Dykstra Posts $150K Bond In Bankruptcy Fraud Case

LOS ANGELES—Former new York Mets and Philadelphia Phillies outfielder Lenny Dykstra posted $150,000 bond Wednesday in a federal case where he’s accused of embezzling money from a bankruptcy estate.  For more from Boston.com, click here

Philadelphia Orchestra Makes Bankruptcy Move

A humbled Philadelphia Orchestra drew a prolonged ovation on Saturday evening after the final strains of Mahler’s Symphony No. 4, one of his sunniest works. Just hours earlier, its board of directors had voted to send the orchestra to bankruptcy court, declaring the move the only way to survive financial disaster.  For more, click here

Bankruptcy Section Blog UPGRADE

The editors are happy to announce that the Bankruptcy Section’s Blog-Homepage has a new tool that allows readers to follow posts by email.

Any readers wishing to receive alerts via email for new postings should enter their email address in the “follow by email” space located on the right side of the page under the “search this blog” link.

Please feel free to contact the editors with questions or comments on this new feature.

Free Training Opportunity for Attorneys Interested in Helping Veterans and Active Members of the Military and Their Families Experiencing Financial Difficulties

On May 5, 2011 from 4-6 p.m., the Bankruptcy Section of the Boston Bar Association is conducting a Training Session at the BBA that will review the many unique legal issues faced by active and veteran members of the armed services and their families in the areas of consumer law and bankruptcy law. This session is not to be missed if you are interested in representing veterans with financial problems.

• Did you know that disabled veterans need not complete the Means Test form used in Consumer Bankruptcy cases, but what if the veteran is only 25% disabled and what if the disability did not arise in the “line of duty”?

• Did you know that members of the armed forces have special rights that they may exercise with respect to leases and interest rates on credit cards if they are called to active duty?

• Did you know that certain overpayments stemming from circumstances where the service member does not complete active duty requirements are nondischargeable as a debt owed to the U.S. Government under a title of the US Code other than title 11?

A top notch resource guide covering the unique legal issues facing current and former members of the military has been assembled and will be distributed to all those in attendance. An experienced group of panelists, including staff from the Massachusetts Department of Veterans Services and former staff counsel for Shelter Legal Services – people in the know – will be available for questions.

This is an event you will not want to miss if you plan on assisting current and former members of the military with financial related legal issues. We hope to see you there.

Consumer Dream Team Being Formed

It’s playoff time in Boston and that means it is time for the Bankruptcy Section to form its DREAM TEAM!

As part of the BBA’s ongoing commitment to assist with the legal problems being faced by past and present members of the armed services and their families, the Bankruptcy Section has been providing information about consumer issues and bankruptcy at Yellow Ribbon Events held in various locations throughout the Commonwealth of Massachusetts. At Yellow Ribbon events, attorneys from the BBA provide a 10 minute power point presentation on issues relating to consumer and bankruptcy law and then staff the BBA booth at the event for several hours to assist in directing those in attendance to the proper organization or service (such as the BBA Military Hotline) that may be able to provide assistance for specific legal questions. We would like to assemble a Dream Team of lawyers that would rotate handling the Yellow Ribbon Events during the course of the next year which will probably require volunteers to staff one event, may be two. For more information, please contact: Donald R. Lassman, Esq., P.O. Box 902385, Needham, MA 02492, 781-455-8400, email: [email protected]

Spendthrift Trust Corpus Not Part of Bankruptcy Estate, Testamentary Spendthrift Trust Income Disbursements Made More Than 180 Days After Date of Petition Not Part of Bankruptcy Estate — By Dan Lake

Massillon v. Riley (In re Massillon), No. MB 10-024, 2011 Bankr. LEXIS 83 (B.A.P. 1st Cir. Jan. 11, 2011)

In an unpublished decision, the United States Bankruptcy Appellate Panel for the First Circuit reversed a Bankruptcy Court decision, which ordered that post-petition disbursements of trust income become part of the debtor’s estate.  At issue was whether a debtor’s interests in a testamentary spendthrift trust created under New York law could become property of the bankruptcy estate.  The BAP held that income disbursements from a testamentary spendthrift trust received by the debtor within 180 days after the date of petition became part of the estate, while exempting a spendthrift trust’s corpus and all other post-petition testamentary spendthrift trust income disbursements.

The BAP first determined that the corpus of the spendthrift trust was not part of the debtor’s estate.  Under Section 541(c)(2) of the Bankruptcy Code, the inalienability of a debtor’s interest in a spendthrift trust is fully enforceable in a bankruptcy proceeding.  Accordingly, if the BAP found that the trust at issue was a spendthrift trust, the panel would exclude the debtor’s interest in the corpus from the estate.  Under New York law, all express trusts are spendthrift, unless the settlor provides otherwise.  Because the settlor of the trust did not expressly provide otherwise, the BAP agreed with the Bankruptcy Court’s determination of a spendthrift trust and excluded the corpus from the debtor’s estate.

The second issue was whether distributions of income from the testamentary spendthrift trust would become property of the debtor’s estate.  Section 541(a)(5)(A) of the Bankruptcy Code provides that any interest that the debtor acquires by bequest, devise, or inheritance within 180 days after the date of filing becomes part of the estate.  Therefore, the BAP held that any distributions of income by a testamentary spendthrift trust within 180 days after filing became property of the debtor’s estate.

The BAP also held that distributions of testamentary spendthrift trust income after the 180 day period are not part of the bankruptcy estate.  A New York statute, N.Y. C.P.L.R. 5205(d)(1), provides that a creditor can receive only ten percent of a judgment debtor’s trust income distributions to satisfy a money judgment.  The bankruptcy court found this statute to be an exemption statute because it restricts creditors but not a debtor’s ability to alienate.  The trustee argued that the debtor could not take advantage of the state exemption, as the debtor had already applied for federal exemptions.  The bankruptcy court agreed with the trustee and held that future trust income distributions would be part of the estate because the debtor could not stack exemptions.  The bankruptcy court failed to address Section 541(a)(5)(A), however, because the court held that the debtor’s right to trust distributions became fixed pre-petition and that all future distributions were therefore part of the estate under Section 541(a)(1).  On appeal, the BAP noted that courts in three cases had applied N.Y. C.P.L.R. 5205(d)(1) in a bankruptcy context.  These cases held that ten percent of all future disbursements of trust income became part of the debtor’s estate.  However, none of the case law considered the New York statute in light of Section 541(a)(5)(A).  Congress only enacted one provision that brought a post-petition entitlement into a debtor’s estate, and holding that future trust distributions are part of the estate under Section 541(a)(1) would make Section 541(a)(5)(A) superfluous.  The BAP did not address the exemption stacking argument because the debtor did not claim an exemption under N.Y. C.P.L.R. 5205(d)(1).

BAP Vacates Order Granting Debtor’s Vague and Ambiguous Claims Objection — By Dan Lake

Banco Popular De Puerto Rico v. Torres (In re Torres), No. PR 10-036, 2011 Bankr. LEXIS 130 (B.A.P. 1st Cir. Jan. 19, 2011)

In an unpublished decision, the United States Bankruptcy Appellate Panel for the First Circuit vacated an order by the Bankruptcy Court sustaining a debtor’s objection to a secured creditor’s proof of claim.  The debtor claimed that because she was current with her mortgage payments to the secured creditor at the time of filing, the court should disallow the creditor’s claim for late fees and legal fees.  The BAP held that the debtor’s objection was too vague to overcome the prima facie evidence of the claim’s validity and amount established by the creditor’s written statement, which substantially conformed to an Official Form.

Under Section 502(a) of the Bankruptcy Code, when a creditor submits a proof of claim, the court must allow the claim unless a party in interest objects.  If a party in interest objects, the court must nevertheless allow the claim unless an exception listed in Section 502(b) of the Bankruptcy Code applies.  Courts are split as to whether the Section 502(b) exceptions constitute an exhaustive list.  Under Fed. R. Bankr. P. 3001, a proof of claim supported by a written statement that substantially conforms to the correct Official Form is considered “prima facie evidence of the validity and amount of the claim.”  A court must analyze a proof of claim on a case-by-case basis, evaluating the detail provided by the claimant, the content of the written statement, and the objector’s identity.  Official Form 10, the proof of claim form, instructs a claimant to attach certain supporting documents and to explain any absence of these supporting documents.  If the claim includes any interest, the claimant must also attach an itemized statement of all interest charges.  The BAP held that the creditor’s proof of claim was prima facie valid because it substantially conformed to Official Form 10 and contained the mortgage note evidencing the creditor’s secured claim.

If the debtor offers substantial evidence rebutting the proof of claim, the creditor then has the burden to prove its claim by a preponderance of the evidence.  To sustain an objection to a proof of claim, the court must find that a Section 502(b) exception applies, or that the creditor’s written statement or supporting documentation is insufficient.  The BAP held that the debtor’s objection lacked substantial evidence and was also too ambiguous and vague.  In arguing that the court should disallow the claim for late fees and legal fees, the debtor failed to assert that she did not actually owe late fees, but merely stated that her payments were current at the petition date.  The only charge to which the debtor specifically objected was to legal fees related to the claim preparation.  However, the creditor’s statement indicated that all charges were pre-petition.  The BAP held that a lack of arrears in mortgage payments by a debtor does not provide grounds for a court to disallow a claim by a creditor for fees related to the mortgage.  The BAP also noted that when a creditor submits a claim after the court confirmation of the debtor’s plan, but before the deadline to file a proof of claim, the charges in the claim are still deemed pre-petition.

The BAP also considered the standard of review to apply in the case at hand.  The creditor’s response to the objection was untimely, coming more than thirty days after the debtor served the objection on the creditor.  However, the Bankruptcy Court considered the creditor’s late response in its order sustaining the objection.  An appellate court reviews an order by a bankruptcy court disallowing a claim due to procedural default under an abuse of discretion standard, but reviews an order based on a legal issue under a de novo standard.  Because the Bankruptcy Court apparently considered the creditor’s response while interpreting and applying the Bankruptcy Code, the BAP reviewed the order de novo.



Please be advised that in the event of a shutdown of the federal government due to a lack of funding, the U.S. Bankruptcy Court and the U.S. District Court will remain open and fully operational.  The General Services Administration (GSA) has assured us that the federal buildings will be open and security will be in place at the entrances as usual.  The U.S. Marshal Service has also assured us that the Contract Security Officers (CSOs) will be on duty in all court locations as usual. Also, the Office of the U.S. Trustee has advised us that Chapter 7, 11 and 13  Section 341 meetings will be held as scheduled.

Hearings and trials scheduled in the bankruptcy court will proceed as planned, unless you are notified otherwise in a particular case or matter.

Members in the News

Choate, Hall & Stewart LLP in Boston has added Kevin Simard, formerly a partner at Riemer & Braunstein, as a partner in the law firm’s Finance & Restructuring Group. Simard will continue to focus his practice on representing major financial institutions in all aspects of secured lending

Members in the News

The BBJ reported that McCarter & English LLP has added Thomas Curran as a partner in the Bankruptcy & Restructuring practice in Boston. Curran handles all aspects of insolvency law with a particular focus on creditor rights. He joins McCarter from the Hinckley, Allen & Snyder LLP’s Boston office, where he was a partner in the Bankruptcy, Creditors’ Rights & Workouts practice group.