state lawsuit seeking collection of plaintiff's debt were insufficiently clear so as to constitute violation of §1692e of FDCPA. FDCPA does not apply to contents of state complaint seeking collection of debt. Moreover, defendant did not violate sec. §1692f of FDCPA by serving citation that caused plaintiff's bank to freeze her checking account for three weeks.

In re Sandra J. Curry, 06 B 13096

Issued: February 22, 2007

Judge: Jack B. Schmetterer

Court held that §362(c)(3)(A) terminates the automatic stay as to both property of the estate as well as property not included in the estate. Debtor's initial Chapter 13 case was dismissed for failure to make timely payments to the trustee. Debtor subsequently refiled under Chapter 13 but failed to file a motion extending the automatic stay under §362(c)(3)(B). Movant/mortgage holder thereafter filed a Motion to Confirm Termination or Absence of Stay.

Debtor answered by arguing that Debtor's property is protected by the automatic stay because §362(c)(3)(A) applies to "the person and property of [the] debtor but not property of the estate." The Court explicitly rejected the reasoning found in In re Pashcal, 337 B.R. 274 (Bankr. E.D.N.C. 2006) which argued that had the BABCPA's drafters sought to eliminate the automatic stay in its entirety it would have mirrored the language found in §362(c)(4)(A)(i) (automatic stay does not come into effect at all upon the filing of a debtor's third bankruptcy case within any one year). Here, the Court determined that "the drafters [of the BAPCPA] intended to terminate the automatic stay in its entirety" so as to discourage repeated bad faith filings.

Bankruptcy: In re Builders Plumbing and Heating Supply Co., Inc., 03 B 49243

Chapter: 7

Adversary: Grochocinski v. Lederman, 05 A 02700

Issued: February 26, 2007

Judge: John H. Squires

Trustee's motion for partial summary judgment granted pursuant to Fed. R. Bankr. Proc. 7056 and Fed. R. Civ. Proc. 56 as to a 3rd party defendant to avoid certain transfers as preferential under §§ 547(b) and 550(a). Court found trustee had established and defendant failed to dispute that debtor made transfers to defendant while insolvent on account of antecedent debt within 90 days before filing, enabling defendant to receive more than similarly-situated creditors would have in Chapter 7. Court also granted trustee prejudgment interest on the transferred sums from the date the adversary complaint was filed, as well as interest on costs.

Just a note to our readers. On Friday night I saw a number of luminaries from the DCBA and 18th Judicial Circuit, including Judges John Demling, Pat Leston, and Brian McKillip, as well as our host for the evening, Attorney James Reichardt.

Despite polar conditions and a mass of blowing snow that made me swear I was on the set of Nanook of the North, the gathering at the Arrowhead Golf Course was a swell time all around with great food, open bar, and all the professional courtesy you could eat.

Thanks to our friends at the Illinois Bar Foundation for a great evening and a great deal of good will. And I hope anyone who didn"t get a chance to come out last Friday can still find time, resources, or both to contribute. And don"t worry, the Foundation has a number of great social events coming up, including a formal gala. We"ll tell you about all those when the time comes too.

ED. NOTE: For pictures, see the Flickr feed at the bottom right-hand side of this page.

11th cir

Whiting-Turner Contracting Co. v. Electric Mach. Enter., Inc. (02/23/07 - No. 06-13733)

11th Circuit Court of Appeals reversed the rulings of the Bankruptcy and District Courts that required certain parties to sue the Debtor in Bankruptcy Court rather than arbitrate those disputes as would otherwise have happened. The Court concluded that the subject matter of the arbitration was not a core proceeding that would justify arbitrating defendant's claim did not inherently conflict with the underlying purpose of the Code.

California Appellate Districts

Circle Star Ctr. Assocs., LP v. Liberate Techs. (02/22/07 - No. A113024)

Orders sustaining demurrer to plaintiff's cause of action for defamation and striking its claim for attorney fees is reversed as to the claim for attorney fees where plaintiff had a right to pursue the bankruptcy-related fees in state court as a matter of contract since dismissal of the bankruptcy case restored to the parties their preexisting rights and remedies.

The DCBA Bankruptcy Law & Practice Committee invites you to attend their upcoming seminar, Bankruptcy Abuse Prevention & Consumer Protection Act of 2005. The speakerwill be Glenn Stearns, Chapter 13 Bankruptcy Trustee. If you attend both the morning and sessions, the seminar will be worth five hours of MCLE! The topics covered will be:

1. Eligibility to File & Receive Discharge.
2. Preparing the Petition, Schedules & Plans, Domestic Support Obligations.
3. 2006 Model Plan & How to Make Money Flow the Way You Want it to.
4. Payment Advice, Tax Returns & Compliance with Section 521.
5. Automatic Stay Issues
6. Getting Through the 341 Meeting, Confirmation & Requirements and Post Confirmation Issues & Discharge.
7. Beyond the Basics.
8. Emerging Case Law and Discussion of the Means Test

Note: Early Bird Rates are good until one week before the seminar and registration is limited to the first 65 registrants. Advanced registration is required to reserve a seat and receive materials.

The event will be held Monday, March 19, 2007 in the classroom of the Bar Center (126 S. County Farm Rd., Wheaton, IL 60187) .

Morning session registration begins at 8:30am and seminar begins at 9:15am.

Afternoon session registration will begin 12:30 pm and seminar willresume at 1:00 pm.

Please visit www.dcba.org and go to the bottom of the page to view the event flye and to print registration form (flyer will be available online in about a week).

Eric J. Delgado, Bankruptcy Committee Co-Liaison