Law on Rice

I just gave the recently published Ransom v. MBNA America (In re Ransom) a quick read (available here until I get it published on BLR). In short, Ransom continues a circuit split by holding that in the Ninth Circuit a debtor can only deduct “ownership costs” from a chapter 13 plan for a car if he or she is making payments (i.e., lease or purchase money payments) on the car. Consistently, when a debtor owns the car free and clear the debtor cannot deduct the payments.The Court said that maintenance fees or high mileage old cars can be accounted for in other ways.

The Court engaged in the statutory interpretation gymnastics that I see in many bankruptcy cases. It concludes with this passage:

The “correct” answer to the question before us, which the courts have been struggling with for years—at the unnecessary cost of thousands of hours of valuable judicial time—depends ultimately not upon our interpretation of the statute, but upon what Congress wants the answer to be. We would hope, in this regard, that we the judiciary would be relieved of this Sisyphean adventure by legislation clearly answering a straightforward policy question: shall an above-median income debtor in chapter 13 be allowed to shelter from unsecured creditors a standardized vehicle ownership cost for a vehicle owned free and clear, or not? Because resolution of this issue rests with Congress, we have taken the unusual step of directing the Clerk of the Court to forward a copy of this opinion to the Senate and House Judiciary Committees.

Take that, Congress!

UPDATE: I noticed that Prof. Shaun Martin the University of San Diego School of Law picked up on this paragaph as well. He has some interesting thoughts on Judge Trott’s complaint. Read it here.

The Ninth Circuit just released it’s opinion in Warren v. Wirum (In re Warren), a bankruptcy decision. The following is just a brief abstract of the facts.

Prior to filing his bankruptcy petition, California moved against Mr. Warren’s bank account because of unpaid child support payments. A few weeks later, Mr. Warren filed a Chapter 7 petition to avoid the seizure. In his petition, he include a list of creditors, but he did not include other financial information required by section 521(a)(1) of the Code.

The day after he filed, the bankruptcy court notified him that he need to file the additional 521(a)(1) information within fifteen days, which he failed to do. The bankruptcy court scheduled a hearing to show cause as to why sanctions should not be imposed, but a few days before the hearing the trustee asked for time to investigate.

About five months after he filed the petition, Mr. Warren moved for dismissal, citing his lack of compliance. The district court refused to dismiss. I’ll let you read the full case on Bankruptcy Law Reports to find out why at Warren v. Wirum (In re Warren).

Since Egebjerg v. Anderson is an “issue of first impression,” I thought I should give you some advance notice. In Egebjerg, it appears that Mr. Egebjerg (the “Debtor”) borrowed funds against his 401(k) retirement plan a few years before he filed voluntarily under Chapter 7. As part of the loan agreement, he was to repay at a rate of over $700 per month. The Debtor deducted this monthly payment from his disposable income, but the Trustee objected. Under the BAPCPA, the bankruptcy court dismissed the petition, and Mr. Egebjerg appealed. The Ninth Circuit affirmed in this opinion released on May 29, 2009.

I haven’t had time to read all of Egebjerg v. Anderson, but here is the first paragraph:

In this direct appeal from the bankruptcy court, Scott Lee Egebjerg (“Egebjerg”) challenges the bankruptcy court’s dismissal of his Chapter 7 petition for abuse under 11 U.S.C. § 707(b)(3). In an issue of first impression in this circuit under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”), we consider whether a debtor’s repayment of a 401(k) loan constitutes a “monthly payment on account of secured debts” or an “[o]ther [n]ecessary [e]xpense” that can be deducted from a debtor’s monthly income for purposes of calculating the debtor’s disposable monthly income under § 707(b)(2). Because we conclude it is not, the debtor’s filing in this case was presumptively abusive under the “means test” of § 707(b)(2). We therefore affirm the bankruptcy court’s dismissal of his Chapter 7 petition.

By the way, I published Egebjerg v. Anderson on my new Bankruptcy Law Reports, even if it isn’t much to look at right now.

UPDATE: There is a much better write up than mine here and here.

Griffin v. Wardrobe, No. 07-16635 (9th Cir. Mar. 16, 2009)

Griffin sued Wardrobe for breach of contract arising out of an allegedly faulty home repair. Three days before trial, Wardrobe filed for Chapter 13 bankruptcy. Griffin then filed a motion with the bankruptcy court to lift the automatic stay triggered by the bankruptcy filing. She represented to the court that she wanted to pursue her state court complaint against Wardrobe’s insurers and wanted to be able to call Wardrobe as a witness. The bankruptcy judge granted the motion.

Griffin later settled with the insurers, but proceeded to trial against Wardrobe. Before trial, she amended her complaint to allege intentional fraud. Griffin obtained a default judgment against Wardrobe in excess of $200,000. She then filed an adversary petition in bankruptcy court to object to the discharge of the state court judgment pursuant to 11 U.S.C. 523(a)(2)(A).

The bankruptcy court granted Griffin’s motion. The Bankruptcy Appellate Panel (the “BAP”) overturned that ruling, and in this recently published opinion, the Ninth Circuit affirmed the BAP.

It ruled that “an order granting limited relief from an automatic stay to allow a creditor to proceed to judgment in a pending state court action is effective only as to those claims actually pending in the state court at the time of the order modifying the stay issues, or that were expressly brought before to the attention of the bankruptcy court during the relief from stay proceedings.”

Opinion of Judge Goodwin.