Illinois Bankruptcy Lawyer Blog

Courtesy of King Bankruptcy Media

In re Ellringer, 2007 WL 1976750 (Bkrtcy.D. Minn. 2007) (Robert J. Kressel, J.)

Chapter 7 debtor was married and lived with a 3rd person who was not a dependent. That person regularly contributed $600 to the household budget, most of which was used to pay for their own living expenses. Debtor compared their income to a household of 1, which resulted in an above-median income. Debtor excluded the $600 contributed by the 3rd person. Trustee argued that the 3rd person should not be included in the household count OR if counted then the $600 should be included in the debtor"s income. The UST advocated using the definition of "household" found in the Internal Revenue Manuel. Trouble was that the IRM does not actually define the term household and instead simply indicates that the number of persons allowed under the national standard expenses should generally be the same as the number of dependents on the taxpayer"s latest income tax return. See IRM §5.15.1.7 (2004). Court rejected this argument and held that

"The Census Bureau defines "household" as "all of the people, related and unrelated, who occupy a housing unit." U.S. Census Bureau, Current Population Survey (2004). A housing unit is a house, apartment, group of rooms or single room that is intended for occupancy as a separate living quarters. Id. Households may be either family or nonfamily. Id. Family households include the householder and all the other people in the living quarters who are related to the householder by birth, marriage, or adoption. Id. A nonfamily household consists of a householder living alone, or a householder who shares the home exclusively with people to whom he or she is not related. Id. If Congress had intended to limit household size to only household members related by blood, marriage or adoption, it could have done so by saying "in the case of a debtor in a family of 2 . . . ."

The Court further held that the Code only requires to be included in the median income and means tests that portion of a non-filing household member"s income that is regularly contributed to the " ... household expenses of the debtor or the debtor"s dependents." See §101(10A).

3^rd cir

In re: Teleglobe Communications Corp., No. 06-2915

In bankruptcy proceedings involving suits brought by a bankrupt company's subsidiaries against Canada's largest telecommunications company, which had previously owned the subsidiaries' parent company, an order compelling production of certain attorney-client privileged documents is vacated and remanded as the district court's factual findings did not support setting aside the parent company's privilege in this case.

7^th cir

Fehribach v. Ernst & Young LLP, No. 06-3366

In a suit charging a bankrupt company's auditor with negligence and breach of contract in failing to include a going-concern qualification in an audit report, summary judgment for defendant is affirmed where: 1) an auditing firm has no duty to investigate matters external to a company in order to determine whether the company will continue to be a going concern; and 2) plaintiff's suit was barred by the one-year statute of limitations in Indiana's Accountancy Act.

A friend sent me a copy of a video on the New York Times website and it really cheesed me off. Then I remembered that to residents of the Big Apple, Chicago is fly-over territory so there"s no need to do any actual research or solicit more than the shallowest level of detail for a story.

Case in point: I represent one of the defendants referred to in this video. If you watch this short clip, the reporter comes off as even-handed, and the work seems well researched; but therein lies the false promise of the Times. Every story has an impartial patina over a left-of-center agenda (just listen to the quiet, soulful piano in the background that says "feel sorry for me, they"ve done me wrong"). I happen to know first-hand that the interviewee in this piece is only telling -Ohm the story, but since she"s the only one talking that"s how the world will see things (also because the Times says so). The New York schmaltz machine has proven once more that its bias knows no bounds.

Ed. Note: Hey New York Times -- next time you pretend to research a story consider checking the public record. If you had done so here you would have found my name and I could have given you the real deal. Of course that viewpoint would not have fit neatly into your world view so you wouldn"t have printed it anyway, right?

Case In re Enyedi, et al., 06-08771Issued July 12, 2007

Judge Hon. Jacqueline P. Cox

3 subsidiaries of ARH Mortgage Inc. of Brisbane, California filed Chapter 7 in Wilmington, DE including Alliance Bancorp Inc. of Oakbrook, Ill. According to an SEC prospectus filed in May they company and its subsidiaries originated $2.6 Billion in loans.

In a message posted on the company's Web site, Alliance Bancorp's Chief Executive Officer and President Lisa Duehring said the lender had "put up a valiant fight" but that "the latest market was more than we were able to overcome. We have exhausted our resources and do not have the means to move forward."

In the Q4 of 2006 Alliance Bancorp experienced an increase in early payment defaults resulting in increased demands to repurchase the bad loans. Losses resulted when the loans were repurchased at face value and could not be placed again, or only placed at a steep discount.

According to news reports and Alliance Bancorp's website the company ceased operations July 13 and filed a Chapter 7 petition with the U.S. Bankruptcy Court in Wilmington, DE.

As documented in this piece by Paul Beebe in The Salt Lake Tribune, Delta Airlines is the second major carrier dealt a near-lethal blow in 9/11 to emerge from Chapter 11 protection (see our piece about Northwest Airlines). In Delta's case, its re-emergence came with an early Christmas gift for investors as well -- a profit of $1.8 billion, profit or 70 cents per share. The higher-than expected post-bankruptcy earnings helped give flight to the airline's stock price as well.

Britons love a good wedding — hence the wildly popular 1994 comedy "Four Weddings and a Funeral" as well as the Charles-Dianna "Wedding of the Century." Of course as we know it's a different story when it comes to marriage as an institution. In the UK as in other countries the traditional man-woman monogamous relationship once hailed as the unbreakable bond forged by God has been tarnished by divorce, apathy, and constantly shifting values. And in an ironic twist, most of that death-spiral when it comes to marriage emanates from the "Free-Love" of the 60"s and 70"s, followed by the straight-forward hedonism and promiscuity of the 80"s.

As it turns out though, a public debate has been quietly taking place on the unlikely subject of whether governments should do more to encourage and preserve marriage as a means of increasing and preserving the wealth of nations. In other words, ought the law, the government, and public institutions like the media, do more to venerate marriage as the nucleus of culture (if it is); preserve its central place in western civilization (if it has one); and bring back national productive (if a stable domestic life is really part of what makes people productive).

What accounts for the pending nosedive in our collective futures? The culprit appears to be the record rate of divorce in western countries over the last 25 years. In that same period the rate of marriage and the formation of new families has declined. Is it any wonder when the children of broken homes shun marriage and want fewer children than their parents?

British conservative leader David Cameron for instance takes the position (popular on both sides of the Pond) that the children of married parents fare better socially and that troubled kids tend to come from broken homes. In other words, he subscribes to the common-sense position that there is a connection between marriage, family, and social behavior — including economic behavior. Cameron"s chief spokesman says the party has "always supported marriage" and believes it"s "what's best for the child" of the marriage that counts. Hard to argue with that; but what is best for the children of a strained marriage? Should they bear the brunt of their parents" disintegrating relationship while nominally remaining a family unit, or rough it with a single parent?

One thing is certain: for growth to continue in economic terms there must be concomitant population growth. Yet western nations suffer from a negative birth rate. And if you factor out immigration and the children of immigrants (including illegals) the United States is very nearly negative as well. Unless that demographic trend can be reversed, the economies of Western nations have seen their peak and are currently in decline.

So what is to blame for this apparent nosedive in our collective futures? The culprit appears to be the rate of divorce in western societies. As the divorce rate went up over the last 25 years the marriage rate and formation of new families has been declining. Is it any wonder that the children of broken homes tend to shun marriage as evidenced by this story out of England. There is a lag time of many years between an increase in divorce and the eventual by-product which is less marriage and therefore less children being born.

Since western culture's backbone of economic development was the family unit is it any wonder that the United States portion of global GDP has dropped from 52% in 1982 to 28% currently. Back in 1982 the USA savings rate was 10% now it's been negative for the past 16 months, this hasn't happened since the great depression. In 1982 the USA went from being the worlds largest creditor to the worlds largest debtor.

As long as the Chinese and Japanese are willing to give us 'stuff' in return for paper money the game goes on, but this game has a limited shelf life as I don't believe they will stay stupid forever. The kicker is Asia developing a Pan-Asia economy not dependent on USA deficit spending. When that happens they don't need the USA anymore and the USA finance-driven economy that builds NO REAL wealth but only moves money from one pocket to another will suffer.

It's a sad trend indeed but unless things change we are headed to mediocrity at best. As a person that has had first hand experience of money taken from the productive sector and moved to the non-productive sector. Is it any wonder I no longer wish to participate in this game. Real wealth is not produced by a finance-debt driven economy that is only temporarily holding up spending via debt accumulation. Packaging debt and selling it does not produce wealth but merely extends the end of the game further out into time. Am I the only one who knows this, hardly, the global community is well aware of it as indicated by the US dollars drop of 50% of global buying power. Some would say but look at the stock market making new highs isn't that proof that everything is fine. Actually adjusting for inflation we are still below the 2000 stock market highs but people who count nominal dollars think they are better off. What we are looking at is an illusion of wealth build-up that is mostly due to simple inflation.

A few stats to ponder, China stock market up 5 fold since 2002, other emerging markets also up 4 fold but the USA market as evidenced by the S&P 500 is flat for the last 7 years. The Dow which is only 30 stocks is up 20% over the 2000 highs but there again the dollars global buying power over that same length of time is down 30%.

From the Housing Bubble and Real Estate Market Tracker on the blog Seeking Alpha comes this encouraging snapshot of our times (yes, that was sarcasm)

:: Bankruptcy Attorney in Illinois :: M. Hedayat & Associates, P.C. ::

After visiting an associate who has put on-hold plans of expanding his facility - too late in break'en ground - the itch got him an instead bought into a foreclosed property.

Following the previous posting I visted - Realtytrac.com

An estimated 58 percent of properties in the foreclosure process

are linked to borrowers with subprime loans, and RealtyTrac

expects U.S. foreclosures to reach 1.8 million by year's end,

Rick Sharga, a spokesman for the company, said in an interview.

In turn I visited: The Housing Bubble

More stories of simple people "talked" into mortgages that had no business signing anything. But the only bright spot in all of this - of the top areas in the country for foreclosures, Stockton, Merced, Modesto California. Now if I got the house across the street from my granddaughters cheaper than theirs ????? Inventory excess drops pricing...

Courtesy of King Bankruptcy Media

• Hearing on Working Families in Financial Crisis: Medical Debt and Bankruptcy
• The current rising tide of mortgage delinquencies following the run up in the real estate market and subsequent subprime mortgage crash are expected to affect poor families disproportionately (which makes sense when you think about it since subprime loans are most attractive to those who cannot afford them). See the story here.
• June consumer filings are slightly lower than they were in May, but are still up 37% from same period in '06. Chapter 13 filings accounted for 38.3% of all consumer cases , a slight increase over the previous 3 months. According to Samuel Gerdano of the ABI, while filings are less than 1/2 of what they were in 2005 they continue to rebound toward their former levels.
• People 55+ now account for more than 22% of filers, up from less than 10% in 1994. Partially to blame is the slow pace of growth in pensions and asset values, as well as the loss of much of the once-reliable pension benefit scheme. For more see the original story here.

Courtesy of King Bankruptcy Media

2007 filings are ... up?

The number of consumer filings in Q1 07 was 187,361 - a 66% increase over the same period last year and a 9% increase since Q4 06. By contrast, the # of consumer filings for all of 2006 was only 112,685. Source: Administrative Office of the Courts. Samuel L. Geraldo Director of the American Bankruptcy Institute, attributes the rise to a generally high debt burden among American consumers.

Study on Repeat and Serial Filers

Get the ABI Study on Repeat and Serial Filers here

Failure to File Tax Returns = Dismissal

In re McCluney, 06-21175 (Bkrtcy.D.Kan. 2007) §§1307, 1308

Under the scheme established by the BAPCPA a debtor must file state and federal tax returns for the 4 years preceding date of filing with the case trustee. Under §1308 those returns must be tendered not later than the day before the 341 meeting, with failure resulting in dismissal or conversion per §1307(e); or non-confirmation per §1325(a)(9). On motion of the IRS a Kansas bankruptcy court dismissed a chapter 13 case when a debtor failed to file returns for 1 of the required 4 years until several weeks after the 341 meeting. The court called the infraction in this case "minor" was careful to point out that once grounds for invoking §1308 have been established "the court has no discretion on whether to act; Congress has directed that it shall dismiss or convert."

Getting IRS Transcripts from the Source

Call 1-800-829-1040

Press 3 for "other automated services"

Enter Debtor's SSN and press 1 to confirm

Press 1 then 3 then enter # in debtor's street address

Press 2 then enter the year of the desired return

Press 1 if correct and 3 to end

To request a federal tax transcript by mail use IRS Form 4506T.

Glenn Stearns, Chapter 13 Trustee

Glenn Stearns, Lisle Chapter 13 Trustee, has asked that all Attorneys immediately begin using the fillable PDF forms provided by his office in order to request a payoff with respect to the Estate

:: Bankruptcy Attorney in Illinois :: M. Hedayat & Associates, P.C. ::

The Administrative Office of the Courts will not issue 2007 IRS Expense Standards until at least August, after which they will announce the date on which the Executive Office of the US Trustee will begin applying the standards. In addition, it appears that the Census Bureau will issue new median family income figures in late August.

Like the stock-market before it, the real estate market of the past 5 years was propped up by excess liquidity that gave rise to the kind of irrational exhuberance famously derided by Alan Greenspan in his testimony before Congress. In the case of both markets, the end of excess liquidity meant that the market had to revert to its true mean -- at least 20% lower than its high and generally much more than that. And as we all saw, neither event was pretty ...

Case in point - a month ago venerable Wall Street brokerage Bear Stearns found they had no choice but to close the 2 hedge funds they managed that invested in the stock, or held the debt, of subprime lenders. Problem was, Bear Stearns had NO WAY to value their portfolio. Why? Because their bonds didn't trade often enough to give them an accurate idea of what they were worth to a willing buyer. The market was so thin that prices varied wildly as everyone tried to avoid being the last one caught with the bonds (sound familiar?). Since Bear Stearns didn't want to value the bonds at such a low price, they decided instead to 'mark them to market.' In other words the company valued the bonds based on their last 12 months' total return as it that represented the market price. In reality, nothing could have been further from the truth because the market had collapsed (again, any of this ringing a bell?).

Standard & Poors, which rates bonds based on their ability to deliver timely, regular payment, finally stepped in and downgraded the bonds to roughly the same level as your average stock -- meaning investors would be as likely to get a return investing in one of these bonds as if they put their money in stocks. They have a name for bonds with that kind of shaky promise. They're called junk bonds and they were really popular in the '80's.

Does this mean Flashdancing is coming back too?

2nd cir

In re AppliedTheory Corp., No. 06-3390

Order affirming order of the bankruptcy court denying appellant committee of unsecured creditors authorization to assert a claim of equitable subordination under 510(c) of the Bankruptcy Code is affirmed over claim that appellant is not obligated to seek the court's approval to bring its equitable subordination claim because In re STN Enters., 779 F.2d 901 (2d Cir. 1985), does not apply.

4th cir

Nat'l Energy & Gas Transmission, Inc. v. Liberty Elec. Power, LLC, No. 06-1459

In a suit involving the payment of a termination fee for an electricity tolling agreement on behalf of a bankrupt party to the agreement, judgment for defendant-creditor is reversed where a creditor may not allocate a payment made by a non-debtor guarantor first to interest then to principal, thus preserving the unpaid principal for collection in bankruptcy, since the allocation of a payment in this manner would permit the creditor to collect an amount otherwise disallowed as post-petition interest.

7th cir

McDougall v. Pioneer Ranch Ltd. P'Ship, No. 06-3757

In a suit by a pension fund to recover withdrawal liability from a bankrupt trucking company, summary judgment for plaintiffs is affirmed where a vacation property on which the owners of the trucking company farmed and raised cattle constituted a trade or business for purposes of the Multiemployer Pension Plan Amendments Act.

8th cir

Benn v. Cole, No. 06-2217

A decision finding that Missouri law exempts tax refunds from a debtor's bankruptcy estate is reversed as Missouri Revised Statutes section 513.427 is not an exemption statute and there is no exemption for tax refunds under state law or applicable federal law.

10th cir

In re: Kester, No. 06-3114, 06-3116

In a bankruptcy trustee's adversary proceeding to compel turnover of a residence held by a self-settled living revocable trust, a judgment finding that bankruptcy debtors were entitled to a state law homestead exemption despite the fact that legal title to the real property was held by the trust is affirmed pursuant to the state supreme court's answer to a certified question regarding the applicability of the homestead statute in such circumstances.

In Re: Sweeney, No. 06-1224

In the bankruptcy context, restitution ordered pursuant to juvenile delinquency proceedings is dischargeable under 1328(a)(3).

11th cir

Advanced Telecomm. Network, Inc. v. Allen, No. 06-12187

In case involving a chapter 11 debtor seeking to recover certain transfers made before the company declared bankruptcy, order affirming bankruptcy court judgment in favor of defendants is reversed as: 1) plaintiff's fraudulent transfer claims were not barred by the statute of limitations; and 2) bankruptcy court's alternative holding on the merits is rejected where the court erred in its calculation of plaintiff's solvency and the "value" plaintiff received in return for the disputed transfer.

:: Bankruptcy Attorney in Illinois :: M. Hedayat & Associates, P.C. ::

As noted in this post, subprime mortgage giant Ameriquest is the latest in a list of lenders getting their comeuppance for having engaged in questionnable practices (most in connection with refinances). Prosecutors in the Garden State announced a national, $325 million settlement last year in favor of 725,000 borrowers in 49 states. That agreement was among the largest consumer protection settlements ever reached by a government plaintiff. A similar $484 million settlement was obtained by a group of states in 2002 from Household Finance Corp.

:: Bankruptcy Attorney in Illinois :: M. Hedayat & Associates, P.C. ::

In re Helene A. Hopkins, 07-1134

Issued July 10, 2007

Judge A. Benjamin Goldgar

Discussion: Chapter 13 plan confirmed over objection of Americredit Financial Services. At issue was a car purchased within 910 days of filing (hence a so-called "910 vehicle") subject to the "hanging paragraph" of 1325(a). Debtor proposed to make monthly payments, but not at the contract rate. Creditor insisted that under 1325(a)(5)(B)(i)(I)(aa) and the decision in In re Williams, 06-15945, __ BR __, 2007 WL 1206738 (Bankr. N.D. Ill. April 23, 2007), the debtor could not modify its payment obligations and still retain the collateral. The court disagreed, noting that under 1322(b)(2) debtors may modify the rights of holders of secured claims EXCEPT those secured by the debtor's principal residence and flat out disagreeing with the Williams decision.

Download the full case from the Box on the right >>>>

:: Bankruptcy Attorney in Illinois :: M. Hedayat & Associates, P.C. ::

Underlying Bankruptcy In re Salvino, 05-61546

Adversary Case In re: WISH Acquisition, LLC vs. Salvino, 06 A 1092

Issued July 9, 2007

Judge Eugene R. Wedoff

:: Bankruptcy Attorney in Illinois :: M. Hedayat & Associates, P.C. ::

Just when you thought it was safe to go back in the water ... I mean the housing market ... via the semi-stable shores of Central Florida (Orange, Lake, Volusion, and Palm Counties), you get this gem announcing that the housing market there is headed for the skids in the tradition of well known high-fliers such as Las Vegas and Phoenix. I hate to be the voice of moderation on this one, but Central Florida never saw the run-up in prices that savaged glamor addresses like Miami, Palm Beach and Boca Raton. So why would it fall so hard and fast? Don't believe me? See for yourself in this list of the hardest hit real estate markets accross the coutnry. Few of the zip codes singled out in the report are in Central Florida.

So what is really behind posts and reports like these? I think the rule goes like this -- when the media starts telling you how bad things are, things are already getting better. remember, it isn't a 'story' worth covering until it affects millions, is being talked about by rival media outlets, or is mentioned in the press releases coming from the Democratic National Committee that morning.

DISCLAIMER: I'm not saying the mainstream media belongs to the Democrats. I just call it like I see it

:: Bankruptcy Attorney in Illinois :: M. Hedayat & Associates, P.C. ::

6^th cir

In re: Bucci, No. 06-4164

In adversary proceeding by employee benefit funds seeking declaration that employer-debtor's debt could not be discharged, a judgment against the funds is affirmed because:

1) ERISA fiduciaries do not automatically act in a "fiduciary capacity" for purposes of 523(a)(4) -- courts must examine the substance of the relationship to see if defalcation can be found; and

2) in this case the requirements were not met.

7^th cir

In Re: Craig Wright, No. 07-1483

Bankruptcy court denial of a Chapter 13 plan that would allow debtors to surrender a vehicle to a creditor and pay nothing on account of the difference between the loan's balance and the collateral's market value is affirmed; the court interpreted a 2005 amendment to the Code as giving creditors an unsecured deficiency judgment after surrender of collateral where the debt exceeds the collateral"s current value unless the loan contract itself provides that it is without recourse against the borrower.

11^th cir

Martin v. Pahiakos, No. 06-11209

District court's affirmation of bankruptcy court's finding that plaintiff was bound by previous orders compelling then approving the trustee"s settlement of a state court action brought by defendant is affirmed as the doctrine of res judicata precludes plaintiff from re-litigating the defenses waived in the settlement agreement and considered at the appropriate time by the bankruptcy court.

S.Ct. DE

AT&T Corp. v. Clarendon Am. Ins. Co., No. 567, 2006

In an action brought by AT&T against several insurance carriers for breaches of certain issued Director and Officer policies, dismissal of the action is reversed where: 1) contrary to the trial court's ruling, under California law the directors at issue suffered a covered "Loss" under the D&O policies and had a cognizable legal claim against insurers, which AT&T, as their assignee, became entitled to enforce; and 2) the trial court erred in interpreting California law to require that AT&T must have been legally (even though not primarily) obligated to indemnify the directors at issue in order to have a protectible "interest" for equitable subrogation purposes.

Administrative Order #7-06, Assignment of Cases

Administrative Order #7-07, Reassignment of Chapter 13 Cases from Judge Doyle to Judge Wedoff

Download them from the Box on the right >>>>

:: Bankruptcy Attorney in Illinois :: M. Hedayat & Associates, P.C. ::

Effective Immediately: Required Statement to Accompany All Motions for Relief from Stay has been revised.

Download it from the Box on the right >>>>

:: Bankruptcy Attorney in Illinois :: M. Hedayat & Associates, P.C. ::

4^th cir

Zurich Am. Ins. Co. v. Tessler, No. 06-1834

Wrongful death claimant who had not yet filed suit but whose identity and potential claim were actually known or reasonably ascertainable to debtor was "known creditor" of the estate entitled to specific notice of the bankruptcy proceedings and applicable filing deadlines.

5^th cir

US v. Corpus, No. 06-20619

In a criminal forfeiture proceeding appellants intervened asserting an interest in the real property subject to forfeiture that was superior to that of the defendant. Final judgment of forfeiture was nonetheless affirmed because the appellants' alleged interest in the real property was not superior to that of the defendant under either state law or the Code.

9^th cir

In re: Am. Wagering, Inc., No. 05-15969

In bankruptcy proceedings involving a claim against a bankrupt corporation by a former business consultant to the debtors, a court of appeals decision reversing a finding that the claim at issue was a debt not subject to subordination is reversed because the consultant, as the holder of a money judgment, should be regarded as a creditor as opposed to a shareholder subject to subordination pursuant to 510(b).

10^th cir

Morris v. Hicks, No. 06-3243

An order reversing a decision of the bankruptcy court that granted bankruptcy trustee's complaint for lien avoidance is reversed where a bankruptcy court correctly determined that the lien the trustee sought to avoid was not perfected as of the date the debtors filed for bankruptcy, and thus, the trustee should have been permitted to avoid it.

11^th cir

US v. Jacobs, No. 06-15333

Reversal of an order of the Bankruptcy Court, in which the Bankruptcy Court determined that defendant's federal income tax debt is dischargeable in bankruptcy and that he had not willfully attempted to evade or defeat a tax within the meaning of 523(a)(1)(C) is affirmed where the Bankruptcy Court applied an overly-strict legal standard for willfulness, and the undisputed facts demonstrate as a matter of law that defendant willfully attempted to evade or defeat his taxes.