Case Summaries

By Kathleen Rahbany – Craig and Macauley, P.C., Boston

Failure to Timely File a Notice of Appeal May Be a Jurisdictional Bar to Obtaining Direct Review by the First Circuit Court of Appeals

Weaver v. Harmon Law Offices, P.C. (In re Weaver), 319 Fed. Appx. 1 (1st Cir. 2009)

In an unpublished decision, the First Circuit Court of Appeals declined to hear a direct appeal from an order of the Bankruptcy Court, even though the question certified for review may have been “sufficiently important” to justify a direct appeal.

The defendants sought to have the First Circuit determine “[w]hether or not the act of postponing a mortgage foreclosure sale during a pending bankruptcy violates the automatic stay.” The Bankruptcy Court’s determination was adverse to the defendants. The defendants failed to timely file a notice of appeal of the Bankruptcy Court’s order or to timely seek consent of the First Circuit Court of Appeals to directly review the Bankruptcy Court’s order. This procedural defect made it ‘substantially possible’ that the First Circuit Court of Appeals was without jurisdiction to hear the defendants’ direct appeal. Consequently, the court held that it would not hear the direct appeal because even it determined the question at issue, its holding would be unlikely to result in a “definitive resolution” because the court may have been without jurisdiction to hear the matter in the first place.

Means Test Permits a Deduction from Income of Installment Payments Due for Property to Be Surrendered

Morse v. Rudler (In re Rudler), 576 F.3d 37 (1st Cir. 2009)

The First Circuit Court of Appeals upheld the Bankruptcy Court and Bankruptcy Appellate Panel rulings that the means test permits a debtor to deduct from his income installment payments that are scheduled to come due to a secured creditor, even for property that is later to be surrendered during the debtor’s bankruptcy proceeding.

The means test requires a debtor to calculate whether a presumption of abuse arises by subtracting certain statutorily permitted deductions from current monthly income. Under section 707(b)(2)(A)(iii)(I) of the Bankruptcy Code, a debtor is entitled to deduct expenses incurred “on account of secured debts” so long as the payment is “scheduled as contractually due to [the] secured creditor[] in each of the 60 months following the date of the petition.” An issue comes up when a debtor intends to terminate those payments by surrendering the collateral but also deducts those expenses from current monthly income on the means test, where, but for that deduction, a presumption of abuse would arise.

The First Circuit Court of Appeals noted that precedent interpreting section 707(b)(2) is split but that the majority view, based on the plain language of the statute, permits a debtor to deduct secured payments even if the property securing the debt will later be surrendered. Courts following the majority view primarily consider the phrase “scheduled as contractually due” in the forward-looking context suggested by the phrase “following the date of the petition.”

The First Circuit Court of Appeals determined that “scheduled as contractually due” requires a current assessment of obligations, not one that envisions the future termination of payments that are contractually owed at the time that the debtor completes the means test calculation. Likewise, the court found that the phrase “following the date of the petition” requires a current assessment of payments scheduled to come due after the petition date, not a projection of anticipated changes in those payments. The court concluded that such an interpretation does not lead to an “absurd” result because it avoids uncertainties attendant when a debtor intends to surrender property, but such intent is unperformed at the time when the means test is conducted.

First Circuit Resolves Questions of First Impression

Braunstein v. McCabe, 571 F.3d 108 (1st Cir. 2009)

The Chapter 7 trustee brought a turnover action to recover certain insurance proceeds which were paid to the debtor. The debtor made a jury demand in his answer to the turnover complaint. The turnover complaint was subsequently consolidated with litigation pending before the United States District Court for the District of Massachusetts.

The district court denied the debtor’s jury demand and the debtor appealed that decision. The First Circuit held that there is no jury right with respect to a turnover action brought under section 542 of the Bankruptcy Code. The court noted that there is no statutory right to a jury trial in section 542 actions brought by a trustee in district court and that the Bankruptcy Code fails to address the issue. Accordingly, the court looked to the Supreme Court’s decisions determining whether a jury right exists under the Seventh Amendment. Those decisions prescribe a three-part test which requires a court to: (1) determine whether the action involves rights that are legal or equitable in nature because the “Seventh Amendment applies to actions brought to enforce statutory rights [as opposed to equitable rights] that are analogous to common-law causes of action ordinarily decided in English law courts in the late 18th century;” (2) “examine the remedy sought and determine whether it is legal or equitable in nature”; and (3) if the first two prongs indicate the existence of a jury right then “decide whether Congress may assign and has assigned resolution of the relevant claim to a non-Article III adjudicative body that does not use a jury as factfinder.” The court observed that the second prong of the test is weighed more heavily than the first. The court then examined American legal history and determined that there was no common law turnover cause of action, that any analogous action was equitable in nature and that the remedy for a turnover action is also equitable. Accordingly, since the first two prongs indicate no jury right, the third prong was inapplicable.

The First Circuit then addressed the meaning of “ordinary course of business” for purposes of using, selling or leasing estate property under section 363 of the Bankruptcy Code. The court established a two-part analysis, the first part being a “horizontal dimension test” and the second being “a vertical dimension, or ‘creditor expectation,’ test.” The “horizontal” test requires a court to determine whether the transaction is common for the industry engaged in by the debtor. The “vertical” test assesses whether the transaction subjects a hypothetical creditor to economic risk that the creditor would find unacceptable when extending credit – in other words, the court must ask whether the transaction is “ordinary” to the creditor-debtor relationship. The purpose of the analysis is to determine whether creditors are entitled to notice and a hearing prior to consummation of the proposed transaction.

October 15th Hearings Scheduled on Amendments to Homestead and Personal Property Exemptions

Bills filed in both the Massachusetts House of Representative and the Senate to amend and update the Homestead exemption and the exemptions for personal property have been scheduled for hearing before Joint Committee on the Judiciary on Thursday, October 15th at 1:00 p.m. in Room A1.

A brief description of the bills, House Bills 1584 and 1585 and Senate Bill 1619 and links to the text of the bills are provided in a separate blog submission on this page. Members of the Bankruptcy Section are urged to express their opinion of the legislation and its effect upon consumers to the members of the Joint Committee on the Judiciary listed below, on or before October 15th :

Cynthia Stone Creem of First Middlesex and Norfolk- Chair
Steven A. Baddour of First Essex – Vice-Chair
Gale D. Candaras of First Hampden and Hampshire
Jack Hart of First Suffolk
Thomas M. McGee of Third Essex and Middlesex
Bruce E. Tarr of Essex and Middlesex
Eugene L. O’Flaherty of Chelsea – Chair
Christopher N. Speranzo of Pittsfield- Vice-Chair
James H. Fagan of Taunton
Colleen M. Garry of Dracut
Marie P. St. Fleur of Boston
John V. Fernandes of Milford
Katherine Clark of Melrose
James J. Dwyer of Woburn
Danielle W. Gregoire of Marlborough
Lewis G. Evangelidis of Holden
Daniel K. Webster of Pembroke

In submitting your comments to the members of the Joint Committee on the Judiciary, please make it clear that your comments reflect your own professional views, and should not be construed to reflect the position of the Boston Bar Association or the Boston Bar Association Bankruptcy Law Section.

2009-2010 Legislative Update: Homestead and Personal Property Exemption Bills

The following summary was prepared by Diane N. Rallis of Holland & Knight LLP and Susan Grossberg of the Law Offices of Susan Grossberg, co-chairs of the Law and Public Policy Committee. The summary reflects the professional views of the authors and does not reflect the position of the Boston Bar Association or the Boston Bar Association Bankruptcy Law Section. The summary is provided for informational purposes only and should not be construed as legal advice on any subject matter.
— The Editors

There are two bills currently pending this legislative session that update both the Massachusetts Homestead and Personal Property Exemption Statutes. The current versions of the Homestead (M.G.L. c. 188 §1, et seq.) and Personal Property Exemption (M.G.L. c. 235 §34) Statutes are greatly in need of modernization and the proposed updates would provide additional financial protections to individuals in Massachusetts. If ultimately passed, these bills will have a significant impact on the consumer side of bankruptcy practice in Massachusetts. Below are links to the text of the pending bills, as well as a summary of the proposed changes to the current statutes.

Homestead Legislation (House Bill No. 1584 and Senate Bill No. 1619:
An Act Relative to the Estate of Homestead)

Significant Proposed Changes to Homestead Statute

Automatic homestead protection, without the need for recording a declaration, in an amount not to exceed $125,000, which amount corresponds to some of the limitations on homestead exemptions enacted in 2005 in the Federal Bankruptcy Code as part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”). Individuals and families with more equity in their homes will still have a significant incentive to record a declaration to protect up to $500,000 of their equity (the amount of the declared exemption under current law).

Beneficiaries of trusts are entitled to homestead protection

Mortgages cannot terminate previously filed homesteads – instead, any provision in a mortgage that purports to terminate a homestead is deemed merely to subordinate the homestead to such mortgage

Proceeds from the sale of a home, or insurance proceeds, are entitled to homestead protection (for up to a year for sale proceeds, and two years for insurance proceeds)

Transfers among family members will not terminate a previously declared homestead – even if the homestead isn’t reserved in the deed

Manufactured homes are eligible for protection under all provisions of the statute

Massachusetts Personal Exemption Legislation (House Bill No. 1585: An Act Increasing the Value and Kind of Personal Property Exemption From Execution)

Significant Proposed Changes to Personal Exemptions Statute

Increases most of the personal property exemptions in order to partially adjust for the cost of living since the exemptions were last revised in the 1970’s. For example, the exemption amount in an automobile increases from $700 to $7,500.

Recommends new exemptions to account for items necessary to a modern household

Creates two new sections that provide for a “wildcard” exemption to cover personal property not covered by a more specific exemption and a limited exemption for jewelry

Includes an automatic triennial cost of living adjustment, which is crucial to keep the Massachusetts exemption scheme current

Brings the Massachusetts personal exemption statute more in line with other states

Boston Bar Association Bankruptcy Section Event

Thursday, October 22, 2009 – 6:00 pm
Boston Bar Association – 16 Beacon Street

Follow this link to sign up for this program.

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The Consumer Subcommittee of the Boston Bar Association’s Bankruptcy Section will be hosting a consumer rap session. Please join us for an informal discussion of the consumer practice from both creditor’s and debtor’s perspective. Refreshments will be provided

We look forward to seeing you at this event.

Summary of Proposed Amendments to Massachusetts Local Bankruptcy Rules

The following summary was prepared by D. Ethan Jeffery of Hanify & King P.C. and Kenneth S. Leonetti of Foley Hoag LLP, co-chairs of Practice and Procedure Committee. The summary reflects the professional views of the authors and does not reflect the position of the Boston Bar Association or the Boston Bar Association Bankruptcy Law Section. The summary is provided for informational purposes only and should not be construed as legal advice on any subject matter.
— The Editors

The United States Bankruptcy Court for the District of Massachusetts is considering proposed amendments to the local rules.
If adopted, the proposed amendments would take effect on December 1, 2009. Comments are due no later than October 2, 2009. Practitioners are encouraged to review the changes before they take effect. A redline version can be found at http://www.mab.uscourts.gov/pdfdocuments/2009LRA_BL.pdf. Some of the more notable proposed amendments are summarized below.
General Comment: The proposed amendments would change the time periods for most of the notices required to be given, hearings to be scheduled, responses to be filed, etc., under many of the existing rules.
  1. Where such time period previously was 20 days, the proposed amendments generally provide for 21 days;
  2. Where previously 15 days, the proposed amendments provide for 14 days;
  3. Where previously 10 days, the proposed amendments provide for 14 days (most notably with respect to the period for objecting/responding to motions under Rule 9013-1(d)); and
  4. Where previously 5 days, the proposed amendments provide for 7 days.

Rule 1007-1: Failure to file an original matrix of creditors within 3 court days of the order for relief shall be cause for dismissal under 11 U.S.C § 109(g).

Rule 1017-1(h): Time periods that had been set forth under previous rule for scheduling hearings on motions to dismiss/convert Chapter 11 cases are eliminated.

Rule 3007-1(b): The rule governing objections to claims is modified slightly to require the objecting party to file a proposed form of notice with blank spaces to set the deadline for filing responses.

Rule 3017-2: The rule governing the filing of a plan and disclosure statement in small business cases now references a new Local Form 15, which is a sample Combined Small Business Plan of Reorganization and Disclosure Statement for Small Business Debtor.

Rule 4001-1: The time limits for setting a hearing date on a motion to continue the automatic stay or to impose the automatic stay are eliminated. Similarly, service time limits for the motion and for the opposition to any such motion are eliminated.

Rule 4001-2: Cash Collateral and DIP Motions no longer need to be accompanied by the loan agreement governing the credit to be extended or a summary of the same. The Motion itself must set forth certain required information in Rule 4001-2.

Rule 4001-3: There is a new rule governing permitted billing and settlement communications. When the automatic stay applies, it shall be deemed lifted in order to enable a secured creditor or its agent, representative or nominee (excluding its attorney) to:

  1. send WRITTEN correspondence to the debtor, with a copy to debtor’s counsel, consisting of statements, payment coupons, notices, analyses or accountings of any payment defaults, the status of insurance coverage, tax payments, and/or municipal charges on property used as collateral and other such correspondence that the creditor typically sends to its non‐debtor customers; EXCEPT that such correspondence shall not make demand for payment or threaten foreclosure or dismissal of the case; and
  2. discuss and/or negotiate with a debtor a proposed modification of the terms of any secured indebtedness, including, without limitation, a home mortgage; EXCEPT that all such negotiations and/or discussions shall be conducted through counsel for the debtor, if the debtor is represented by counsel and such counsel has not, in writing, granted permission for such direct communication by creditor representatives with the debtor. The secured creditor shall terminate the foregoing communications immediately upon receipt of written notice from the debtor or debtor’s counsel requesting that such contacts cease. Further, nothing herein shall authorize a debtor or creditor to enter into any loan modification without court authority, so long as the property which is collateral for the loan is property of the estate under § 541(a).

Rule 4002-1: Requires the Debtor to bring the personal identification and financial information required by FED. R. BANKR P. 4002(b) to the §341 meeting of creditors.

Rule 4008-1: Requires a reaffirmation agreement to be accompanied by the cover sheet prescribed by Official Form 27 to be enforceable.

Rule 6004-1: Sets forth new procedures by which a request for authorization to sell estate property must be made including the requirement that a motion be filed; a defined list of persons upon whom the motion must be served; different procedures for private sales, public auctions and internet auctions.

Rule 9010-1: Allows an attorney representing, without compensation, an otherwise pro se debtor to file a limited notice of appearance and to decline representation in other matters. However, the attorney may not withdraw without leave of court.

Rule 9013-1(g): Emergency and expedited motions are treated similarly as opposed to distinct forms of relief. Several changes are made to the procedure for seeking determination on an emergency or expedited basis:

  1. The motion for relief and the request for expedited or emergency determination of the motion are to be filed together in a single document.
  2. A movant seeking determination of the motion within 3 days after it is filed shall include in the title of the motion “Request for Emergency Determination” (it was previously two days). A movant seeking determination of the motion within 7 days after it is filed shall include in the title of the motion “Request for Expedited Determination.”
  3. The motion shall set forth in separate numbered paragraphs the justification for expedited or emergency determination of the underlying request for relief.
  4. The movant shall make a reasonable, good faith effort to advise all affected parties of the substance of the motion for relief, the request for an emergency or expedited determination, and the date and time of the hearing. Such reasonable, good faith efforts may include providing notice by telephone, facsimile transmission or email in appropriate circumstances. Federal R. Bankr. P. 2002 and MLBR 2002‐1 govern who is an “affected party.” Notice, at a minimum, shall be provided to the debtor, the debtor’s counsel, any trustee, the trustee’s counsel, the United States trustee, any directly affected creditor, and any party that has entered an appearance or has requested notices. In addition, the caption of the motion shall indicate if there is a request to limit notice.
  5. Written responses to a motion for emergency determination are not required, but are encouraged and may be filed up to the time of the hearing. Written responses to a motion for expedited determination appear to be required. If the Court does not set a response time, responses to a motion for expedited determination are due no later than 3 days before the hearing.

Appendix 1 – Chapter 13 Cases: Several major changes are made to the Local Rules governing Chapter 13 cases, including objections to claims, filing proofs of claims, and seeking relief from the stay in such cases.

Appendix 8 – Electronic Filing Rules: These are mostly technical changes. The one substantive amendment is that attorneys who appear in no more than three cases per year need not file electronically and may file documents in paper form at the Clerk’s Office.

Official Local Forms: There are changes to most of the Official Local Forms.

2009 Proposed Amendments to the Massachusetts Local Bankruptcy Rules

Comments are invited, and should be submitted to Chief Judge Henry J. Boroff, United States Bankruptcy Court, 300 State Street, Springfield, MA 01105 and to the Hon. Joan N. Feeney, 1101 Thomas P. O’Neill, Jr. Federal Building, 10 Causeway Street, Boston, MA 02222, no later than October 2, 2009. Those who wish to email comments should do so at [email protected] and [email protected].

· 2009 Massachusetts Bankruptcy Local Rule Amendments
· 2009 Massachusetts Bankruptcy Local Rule Amendments (Red-Lined Version)

In submitting your comments to the court, please make it clear that your comments reflect your own professional views, and should not be construed to reflect the position of the Boston Bar Association or the Boston Bar Association Bankruptcy Law Section.

From the Editors: The BBA Bankruptcy Blog is Syndicated

As you may have surmised from our initial post, the Editors are very excited about the functionality and inherent possibilities that the blog format provides for the dissemination of information and bankruptcy related topics to the members of the Bankruptcy Section. One new feature that we are now adding to the BBA Bankruptcy Blog is the ability to subscribe to an RSS feed. By subscribing to an RSS feed, you will be able to choose how and when you wish to be notified of content changes and/or additions to the BBA Bankruptcy Blog.

RSS stands for “Really Simple Syndication.” In general, it is a way to distribute a brief notice or headline to a number of people thereby avoiding the need to repeatedly check a blog for new content. To subscribe to the BBA Bankruptcy Blog’s RSS feed, simply select the orange “subscribe to posts” button in the right hand column. You will be given the option to choose one of several “RSS aggregators.” An RSS aggregator automatically checks for RSS content on all internet sites that you subscribe to and are available in numerous formats that may be integrated into email programs, accessed through a browser or are a stand alone application on your computer. It only takes a moment or two to set up an RSS aggregator if you do not already have one.

The BBA Bankruptcy Blog is a work in process, and the Editors strive to provide you with timely news and information pertaining to the Bankruptcy Section and bankruptcy topics. Although the comment function for the blog is inactive, we welcome and request your comments. Together, we can make the BBA Bankruptcy Blog an informative tool for practitioners.

Brown Bag Lunch Event: Solvency Analysis in Today’s Economy

Tuesday, June 16, 2009 – 12:00 pm
Boston Bar Association – 16 Beacon Street

Follow this link to sign up for this program.

RSVP

In this session, Paul Marcus, Jaime Dalmeida, William Hrycay, all of Duff & Phelps Corp., will review the issues and challenges with establishing solvency in today’s unprecedented economic environment. Topics to be addressed include:

  • determining asset values in today’s environment,
  • assessing adequate capital in a market where sources of capital are drying up,
  • projecting cash flows in an economic recession, and
  • interpreting and using information on public companies in today’s economy.

We look forward to seeing you at this event.

So, now we have a blog.

The Bankruptcy Section of the Boston Bar Association is pleased to launch this new way of communicating with members of the section and those with an interest in bankruptcy law. The first BBA section to launch a blog, we are admittedly dipping our toes in these waters slowly. At the outset, we’ll use this blog as the next evolved form of the Section’s newsletter. (Whether this is a form of evolution, or just change, is a question we’ll leave to another day). We are not as interactive as many other blogs, and for now, the ability to comment is not enabled.

The BBA Bankruptcy Blog is designed to work alongside the bi-weekly email blasts section members receive from the BBA with news of the Bankruptcy Section’s programs and activities, BBA Week, and the section’s page on bostonbar.org. Here, you’ll find a mix of news about Bankruptcy Section and BBA events and initiatives, case squibs from selected decisions from the Massachusetts Bankruptcy Court, articles on bankruptcy topics, and occasional random musings and miscellany. The Editors welcome your feedback. Over time, we hope you’ll find the archive of these posts to be some combination of useful, entertaining, thought provoking and helpful.