Illinois Bankruptcy Lawyer Blog

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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.

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In re: Kleibrink (Cir. 5, Sep. 28)

In a debtor's appeal from a district court's affirmance of a bankruptcy court's ruling that a creditor held an enforceable security interest in a property of his, despite his having received a discharge in an earlier bankruptcy proceeding, the order is affirmed where the notice given to the creditor did not satisfy the due process standard for notice set forth in Mullane.

In re: NM Holdings Co., LLC (Cir. 6, Sep. 30)

In a bankruptcy trustee's suit against debtor-company's former auditor, claiming that the auditor negligently performed its audits by failing to uncover and report unsound related-party transactions entered into by the company's sole shareholder and CEO, as well as aided and abetted the CEO's breach of his fiduciary duty to the company, district court's grant of the auditor's motion for summary judgment is affirmed where: 1) the trustee's amended complaint does not allege reliance by the company or by the company's fairness committee, and the alleged reliance by the company's creditors cannot support a claim brought by the trustee on behalf of the company; and 2) district court did not err in holding that the residual statute of limitations applied to the trustee's aiding-and-abetting claim.

In Re: Res. Tech. Corp. (Cir. 7, Oct. 1)

District Court affirmed Bankruptcy Court's rejection of Trustee's proposed assignment of Debtor's contracts to a company managed by its former officers in exchange for that company paying debtor's operating expenses because

1) Bankruptcy court carefully evaluated the assumption-and-assignment proposal under section 365(f)(2)(B), and its decision to deny the trustee's motion was sound;

2) There was no reason to disturb Bankruptcy judge's determination that the company failed to comply with its order requiring an escrow deposit; and

3) District Court's contempt finding was fully supported by the record, and the court thoroughly considered and properly rejected the company's defense to contempt.

IBLB Exclusive!

Wheaton lawyer David J. Boersma recently took on the great and powerful Glenn Steans, Lisle Chapter 13 Trustee and ... won? At least that's how it looks. I just got off the phone with David and he was characteristically humble. The issue before Judge Squires in the matter of In re Anderson was this: Is social security part of the Debtor's "income" for purposes of a Chapter 13 Plan? Judge Squires answered "No" in this case. Boo-ya. At the moment I'm still combing through David's 2 massive briefs. He says he poured over 1,000 pages to win this argument and I believe him. Contact David at attorneyboersma@sbcglobal.net to congratulate him, then jump on Pacer and check out his briefs ... so to speak Anyway, congratulations David.