By: Michael Buccino
St. John's Law Student
American Bankruptcy Institute Law Review Staff
 
In SLW Capital, LLC v. Mansaray-Ruffin (In re Mansaray-Ruffin), the Third Circuit held that a creditor’s lien could not be avoided through the confirmation of a Chapter 13 plan that treated the claim as an unsecured claim.[1]  Notwithstanding the importance of finality in bankruptcy proceedings and statutory language binding creditors to the terms of a confirmed plan, since the Federal Rules of Bankruptcy Procedure require an adversary proceeding to invalidate liens, the order confirming the confirmed plan was not res judicata with respect to the status of the creditor’s lien.[2]
 

By: Christpher J. Hunker
St. John's Law Student
American Bankruptcy Institute Law Review Staff
 
The Ninth Circuit Court of Appeals has ruled that a voluntary Chapter 13 bankruptcy filed by above-median income debtor with no “projected disposable income” is not subject to the “applicable commitment period” prescribed by 11 U.S.C. § 1325.[1]  In so ruling, the Court agreed with the Trustee’s interpretation of “applicable commitment period” as mandating a temporal requirement.[2]  Nevertheless, the Court found that the “applicable commitment period” is inapplicable where the debtor can show a negative or zero “projected disposable income” as calculated on Form B22C.[3]  Thus, an above-median income debtor can escape the required five-year “applicable commitment period” if, at the time of filing for Chapter 13 bankruptcy, the debtor can prove that his “projected disposable income” would be zero or a negative number.

By: Brian Lacoff
St. John's Law Student
American Bankruptcy Institute Law Review Staff
 
In a decision of importance to Chapter 13 debtors’ attorneys, the Bankruptcy Court for the District of New Jersey ruled that an undersecured creditor, Ford Motor Credit Co., was entitled not only to adequate protection payments, but that the section 507(b)[1] “super-priority” status of the inadequate adequate protection provided during the case meant that the Chapter 13 plan had to pay those amounts before paying any of the debtor’s attorneys fees.[2] Ford Motor Credit objected to the debtor’s Chapter 13 plan for failure to provide adequate protection payments, violating 11 U.S.C. §§ 361, 1325 and 1326.[3]  The debtor modified the plan to include adequate protection payments, but objected to the creditor’s contention that those payments had super-priority over debtor’s attorney fees.[4]  The court agreed with Ford Motor Credit, reasoning that the creditor, having a lien on the debtor’s property, must be afforded protection against the daily depreciation of its property.[5]

By: Paola Chiarenza
St. John's Law Student
American Bankruptcy Institute Law Review Staff
 
Although the “means test” added by the 2005 BAPCPA amendments[1] was designed to ensure that chapter 13 debtors repay creditors as much as they can afford, the Bankruptcy Court for the Southern District of New York followed a plain language approach to hold that in determining a debtor’s disposable income the proper deduction is the full amount of the rental allowance set forth in the objective IRS Standards, even though the actual rental expense is lower.[2]  After surveying numerous approaches to addressing the section 1325 (b)(3) and section 707 (b)(2)(A)(ii)(I) directives regarding disposable income, the Court noted that there is “no clear consensus” as to whether the IRS Standard or a lower actual amount applies.[3]

By: Robert Griswold
St. John's Law Student
American Bankruptcy Institute Law Review Staff
 
In U.S. v. White,[1] a debtor owed $8,922.40 to the Internal Revenue Service (“IRS”), $1,780.52 of which was considered priority debt.[2]  The debtor filed for chapter 13 bankruptcy in February of 2004 and claimed as exempt a $3,148 tax overpayment for the 2003 tax year.[3]  The IRS moved to lift the automatic stay in order to allow it to setoff the entire 2003 overpayment against its pre-petition tax claim.[4]  In the decision appealed from, the Pennsylvania bankruptcy court allowed the IRS to setoff only to the extent of the priority debt, requiring the remainder of the overpayment to be returned to the debtor as a tax refund.[5]  The district court reversed, holding that the IRS could setoff the entire 2003 overpayment.[6]  The court acknowledged a split of authority regarding whether the IRS’ right to setoff non-priority debt is allowed against exempt assets of the debtor or whether its right to setoff is limited to priority claims,[7] but found the reasoning behind the cases allowing setoff of the overpayment against entire pre-petition claim more compelling.[8]

By: Renton Persaud
St. John's Law Student
American Bankruptcy Institute Law Review Staff
 
In a decision of importance to chapter 13 debtors, the Bankruptcy Appellate Panel for the Ninth Circuit in In Re Lopez [1] held that chapter 13 debtors are permitted to pay post-petition mortgage payments directly to creditors outside of the plan even though the plan cures and reinstates the mortgage.  According to the court, the new provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”) do not change the law with respect to such direct payments.[2]  The court drew a distinction between claims “impaired” by the debtor’s plan, which must be made through the chapter 13 trustee, and unimpaired claims, which need not be.[3]  The court bifurcated the mortgage debt between the cure payments and the regularly scheduled payments accruing post-petition.  Under the court’s view, only the cure amount was impaired and must be paid through the plan.[4]  The importance of the decision to debtors is that it avoids the chapter 13 trustee’s fee on the regular mortgage payment, an amount that was $308 per month in this case.[5]  Of special interest in light of the currently pending legislation that could permit modification of home mortgages in chapter 13, the court distinguishes Fulkrod v. Barmettler (In re Fulkrod)[6]and indicated that, where the mortgage is reamortized, as in chapter 12 cases, the payments must be made through the plan.[7] 

By: Ian Park
St. John's Law Student
American Bankruptcy Institute Law Review Staff
 
In the first appellate court decision on the issue that favors the debtor, the Sixth Circuit Court of Appeals splits with the Fourth and Eleventh Circuits and holds that the repossession of collateral under UCC Article 9 does not alter the debtor’s property rights or remove the collateral from the estate.[1]  The effect of this ruling is that the debtor may retain the collateral by paying its value to the creditor and is not limited to the state law redemption rights, which require payment in full of the secured obligation.