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: Craig Kavanagh
St. John's Law Student
American Bankruptcy Institute Law Review Staff
 
Recently, the New Jersey Bankruptcy Court, in In re Bursztyn,[1] held that Fourth Amendment limitations applied to a trustee’s conduct in seeking to search a debtor’s residence with the intention of seizing undisclosed assets.  However, the Court reasoned that, by filing bankruptcy, the debtor had reduced her reasonable expectations of privacy[2] and the Court held that the trustee’s actions did not exceed the Fourth Amendment standards of reasonableness.[3] In Bursztyn, based on an investigation of court records of the debtor's recent divorce, the trustee suspected that the debtor was hiding valuable jewelry and artwork that was not listed in the debtor’s bankruptcy petition or financial affairs statements.[4] The trustee requested from the Court, ex parte, an order allowing her to search the debtor’s home with the hopes of obtaining the art and jewelry that now belonged to the estate.[5] The Court granted authorization, and the United States Marshals Service and the trustee served the order upon the debtor at her residence, and proceeded to search her bedroom and closets.[6] The search uncovered nearly two hundred pieces of fine jewelry and ten works of art, valued at nearly $250,000.[7] Claiming that the search and seizure violated her Fourth Amendment rights, the debtor sought to suppress all evidence uncovered by the trustee’s search.[8]

By: Steven Saal
St. John's Law Student
American Bankruptcy Institute Law Review Staff
 
The case of In re Roedemeier[1] holds that the section 707(b) “means test” expense allowances are not incorporated into the calculation of disposable income for individual chapter 11 debtors. [2]  Instead, a chapter 11 debtor’s “projected disposable income” under section 1129(a)(15) is calculated by the court through “a judicial determination of the expenses that are reasonably necessary for the support of the debtor and his or her dependents.”[3]  Since the means test applies to the calculation of “projected disposable income” in chapter 13 cases, this decision creates a difference between the two chapters.   Use of the “means test” involves a stricter formula of determining income that in many cases would require the debtor to contribute more income to funding the plan, thus creating an incentive for debtors to file chapter 11 in order to use the more flexible judicial calculation.

By: Deanna Scorzelli
St. John's Law Student
American Bankruptcy Institute Law Review Staff
 
In a novel approach, the Court uses the § 362(b)(11)[1] exception from the automatic stay to insulate a consumer debtor from the trustee’s attempt to require her to “turnover” the amounts reflected by pre-petition checks and debits that were paid by her bank shortly after filing bankruptcy and thus were no longer in the account at the time it was remitted to the estate. In In re Minter-Higgins[2] the Chapter 7 Trustee sought turnover from the debtor of money that had been in the debtor’s bank account at the instant of filing for bankruptcy. The debtor objected to the turnover, however, because she had issued checks and initiated debit transfers before filing for bankruptcy that were not honored by the bank until after the filing.  If the Trustee were successful in obtaining the turnover, the debtor would be liable to the estate for the amount of those items and effectively pay twice – once when the funds in her account were used to honor the check and debit transfers and a second time in response to the turnover. 
 

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: Christina Kormylo
St. John's Law Student
American Bankruptcy Institute Law Review Staff
 
The addition of section 1115 to the Bankruptcy Code by the 2005 BAPCPA amendments created an exception to the “absolute priority rule” for individual Chapter 11 debtors according to the bankruptcy court in In re Tegeder.[1]   In Tegeder, the general unsecured creditor class did not accept the Chapter 11 plan proposed by an individual debtor who was engaged in business, thereby triggering the “cram down” provisions of 11 U.S.C. § 1129(b).[2]  Although all other requirements for plan confirmation under section 1129(a) were met, the U.S. Trustee argued that the debtor, as a holder of interests junior to the dissenting class, could not retain any property pursuant to the absolute priority rule of section 1129(b)(2)(B)(ii).[3]  The absolute priority rule, as amended by BAPCPA, states, “the holder of any claim or interest that is junior to the claims of such class will not receive or retain . . . any property, except that in a case in which the debtor is an individual, the debtor may retain property included in the estate under section 1115.”[4]  Addressing the effect of the cross-reference to section 1115, the Tegeder court held that the absolute priority rule does not prevent a plan’s confirmation where both pre- and post-petition assets are retained by an individual debtor.[5]  The court explained that the 2005 BAPCPA amendment and the addition of section 1115 created an exception to the rule, allowing an individual debtor to retain property included in the estate.[6]

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: Robert Ryan
St. John's Law Student
American Bankruptcy Institute Law Review Staff
 
Firmly adopting the “exclusive” view of claim objections, the Tenth Circuit Bankruptcy Appellate Panel in B-Line, LLC v. Kirkland[1] held that a claim could not be disallowed under 11 U.S.C. § 502[2] for failure to submit supporting documentation with a proof of claim since that is not one of the grounds expressly stated in the statute.[3]  Although Federal Rule of Bankruptcy Procedure 3001 requires that supporting documentation be provided with a proof of claim,[4] neither the Rule nor the statute clearly states what to do if a creditor fails to submit supporting documentation.[5]  The court held that section 502(b) provided an exclusive list of reasons why a claim should be dismissed, reasoning that the “shall allow … except” command in section 502(b) and the absence of an expansive term like “including” indicated that the list was exclusive.[6]  Since the Rules cannot modify substantive rights, technical defects in the proof of claim are not grounds for objection.[7] 

By: James Lynch
St. John's Law Student
American Bankruptcy Institute Law Review Staff
 
Although the Bankruptcy Abuse Protection Act of 2005 (“BAPCPA”) largely eliminated the so-called “ride through” option for security interests in personal property, the Connecticut Bankruptcy Court in In re Caraballo[1] held that the option remains available for liens secured by real estate.  Under the ride through, a debtor whose real estate mortgage is not in default does not have to reaffirm the debt or surrender the real estate, but can retain the real estate by continuing to make the scheduled mortgage payments.[2]  Thus, since the debtor in Caraballo was not in default, the Court disapproved the debtor’s mortgage reaffirmation agreement as not being in her best interests “because she could retain the subject real property without reaffirming the [d]ebt.”[3] 

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]