Last Add: Judge Donovan Tomorrow

In 2011, Judge Donovan ruled on a Motion to Dismiss in a chapter 13 case filed jointly by two men.  Federal law – Defense Against Marriage Act (DOMA) – decreed that if federal law said “spouses,” that meant a man and a woman.  Judge Donovan ruled that DOMA was unconstitutional and refused to dismiss the case.  You should read his written opinion, it is very poignant.   We can discuss this with him tomorrow.  My brief follows.

In re Balas and Morales, 449 B.R. 567 (Bankr. C.D. Cal. 2011) (Donovan, J.)
Issue: Are two men, properly married under the laws of California, eligible to file a joint bankruptcy case?
Holding:  Yes.   Note: Nineteen Central District judges concurred and signed this opinion.
Counsel for the debtors: Peter Lively and Rob Pfister.

U.S. Bankruptcy Judge: Hon. Thomas Donovan

The debtors, two men, filed a joint chapter 13 petition. They were married “to each other” under California law in 2008 “and remain married today.”  The US Trustee filed a Motion to Dismiss for “cause.”  It cited the Defense of Marriage Act, “DOMA,” 1 U.S.C. section 7, which “defines the term ‘spouse’ for the purpose of applying federal law, as ‘a person of the opposite sex who is a husband or a wife.’”

Judge Donovan wrote: “The issue presented to this court is whether the Debtors, who are legally married and were living in California at the time of the filing of their joint petition, are eligible to file a ‘joint petition’ as defined by § 302(a).” “In this court’s judgment, no legally married couple should be entitled to fewer bankruptcy rights than any other legally married couple.” Continue reading

Last Class This Friday – Guest Speaker

We will have our final class this Friday.   I am going to skip the section on chapter 13 so you do not need to read the cases previously assigned.

Bankruptcy Judge Thomas Donovan (Ret.) is going to come by and visit.  Judge Donovan was the trial judge in the Beverly case so we can discuss that with him.  Remember he ruled in favor of the debtor but was reversed by the court of appeals.

Judge Donovan also argued (as a young lawyer) a case (on behalf of the trustee!) at the Supreme Court in 1966 called Bank of Marin v. EnglandI would like you to read the opinion in that case which is here.   Especially the dissent by Justice Harlan which agreed with Judge Donovan.

Judge Donovan was recently overruled by the Supreme Court in Law v. SiegelThe opinion in that case is here.  It deals with taking away a homestead exemption based on the debtor being a really bad guy.

Finally, Judge Donovan recently ruled on a case involving Section 727, whether the discharge should be denied.  We can talk to him about that.  My brief is below.    Continue reading

Classes for Remaining of the Semester

It looks like tomorrow, April 6, is our 12th class.  So four more left including tomorrow.  Here is what we will do for the last four weeks:

April 6:  Class 12. Trustee’s Ability to Expand the Estate 292
A. Preferences 292
Cunningham v. Brown 292
B. Fraudulent Conveyances 297
BFP v. Resolution Trust Corporation 298
Dean v. Davis, Jr. 303
In re Beverly 305
Shapiro v. Wilgus 315

April 13:  Class 13. The Discharge 320
A. Denial of the Discharge Based on Prepetition Transfers 320
In re Adeeb 321
In re Beverly 327
B. Non-Dischargeability Based on Fraud 329
Overview of 523(a):  19 subsections
When is a complaint required?
In Re Ronald Kirsh 329
C. Credit Card Debts 334
In re Dorsey 334
In re Eashai 339

April 20:  Class 14:  Prof. Gorginian
C. Non-Dischargeability Based on Willful and Malicious Injury 347
Kawaauhau v. Geiger 347
D. Debts Arising From Criminal Proceedings 350
Kelly v. Robinson 350
E. Student Loans 356
In re Carnduff 358
Roth v. Educational Management Corp (In re Roth) 364

April 27:  Class 15. Consumer Reorganization – Chapter 13   374
Overview of chapter 13
A. Computing Net Disposable Income 374
In re Greer 374
B. (skip)
C. Good Faith After BAPCPA 392
In re Welsh 392
D. (Skip)


Booting Car Does not Violate the Automatic Stay

From the National Consumer Bankruptcy Rights Center

Booting Car Not a Stay Violation

Posted by NCBRC – March 21, 2018

The City’s action in booting the debtor’s car after she had filed her bankruptcy petition did not violate the automatic stay where its purpose was to protect public safety. In re Hicks, No. 17-3663 (Bankr. N.D. Ill. Feb. 1, 2018).

Ashina Hicks entered chapter 13 bankruptcy with almost $16,000 in traffic fines owed to the City of Chicago. After her petition, the City booted her car and did not remove the boot until the following day. Ms. Hicks filed a motion to show cause why the City’s action should not be found to be a violation of the automatic stay, and she sought $6,000 in damages for emotional distress, inconvenience and embarrassment. The City countered that its action was within its governmental power to protect the public safety and was not subject to the automatic stay under section 362(b)(4). The court agreed.

The full article is here.

Can a Large Mortgage Payment be the Basis for a Finding of Abuse?

In re Johnson, 399 B.R. 72 (Bankr., S.D. Cal. 2008) (Bowie. J.)

Issue:   Can the debtor’s large mortgage payment be the basis for a finding of abuse even though the debtor has passed the means test?

Holding:      Probably not and not here on these facts.

The debtors own an “approximately 4,000 square foot Residence [they built] in May of 2003.  Unfortunately for Debtors, shortly after the Residence was completed, Mr. Johnson, an airline pilot, had to accept a $60,000 cut in pay.  The Debtors list the value of the Residence at $900,000, and the debt secured by it at nearly $1,100,000.  The monthly mortgage expense for the Residence is $6,060, and total expenses associated with the property are scheduled at $8,286.”  The debtors passed the means test.  The UST moved to dismiss under 707(b)(3) arguing that “Debtors’ expenses to pay their mortgage and to maintain their Residence are unreasonably high.  If they would give up the property they could purchase or rent at substantially lower expense, and in so doing they would free up income for the benefit of unsecured creditors.” Judge Bowie ruled in favor of the debtors.

“[T]he presumption of § 707(b)(2) does not arise in this case.  When the presumption does not arise (or is rebutted), § 707(b)(3) sets forth two alternate considerations for assessing abuse.  Under § 707(b)(3) the Court is to consider whether the petition was filed in bad faith (§ 707(b)(3)(A)), or whether an abuse exists based on the ‘totality of the circumstances … of the debtor’s financial situation.’  No allegations of bad faith have been presented.  Accordingly, the Court must evaluate the Trustee’s motion to dismiss based solely on the ‘totality of the circumstances … of the debtor’s financial situation.’  This brings us to the issue at hand.”

“In a nutshell, the issue is whether Congress, by allowing secured claims to be included without limitation in the Means Test of (b)(2), has limited the courts’ discretion to consider them under the totality of circumstances test of (b)(3).”  “[T]his Court is persuaded there are circumstances that warrant dismissal under § 707(b)(3) although a debtor may have ‘passed’ the Means Test.”  “In the minds of many, including this Court, there is a point at which allowing an individual debtor relief from unsecured debt while sinking most income into maintaining the debt service on such a property seems egregious.”

[But] “If Congress determines that there should be no cap on secured debt obligations on a debtor’s primary residence for purposes of the Means Test, and therefore no presumption of abuse arises under § 707(b)(2), can Congress properly be understood to intend that that same primary residence secured obligation can, by itself, be the basis for a finding of abuse under § 707(b)(3)?”  “[I]t would seem quite ironic if Congress went through all it did to establish the assertedly more objective Means Test in place of individual discretion, only to turn around in § 707(b)(3) and hand the same discretion right back.”

Judge Bowie looked at the Price factors.  Two Price factors appear to be relevant; “whether the debtor has a likelihood of sufficient future income to fund a Chapter 11, 12, or 13 plan which would pay a substantial portion of the unsecured claims….” and “whether the “proposed family budget is excessive or extravagant.”  But the determination of future income in chapter 13 and 11 for an individual comes from 707(b)(2) which permits unlimited mortgages to be deducted.  As to the extravagance, “we are back to the core issue of whether that can be considered under the new § 707(b)(3) given the policy decisions Congress made in § 707(b)(2).”

Bowie concluded, “Assuming that the size of the mortgage payment can be considered notwithstanding § 707(b)(2), the Court is comfortable in concluding that the mortgage payment in this case is neither sufficiently excessive nor extravagant as to warrant dismissal on a totality of the circumstances basis under § 707(b)(3).”

Why do Large Corps file Chapter 11 in Delaware?

There is a bill pending in Congress to prevent large corporations from filing chapter 11 in Delaware, unless I guess, they are actually doing business in Delaware.  Delaware’s Senator Chris Coons responds here.   Parts of the article re reprinted below.

For decades, our state has been famous for our world-class bankruptcy experts, including attorneys and judges who understand complicated business processes inside and out. Delaware’s courts help businesses reorganize with minimal interruption to ongoing business and help ensure that employees and creditors get the money they’re owed. Continue reading

Can a corp file a chapter 7 bankruptcy petition without approval of the shareholders?

This is an update to the prior post.  My bankruptcy colleague posted:

Dear Colleagues,

A corporation filed for Chapter 7 protection.  However, the 80% shareholder, who is neither an officer, nor a director, did not sign anything authorizing the filing.  Can the case be dismissed based on the failure of the Board to have the 80% shareholder sign the corporate resolution authorizing the filing?

I suspect that the answer to my question is, “Look at the articles of incorporation and the by-laws,” but I thought I’d see if there is a general principle I can use here.

All the best, Nick

Someone asked him for more details and he responded: Continue reading