Illinois Bankruptcy Lawyer Blog

In re Braden J. Adolph, 09-32836

Issued: January 28, 2011

By: A. Benjamin Goldgar

The Issues: The proper use and interpretation of 11 USC 707(a) and (b), the dynamic duo of bankruptcy dismissal. Under consideration is the distinction between dismissal for cause via 707(a) and the presumption of abuse in 707(b).

The Upshot: Judge Goldgar engages in a close analysis of 11 USC 707 and determines that bad faith is not a reason to dismiss under 707(a) and only consumer debts can be excepted from discharge under 707(b) - especially in light of BAPCPA. In this case, where an Attorney seeks his fees from a business debtor of his Client, the Court finds him to be out of luck - not a consumer debt, and not a bad faith filing. Boom shakalaka.

Click here to view and download the opinion in .pdf format.

The Upshot: A Chapter 7 Debtor that was the sole shareholder and director of a debt-ridden company is not a fiduciary as to creditor of his company merely because the company was insolvent when he filed his personal bankruptcy.

Discussion: Chapter 7 Debtor was the sole shareholder and director of a company that owned money as the result of activity that pre-dated his filing. One of the creditors of his company argued that since it had incurred debts while it was presumptively insolvent, the debts were presumptively fraudulent, making the Debtor a "special fiduciary" as to creditors under Illinois law. The 7th Circuit Court of Appeals disagreed, ruling that even if the Debtor did constitute a so-called "special fiduciary" under state law, he was not a fiduciary under 11 USC 523(a)(4). In other words, not all fiduciaries as the term is defined in State law stand in a "fiduciary capacity" under Bankruptcy law. Moreover said the Court, Congress did not intend for Sec. 523(a)(4) of the Bankruptcy Code to render officers and directors de facto liable for corporate debts; although they might be, if some other rationale justified holding them liable (i.e. fraud or defalcation).

Ransom v. FIA Card Services, N.A., f/k/a MBNA America Bank, N.A.

Certiorari from the U.S. Court of Appeals for the 9th Cir., Case 09—907

Argued October 4, 2010—Decided January 11, 2011

The Issue: Here the question was whether a Chapter 13 debtor could deduct the allowable auto payment from his monthly budget even though he did not have a car payment (i.e the vehicle was paid for). Put another way, is it fair for all debtors to be entitled to the maximum allowable deduction from their monthly disposable income, or must debtors establish what they actually pay?

The Answer: The Court ruled 8 to 1 (Scalia J. dissenting) that if a debtor makes more than the median income for his State then he must establish that he incurrs the amounts deducted from his monthly living expenses. No more automatic deductions if debtor cannot prove what he pays.

The Gist: To determine "disposable income" BAPCPA gave us the Means Test, which starts with gross monthly income then deducts living expenses - i.e. "amounts reasonably necessary for maintenance or support" of the debtor. In a Chapter 13 case the expenses considered "reasonably necessary" are identified in 11 U.S.C. §1325(b)(2)(A)(i) and include "applicable monthly expense amounts" as specified in National and Local IRS standards. Since BAPCPA was adopted, it has become common practice to include expenses at the maximum allowable level even if the debtor does not have, or pay for, that type of asset. This case appears to say that the party is over for Chapter 13 debtors.

See Also: this post from Chicago Attorney Steve Jacobowski on the Bankruptcy Litigation Blog regarding the Scalia dissent.

Bankruptcy: In re Orion Drywall, Inc., 08-06641
Adversary: Trustee v. Paulus, et al., 10-00373

Date: January 12, 2011
Judge: John H. Squires

Click here to view and download the Opinion in .pdf format.

Consolidated Bankruptcies

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Bankruptcy Case: In re Gail K. Bailey, 10-00739
Adversary: Bensenville CCU v. Bailey, 10-00538

Issued:January 4, 2011
Judge: John H. Squires

The Upshot: Debtor destroyed her vehicle but claimed that it had been destroyed, resulting in the auto finance company being unable to collect from her insurer. The creditor successfully sought to except sums owed by the debtor as to that vehicle from her Chapter 7 discharge, under the aegis of 11 USC 523(a)(6) (intentional, malicious damage to secured property). Like almost all of Judge Squires' Opinions, this one reads like a first class primer on the issues involved, namely Requests to Admit, Summary Judgment, Chapter 7 Discharges, and Exceptions to Discharge.

View and download the Opinion in .pdf format by clicking here.