Chapter 13

City of Chicago, Illinois v. Fulton

Issues

After a debtor files for bankruptcy, is a creditor required to turn over property of the bankruptcy estate to the debtor or trustee under the Bankruptcy Code’s automatic stay provision if the creditor lawfully possessed the property before bankruptcy was initiated and only passively possesses the property afterwards?

This case asks the U.S. Supreme Court to determine whether an entity that passively possesses a debtor’s property must turn over that property to the bankruptcy estate under the Bankruptcy Code’s automatic stay provision. Petitioner City of Chicago argues that the automatic stay provision requires debtors and creditors to maintain the status quo as of the petition date, which, among other things, means that creditors cannot take actions to control property of the estate. Chicago maintains that passive possession does not constitute action. Further, Chicago asserts that because the automatic stay freezes the status quo, debtors must seek a court order compelling the turnover of property lawfully repossessed pre-petition. Respondents Robbin L. Fulton and others counter that the automatic stay language plainly requires that all the debtor’s property be transferred to the trustee or debtor and that passive retention is an act of restraint in violation of the automatic stay. Additionally, Fulton and others contend that the turnover duty is mandatory and does not require a court order. The outcome of this case has important implications on debtors’ and creditors’ bankruptcy rights, public safety, and the financial well-being of debtors and local governments.

Questions as Framed for the Court by the Parties

Whether an entity that is passively retaining possession of property in which a bankruptcy estate has an interest has an affirmative obligation under the Bankruptcy Code’s automatic stay, 11 U.S.C § 362, to return that property to the debtor or trustee immediately upon the filing of the bankruptcy petition.

In 2016, Petitioner City of Chicago (“Chicago”) amended its municipal code so that “[a]ny vehicle impounded by [Chicago] or its designee shall be subject to a possessory lien in favor of [Chicago] in the amount required to obtain release of the vehicle.” In Re Fulton at 920. Following this amendment, Chicago refused to return impounded vehicles to their owners if t

Written by

Edited by

Additional Resources

Submit for publication
0

Hamilton v. Lanning

Issues

Whether the bankruptcy court may consider changes in the debtor’s income and expenses after the pre-filing period in order to determine the amount the debtor must pay to creditors.

 

This case concerns the extent of a bankruptcy court's flexibility in determining the "projected disposable income" of a debtor under 11 U.S.C. § 1325(b)(1)(B). Stephanie Kay Lanning filed for bankruptcy in October 2006 and proposed monthly payments of $144, based on her current income and expenses. Jan Hamilton, Lanning's bankruptcy trustee, objected and said that Lanning's "projected disposable income" was actually over $1,000 per month. The U.S. Bankruptcy Court for the District of Kansas overruled the objection and approved Lanning's plan. The court found that, while Hamilton's calculation of "projected disposable income" based on Lanning's income from the prior six months was correct under Form 22C, the results were inequitable because Lanning's income was artificially inflated for two months because of a buyout from her prior employer. The Bankruptcy Appeals Panel and the Tenth Circuit Court of Appeals both affirmed. Hamilton argues that the plain language of the statute mandates his “mechanical” approach, while Lanning argues that her "forward-looking" approach avoids absurd results. The Supreme Court's decision in this case will provide clarity to a statutory term that has flummoxed the lower courts, while simultaneously affecting the flexibility of bankruptcy judges.

Questions as Framed for the Court by the Parties

Whether, in calculating the debtor’s “projected disposable income” during the plan period, the bankruptcy court may consider evidence suggesting that the debtor’s income or expenses during that period are likely to be different from her income or expenses during the pre-filing period?

In October 2006, Stephanie Kay Lanning ("Lanning") filed for personal bankruptcy under Chapter 13 of the bankruptcy code. See In re Lanning, 545 F.3d 1269, 1270 (10th Cir.

Written by

Edited by

Submit for publication
0

Harris v. Viegelahn

Issues

Does a debtor who has paid part of his wages to a trust as part of a Chapter 13 bankruptcy agreement recover the wages upon conversion to Chapter 7 bankruptcy, or do those wages belong to the creditors?

The Supreme Court will determine whether undistributed funds in a Chapter 13 trustee’s possession must be returned to the debtor upon conversion to Chapter 7, or whether creditors have a right to those funds. See Brief for Respondent, Mary K. Viegelahn, Chapter 13 Trustee at i. Harris argues that the Third Circuit’s rule is right in that a debtor’s post-petition wages become part of the property of the estate and thus revert back to the debtor upon conversion. See Brief for Petitioner, Charles E. Harris, III at 18–20. Viegelahn, however, counters that the Fifth Circuit’s rule is the correct one because funds belong to creditors, as the Bankruptcy Code creates an escrow relationship between the trustee and creditors. See Brief for Respondent at 19–21. The resolution of this case has the potential to affect the incentives a debtor has to file under Chapter 13, and may also implicate the balance of equitable considerations between debtor and creditor. See Brief of Amicus Curiae the National Association of Consumer Bankruptcy Attorneys (“NACBA”), in support of Petitioner at 29; see Brief for Respondent at 28; Brief of NACBA at 25.

Questions as Framed for the Court by the Parties

Chapter 13 of the Bankruptcy Code allows debtors to repay their creditors by turning a portion of their monthly income over to a Chapter 13 trustee for distribution to those creditors. At any time, however, a debtor may convert a Chapter 13 bankruptcy case to one under Chapter 7. Congress has provided that "[e]xcept" where the conversion is made in bad faith, the resulting Chapter 7 estate is limited to the debtor's property "as of the date" the original Chapter 13 petition was filed; it does not include wages or property that the debtor acquired after the petition date. 11 U.S.C. § 348(f).

The question presented is:

When a debtor in good faith converts a bankruptcy case to Chapter 7 after confirmation of a Chapter 13 plan, are undistributed funds held by the Chapter 13 trustee refunded to the debtor (as the Third Circuit held in In re Michael, 699 F.3d 305 (2012) [sic] or distributed to creditors (as the Fifth Circuit held below)?

In February of 2010, after falling $3,700 behind on his mortgage loan, Charles E. Harris III filed for bankruptcy under Chapter 13 of the Bankruptcy Code. See In re Harris, 757 F.3d 468, 471 (5th Cir.). His reorganization plan was confirmed in April of 2010.

Written by

Edited by

Additional Resources

Submit for publication
0

Louis B. Bullard v. Blue Hills Bank

Issues

Does the denial of a debtor’s proposed reorganization plan in a bankruptcy case entitle the debtor to an immediate appeal on that ruling? 

In this case, the Supreme Court must determine whether a bankruptcy court’s denial of a debtor’s Chapter 13 reorganization plan is “final” within the meaning of 28 U.S.C. § 158 and thus immediately appealable by a debtor. Petitioner Louis B. Bullard argues that his Chapter 13 plan’s denial was “final” and thus appealable because the denial amounted to a court’s adjudication of a discrete issue within the bankruptcy process. In contrast, looking at an entire bankruptcy case as a “single judicial unit,” Respondent Blue Hills Bank argues that Bullard’s plan was not final and thus not appealable because Bullard’s plan was denied with leave to amend. The Supreme Court’s decision in this case will implicate practical considerations within the bankruptcy process and the appropriate balance between the bargaining power of debtors and creditors. 

Questions as Framed for the Court by the Parties

Whether an order denying confirmation of a bankruptcy plan is appealable.

Petitioner Louis B. Bullard (“Bullard”) purchased a house in Massachusetts, which he had financed through a mortgage with Respondent Blue Hills Bank for the amount of $387,000. See In Re Bullard, 752 F.3d 483, 484 (1st Cir. 2014).

Edited by

Acknowledgments

The authors would like to thank Professor Odette Lienau for her guidance in analyzing this case. 

Additional Resources

Submit for publication
0

Marrama v. Citizens Bank of Massachusetts

Issues

Does the court have discretion to deny a debtor’s motion to convert a Chapter 7 bankruptcy filing to another chapter if the debtor meets the technical requirements for the other chapter?

​

 

Robert Marrama sought to convert his Chapter 7 bankruptcy case to a Chapter 13 after meeting the requirements for Chapter 13. The bankruptcy court denied Marrama’s motion to convert based on Marrama’s prior bad faith conduct in failing to report in his bankruptcy schedules the value of a tax refund and vacation home. The Bankruptcy Appellate Panel and Court of Appeals for the First Circuit affirmed. In this case, the Supreme Court will determine whether courts have discretion to deny conversions based on an evaluation of the debtor’s conduct. The decision will hinge on the statutory language and legislative history of the Bankruptcy Code. While this issue may be limited to filings that occurred before Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, it will give the court the opportunity to clarify the scope of the good faith requirement in bankruptcy proceedings and the amount of discretion afforded to bankruptcy judges.

Questions as Framed for the Court by the Parties

Whether the right to convert a Chapter 7 bankruptcy case to another chapter can be denied notwithstanding the plain language of the statute and the legislative history.

Robert Marrama entered the flooring business as a teenager and grew his family’s small enterprise into a multi-million dollar company. Sonia Nezamzadeh, Medill—On the Docket: Marrama, Robert v. Citizens Bank of Massachusetts, et al., posted on June 13, 2006.

Submit for publication
0

Ransom v. MBNA America Bank, N.A.

Issues

Whether an above-median debtor may claim a vehicle ownership cost deduction for vehicles the debtor owns outright.

 

This case reflects a lack of certainty in the bankruptcy code regarding the proper treatment of the vehicle ownership deduction when calculating an above-median Chapter 13 debtor’s disposable income. Courts are split on whether the deduction can be taken where the debtor owns a vehicle in full and is not responsible for monthly payments on the vehicle. Jason Ransom filed for bankruptcy under Chapter 13 and claimed a vehicle ownership deduction based on his ownership of an automobile that he owned free and clear. The Ninth Circuit found that the vehicle ownership deduction was not permitted if there was no existing obligation on the vehicle. Ransom argues that the court misinterpreted the statute and failed to recognize that a plain reading of the statute supports the deduction. The Supreme Court’s decision will clarify the availability of the vehicle ownership deduction to Chapter 13 debtors who own their vehicles outright.​

Questions as Framed for the Court by the Parties

Whether, in calculating the debtor's "projected disposable income" during the plan period, the bankruptcy court may allow an ownership cost deduction for vehicles only if the debtor is actually making payments on the vehicles.

Jason Ransom ("Ransom") is a single man living in Nevada. See Ransom v. MBNA, 577 F.3d 1026, 1027 (9th Cir.

Written by

Edited by

Additional Resources

· Bankruptcy Case Blog, Tracy Keeton: A Fork in the Road: Courts Split on Transportation Ownership Deductions (Apr. 6, 2010)

Submit for publication
0

United Student Aid Funds v. Espinosa

Issues

1. Is a bankruptcy court’s confirmation of a debtor’s Chapter 13 plan void when the plan improperly discharges the debtor’s statutorily non-dischargeable student loans?

2. Does a debtor violate the due process rights of a student loan creditor when, instead of commencing a statutory adversary proceeding by filing a complaint and serving it, the debtor merely states in his Chapter 13 plan that the debt owed to the creditor will be discharged?

 

Francisco J. Espinosa filed for Chapter 13 bankruptcy and proposed in his Chapter 13 reorganization plan that he would repay $13,250 in student loans to United Student Aid Funds (“Funds”). Although Funds claimed they were owed an additional $4,582.15, the U.S. Bankruptcy Court for the District of Arizona confirmed Espinosa's plan as proposed, and Funds did not object to the confirmed plan. Espinosa repaid all debts according to the Chapter 13 plan. Funds subsequently began to intercept Espinosa's income tax refunds, claiming that Espinosa had improperly discharged his student loans, because Espinosa had not initiated a statutorily required adversary proceeding to determine whether repayment of the student loans would constitute an "undue hardship." While the U.S. District Court of Arizona held that Espinosa had violated Funds' due process interests by failing to initiate an adversary proceeding and serve a complaint and summons upon Funds according to the statutory procedure, the United States Court of Appeals for the Ninth Circuit reversed, and Funds now appeals. The Supreme Court’s decision in this case will determine how student loans and other debts are collected in bankruptcy and will affect the overall relationship between debtors and creditors in America.

Questions as Framed for the Court by the Parties

1. Student loans are statutorily non-dischargeable in bankruptcy unless repayment would cause the debtor an "undue hardship." Debtor failed to prove undue hardship in an adversary proceeding as required by the Bankruptcy Rules, and instead, merely declared a discharge in his Chapter 13 plan. Are the orders confirming the plan and discharging debtor void? 

2. Bankruptcy Rules permit discharge of a student loan only through an adversary proceeding, commenced by filing a complaint and serving it and a summons on an appropriate agent of the creditor. Instead, debtor merely included a declaration of discharge in his Chapter 13 plan and mailed it to creditor's post office box. Does such procedure meet the rigorous demands of due process and entitle the resulting orders to respect under principles of res judicata?

In 1988, Respondent Francisco J. Espinosa borrowed $13,250 in student loans through the Federal Family Education Loan Program, which grants federally guaranteed loans. See Brief for Petitioner, United Student Aid Funds, Inc.

Written by

Edited by

Submit for publication
0
Subscribe to Chapter 13