5 years 2 months ago

Auday v. Wet Seal Retail, Inc., Case No. 12-5057 (6th Cir., Oct. 25, 2012) (recommended for full-text publication). 
As most bankruptcy practitioners know, a debtor’s pre-petition cause of action – whether for personal injury, breach of contract, or other claim – is property of the bankruptcy estate.  Now, the Sixth Circuit has clarified that only the trustee can file suit in connection with a Chapter 7 debtor’s pre-petition cause of action, unless the action is abandoned. Read More ›
Tags: 6th Circuit Court of Appeals, Chapter 7

5 years 2 months ago

On August 17, 2012, the new Making Home Affordable handbook 4.0 for non-GSE mortgages was released.

Jordan E. Bublick, Miami and Palm Beach, Florida, Attorney at Law, Practice Limited to Bankruptcy Law, Member of the Florida Bar since 1983

5 years 2 months ago

Wright v. Bank of Am., N.A., No. 10-cv-1723, 2010 U.S. Dist. LEXIS 73807, at *9-15 (N.D. Cal. July 22, 2010) - July 22, 2010, Judge Jeremy Fogel, of the United States District Court for the Northern District of California, held that borrowers are not intended third-party beneficiaries of the Servicer Participation Agreement and, therefore, lack standing to sue for an alleged breach of the agreement.

Hoffman v. Bank of America, N.A., No. 10-cv-2171, 2010 U.S. Dist. LEXIS 70455, at *8-14 (N.D. Cal. - Jun. 30, 2010. On June 30, 2010, Judge Susan Illston, of the United States District Court for the Northern District of California, held that borrowers are not intended third-party beneficiaries of the Servicer Participation Agreement and, therefore, lack standing to sue for an alleged breach of the agreement.

Simmons v. Countrywide Home Loans, Inc., No. 09-cv-1245, 2010 U.S. Dist. LEXIS 65031, at *7-115 (S.D. Cal. Jun. 28, 2010) On June 28, 2010, Judge John A. Houston, of the United States District Court for the Southern District of California, held that borrowers are not intended third-party beneficiaries of the Servicer Participation Agreement and, therefore, lack standing to sue for an alleged breach of the agreement.

Benito v. Indymac Mortgage Services, No. 2:09-cv-1218, 2010 U.S. Dist. LEXIS 51259, at *18-22 (D. Nev. May 21, 2010) (Attached as Exhibit 2).Judge Philip M. Pro, of the United States District Court for the District of Nevada, similarly held that borrowers are not intended third-party beneficiaries of the Servicer Participation Agreement and, therefore, lack standing to sue for an alleged breach of the agreement.

Marks v. Bank of America, N.A.,No. 3:10-cv-08039, 2010 U.S. Dist. LEXIS 61489, at *6-13 (D. Ariz. Jun. 21, 2010) On June 21, 2010, Judge James A. Teilborg, of the United States District Court for the District of Arizona, held that borrowers are not intended third-party beneficiaries of the Servicer Participation Agreement and, therefore, lack standing to sue for an alleged breach of the agreement. Jordan E. Bublick, Miami and Palm Beach, Florida, Attorney at Law, Practice Limited to Bankruptcy Law, Member of the Florida Bar since 1983

5 years 2 months ago

San Jose Chapter 13 Bankruptcy Committee Presentation on History of Bankruptcy and Debt in the WestThe Chair of the San Jose Chapter 13 Committee—a group of bankruptcy attorneys representing debtors in Silicon Valley—recently asked me and several of my colleagues to give presentations to the committee on the history of bankruptcy and debt in various cultures. I was asked to offer a brief history of bankruptcy and debt in Western society, from ancient times to our modern bankruptcy law in America. I’m sure all of my bankruptcy attorney colleagues covering this topic for other ancient and contemporary societies of the world would agree, a talk such as the ones we gave before the San Jose Chapter 13 Committee cannot possibly offer a comprehensive treatment of such a broad topic.
So my presentation was not intended to provide more than a cursory overview of some of the broader themes that have been associated with debt and bankruptcy in the West. The evolution of society’s attitudes toward debtors and bankruptcy through Western history follows a course of evolution from a highly stigmatized, criminal or quasi-criminal treatment of debtors to today’s more enlightened approach that recognizes the social value of offering a discharge of debt to those needing a fresh start. What follows below is a shortened, edited version of that presentation.
An Early Approach to Forgiveness of Debt
For ancient Hebrew society, among the 613 Commandments of Mosaic Law, was one that provided that every seven years, members of the community—but not foreigners—should be forgiven of all their debts. [1] This law was derived from the Book of Deuteronomy 15:1-3. These years of debt forgiveness were known as “Sabbatical” years. The year immediately following every seventh Sabbatical year (or 50th year) was known as a “Year of Jubilee” during which not only the debts of community members were forgiven, but likewise those of foreigners and even debt slaves were required to be freed.
This early approach of debt forgiveness in Hebrew society was something of an anomaly in its recognition of the social value in offering the periodic discharge of debt, however, in the ancient Western world. Ancient Greece and Rome took a decidedly harsher view of bankrupt individuals. It took until 1705 in England for discharge of debt to again become a regular facet of the legal treatment of debtors.
The Punitive Approach: Ancient Greece, Rome, and Medieval Europe
For centuries in ancient Greece, if an individual was unable to pay his debts then he, along with his wife, children and servants could be forced into servitude as debt slaves of the creditor until the debt was paid off.[2] However, this punitive approach toward the bankruptcy debtor eventually led to civil instability. As more and more ancient Athenians became debt slaves to their fellow Athenians, however, unrest rose to such a level that in 594 BCE significant concessions were made to the demos (people) including discharge of debts and the abolition of debt slavery.[3]
In ancient Rome, if one became insolvent and unable to pay his debts, Roman law “permitted the debtor’s creditors to dismember and distribute a debtor’s body to the creditors in proportion to the amount of debts owed to each.”[4] It is rather hard to see how such harsh punishment helped to compensate these ancient Roman creditors for their loss.
The term “bankruptcy” itself likely derives from late medieval and Renaissance Italy. The Italian “banca rotta” supposedly came from the term “broken bench.”[5] Merchants in the Italian city states of the time worked from a market stall or “bench.” According to folklore, if a merchant became insolvent, his creditors would literally break his bench.[6] While some question whether this actually happened, it is clear that the societal attitude toward the insolvent debtor that prevailed in Europe at the time was one that viewed the bankrupt as deserving punishment for his financial failure. However, according to Collier, the medieval Italians did offer some form of debt relief “for those who could not pay all their debts if they exposed their naked bodies in public and then banged their backsides on a public post while loudly proclaiming ‘I am bankrupt’ three times.”[7] While certainly shaming, this was preferable to the dismemberment of their Roman forebears. In France around the same time, debtors were required “to wear a Green Cap at all times so that others would know that they had not paid their debts.”[8]
England and the Colonies
Perhaps due to their Puritanical religious beliefs, the early American colonists were likewise contemptuous of, rather than sympathetic to, the economic plight of their community members who could not repay their debts. During this period, bankrupt debtors were often subjected to imprisonment, flogging, and “shaming practices, including publicly cutting the bankrupt’s hair, branding the debtor’s palm with the letter ‘T’ for ‘thief,’ and publicly piercing the debtor’s ear with a nail before cutting it off.”[9] These dour Puritans were after all the same people who burned witches at the stake, so their disdain toward debtors is hardly surprising.
In 1705, the concept of a discharge of debt finally made its way into English bankruptcy law, “when Parliament authorized creditors to grant a discharge as an inducement to cooperation.”[10] Nevertheless, the 1705 law did not allow bankruptcy debtors to initiate their own action for a discharge, and such a discharge was available only to commercial debtors, not individual consumers. Only involuntary, creditor-initiated bankruptcy was provided for under the law, and debtor prisons continued to exist in England until the 20th century. “In 1829, approximately 7,000 debtors were imprisoned in London. By 1921, the number had dwindled to about 400.”[11]
It would be unthinkable today, of course, for the vast majority of Americans to purchase a home, a car, or any other major purchase for cash, but while today nearly every commercial transaction may be financed on credit, personal credit was not widely available to the average person in ancient Greece, Rome or even in 18th Century England. In the case of the latter, personal credit was not only uncommon but frowned upon, “for the law holds it to be unjustifiable practice for any person but a trader to encumber himself with debts of any considerable value.”[12]
After the American Revolution, the framers of the U.S. Constitution specifically granted to Congress the power “To establish … uniform Laws on the subject of Bankruptcies throughout the United States.”[13] Indeed, James Madison wrote in No. 42 of the Federalist Papers that the “power of establishing uniform laws of bankruptcy is … intimately connected with the regulation of commerce…”[14] The attitude of the Framers, that bankruptcy goes part and parcel with the regulation of commerce, shows the beginning of a shift from a quasi-criminal treatment of bankruptcy debtors, to a more utilitarian approach that recognizes that there will inevitably be winners and losers in a market economy. Nevertheless, despite the fact that the Constitution specifically granted Congress the power to establish a federal bankruptcy law, it did not do so until the first Bankruptcy Act of 1800, which applied only to merchants, was enacted in response to major financial panics arising in 1792 and 1797 as a result of speculation. In those days, as bankruptcies were involuntary, there were no consumer bankruptcy attorneys as we have today to advocate for debtors. Many debtors had become imprisoned, including some “prominent citizens.”[15] In fact, two of the signers of the Constitution, Robert Morris and James Wilson had become deeply in debt. Morris spent three years in debtors’ prison until obtaining a discharge under the 1800 Act. Wilson, who was the first law professor at the College of Pennsylvania and appointed to the U.S. Supreme Court in 1789, fled Pennsylvania in order to avoid debtors’ prison. The 1800 Act was not intended to be permanent, but rather a short-term fix. Though it was set to expire in five years, Congress repealed it in 1803.
In fact, for the great majority of the nineteenth century in the United States, federal bankruptcy law did not exist, and debtors’ prisons still abounded. Two more temporary bankruptcy acts were later passed in 1841 and in 1867. The Bankruptcy Act of 1841 was again enacted in response to a financial crisis and it lasted less than two years. It did show shifting aims in public policy, however, in that for the first time American bankruptcy law provided for voluntary petitions by non-merchant debtors themselves.
The Bankruptcy Act of 1867 was again a reaction to economic crisis, this time brought about in the aftermath of the Civil War. It provided for both voluntary and involuntary bankruptcy petitions as well as petitions brought by non-merchant individual debtors. Individual bankruptcy involved a liquidation of his assets but allowed for $500 of exempted assets such as one’s necessary household and kitchen furniture, and clothing for his wife and children. Again, however, the Act was short lived. The 1867 Act was repealed in 1878 leaving American debtors again without a federal bankruptcy law.
The Bankruptcy Act of 1898, Congress’s fourth attempt at a uniform bankruptcy law for the country, remained the bankruptcy law of the land until the Bankruptcy Reform Act of 1978—the basis of today’s Bankruptcy Code. The 1898 Act eliminated the requirement that a debtor’s creditors give consent to his discharge and it did allow for state exemptions for a debtor’s assets.
Conclusion: Toward a More Civil, Pragmatic Approach
The partial removal of morality from the concept of bankruptcy, it can be argued was both a consequence of the rise of secularism after the European Enlightenment and also of the rise of capitalism. Although, dependent as the latter was on the former, this statement may seem redundant. As the concept of a “bankruptcy discharge” gained favor periodically during the 19th century in America, those arguing for it, “argued that society needed the discharge to protect risk-taking entrepreneurship, the sinew of a dynamic economy.”[16] In fact, such arguments had nothing to do with debt forgiveness as a benefit to consumers or the public at large, but rather as a safe guard for entrepreneurs. “The argument for bankruptcy as a risk-protection device paralleled the argument for limited liability in corporate law.”[17]
In the end, we must acknowledge that if the modern view of debt and bankruptcy has shed some of its quasi-criminal and highly stigmatized treatment of debtors, this is in part due to the fact that the creditor-debtor relationship has changed fundamentally. In modern capitalist societies—not just those of the West—the risk equation has changed drastically to favor the creditor at least as between institutional creditors and ordinary consumers. There has always been risk in lending to another. That risk is voluntarily assumed by the creditor under a calculus that while some borrowers will always default, the creditor will still on average enjoy the reward of repayment with interest. Today, the risk inherent in lending and extending credit has been allocated between the parties to the relationship much differently than it was in ancient Greece, Rome, or medieval and Victorian Europe. Today, institutional creditors, such as credit card companies, enjoy enormous bargaining power, are able to charge interest rates that would have shocked the conscience of earlier generations, and can rely on an insurance and reinsurance system to minimize their losses. No one denies that the financial services “industry” is more profitable than it has been at any time in human history despite the fact that debt is now a more widespread part of the human condition than at any time in human history. Furthermore, as individual consumer purchases drive approximately 70% of the U.S. economy, and given that without readily available personal credit an enormous amount of such economic activity would grind to a screeching halt, the availability of personal credit is now utterly essential to our economy.
It is today inappropriate then for modern civil society to stigmatize debt and bankruptcy on moral, quasi-religious grounds, precisely because creditors have gained such an enormous advantage over the average consumer and because modern consumer society would not function without widespread, readily available personal credit. In other words, it is disingenuous for the financial services “industry” to cry over comparatively small losses arising from debt discharged in bankruptcy when they have essentially shifted nearly all the risk of such loss back to the consumer. Losses that creditors incur due to default and bankruptcy have already been “baked in” to their business model, and they still enjoy enormous profit.
Obviously, there are certain areas of bankruptcy law that correctly penalize wrongful or fraudulent acts of debtors. These corners of bankruptcy law still provide for harsh punishment for those who attempt to lie or cheat in a bankruptcy proceeding or in the period leading up to one. In my experience such instances are relatively rare, and experienced bankruptcy attorneys are usually able to spot and screen such clients. While the possibility of criminal prosecution exists for such extreme examples, I would argue that for the vast majority of consumer bankruptcies today, involving honest debtors who for myriad reasons arising from the structure of our modern economy cannot pay some or all of their debts, bankruptcy lawyers, judges and trustees should take great care to avoid thinking about debt and debtors in moralistic terms.
Unfortunately, there remain legacy vestiges of such piety (and its urge to punish the debtor) riddled throughout the Bankruptcy Code. These generally come in the form of “gotcha” pitfalls that ensnare the bankruptcy debtor for innocent acts prior to filing bankruptcy such as the longer look-back period for repayment of debts to insiders provided in Bankruptcy Code §547(b)(4)(B) or the harsh definition of fraudulent transfers under Bankruptcy Code §548 even when the transferred item could have been exempted and there was no fraudulent intent. If we are to be intellectually honest about the reasoning behind the treatment of such constructively fraudulent transfers, and recognize that where the debtor could have exempted the transferred item, then we must acknowledge that the underlying motive for the rule is not to benefit creditors but rather to punish debtors. Additionally, the extraordinary favor granted to creditors owning even private student loans (as of BAPCPA) without a government guarantee whereby the same are more difficult to discharge than debts owed to the U.S. Treasury is nothing short of a lop-sided give-away to private banks without any public policy justification. Finally, the mere fact that a voluntary Chapter 7 cannot be dismissed as a matter of right, is something of a bizarre peculiarity in modern jurisprudence. These are just a handful of oddities that show a remaining punitive, moralistic legacy in our bankruptcy law.
In the end, however, we have come a long way since the dark days of debtors’ prisons, and our modern American bankruptcy law provides greater balance for the interests of creditors, debtors, and society at large than at any time in Western history.

[1] See

[2] Id.

[3] David McNalley, Greek Lessons: Democracy Versus Debt Bondage,

[4] Alan N. Resnick and Henry J. Sommer, eds., Collier on Bankruptcy, 16th Ed., 20.01[1] (2009 update)

[5] Id.

[6] Juliet M. Moringiello, Bankruptcy Issues, Law and Policy, 6th ed., American Bankruptcy Institute, 155 (2010)

[7] See Resnick and Sommer, supra at 20.01.

[8] Id.

[9] Rafael Efrat, Bankruptcy Stigma: Plausible Causes for Shifting Norms, 22 Emory Bankr. Dev. J., 481, 482, (2006)

[10] See Moringiello, supra, at 155.
[11] Martin A. Fray and Sidney K. Swinson, Introduction to Bankruptcy Law, 6th ed. (2012) at 2.

[12] 2 William Blackstone, Commentaries on the Laws of England *473-74, as quoted in Rafael Efrat, The Evolution of Bankruptcy Stigma, 7 Theoretical Inq. L. 365, 369 (2006).

[13] U.S. Const. art. 1, §8, cl. 4

[14] The Federalist No. 42, at 271 (James Madison) (Clinton Rossiter ed. 1961), cited in Resnick and Sommer, supra at 20.01[2].

[15] See Fray and Swinson, supra.

[16] See Moringiello, supra at 156
[17] Id.

5 years 2 months ago

Moyer v Koster et al (In re Przybysz), Adv. Pro. Case No. 12-80174 (Hon. Scott W. Dales, Sept. 25, 2012).
A recent decision from the Bankruptcy Court of the Western District of Michigan serves as a lesson and reminder to attorneys that complaints must do more than recite legal conclusions – they also must allege sufficient facts to put defendants on notice of the claims and of possible defenses. Read More ›
Tags: Chapter 7, Western District of Michigan

5 years 2 months ago

Filing any type of bankruptcy will require you to attend a 341 meeting – often referred to as the meeting of creditors, though creditors rarely make an appearance.  If you filed a Chapter 7 or Chapter 13 bankruptcy, the trustee administering your case will conduct the hearing. If you file a Chapter 11, the U.S. Trustee, or at least one of her staff attorneys, will be conducting the hearing.  To prove that you are who you say you are, the U.S. Trustee requires two forms of identification, one of which is a government issued paper with your social security card on it. Unfortunately, that little wallet sized card is often misplaced or lost prior to the hearing, so in a pinch, a W-2 or a pay stub from your employer will work, though a self-prepared tax return will not, as that was not issued from a third-party. 
The best option is to always have a copy of your social security card with you.  I’ve lost mine before. When I wanted to replace it, I drove down to the nearest social security office in Atlanta and fill out the appropriate paperwork.  I had to stand in line for about 20 minutes, but the whole process took about an hour.  I received a new card in the mail within 10 days. Be sure to bring your driver’s license or passport with you.  Again, if you are in a pinch, a W-2 will typically satisfy most trustees identification requirements.

5 years 2 months ago

I'd like to share a paper that I wrote earlier this year for ABI's student writing competition.  It's about the lack of life tenure for Bankruptcy Judges.

Thirty Years Later: Revisiting Marathon and the Case for Allowing Bankruptcy Judges Life TenureJohn P. MorganCatholic University of America School of LawWashington,
            On June 28, 1982, a divided United States Supreme Court decided the case of Northern Pipeline Construction Co. v. Marathon Pipe Line Co.,[1]immediately sending Bankruptcy Judges throughout the country into a panic over the future of their jobs.  The Marathon Court’s holding that the Bankruptcy Courts could not constitutionally be vested with the powers they received under the 1978 Bankruptcy Act because they were not Article III judges limited the power of bankruptcy judges, such that they could hear only “core proceedings” under the bankruptcy code resulted in a period of uncertainty over a number of issues including the jurisdiction of bankruptcy judges to hear cases and the ability of bankruptcy judges to preside over jury trials, some of which still have not received definitive answers to this day.             The concern of this paper, however, is the lack of Article III status for bankruptcy judges, which would result in those judges having life tenure, along with other benefits such as protection against salary reduction.  This paper argues that an overreaching opinion in the Marathon case, combined with political pressures bestowed upon Congress, has wrongfully deprived bankruptcy judges from reaching the status of Article III judges.  This result is unfortunate, given that giving bankruptcy judges Article III protection would be both more efficient for bankruptcy litigants, and more equitable for the bankruptcy judges themselves.  On the thirtieth anniversary of the Marathon case, it is worthwhile to take another look at its decision, as the lasting impact of its holding continues to affect the authority and power of bankruptcy judges today. The Marathon Case
            1978 marked significant changes in the law of Bankruptcy with Congress’ passage of the Bankruptcy Reform Act.[2]  This changed the prior system of Bankruptcy Jurisdiction that had previously existed in the United States, under which bankruptcy referees were entrusted with powers such as adjudicating legal disputes and confirming the appointment of a trustee.[3]  The new 1978 system, while declining to extend Article III status to bankruptcy judges,[4]established a system of expanded jurisdiction for bankruptcy jurisdiction where the bankruptcy courts were “adjuncts” to the district courts, and additionally gave the judges extended protections, including 14-year appointments by the President,[5] restrictions on removal under which the judges could be removed only for “incompetency, misconduct, neglect of duty, or physical or mental disability,”[6]and a salary, subject to adjustment under the Federal Salary Act of 1967.[7]  Additionally, under the 1978 Act bankruptcy judges had the broad powers “to hear and adjudicate all claims arising in or relating to bankruptcy cases.”[8]            These circumstances led to the issue in the Marathon case.  Northern Pipeline Construction Co. was a Chapter 11 debtor in the United States Bankruptcy Court for the District of Minnesota, and subsequently brought suit in that same court for breach of contract and breach of warranty against Marathon Pipe Line Co.[9]  In response, Marathon moved to dismiss the suit, arguing that the 1978 Bankruptcy Act conferred unconstitutional authority to bankruptcy judges which are reserved to Article III courts.[10]  The court denied this motion,[11]and the case was eventually appealed to the Supreme Court.             The Court held that the Bankruptcy Act of 1978 “carries the possibility of such an unwarranted encroachment” upon Article III’s principle of separation of powers, since a non-Article III “adjunct” such as the bankruptcy court cannot infringe upon the cases and controversies reserved to Article III courts.[12]  Additionally, the Court found that the jurisdiction given to bankruptcy judges under the 1978 Act infringed upon rights created by state law in breach of contract and misrepresentation.[13]  In short, the Court held that § 1471 of the 1978 Act, which granted broad jurisdiction to bankruptcy judges, “impermissibly removed most, if not all, of ‘the essential attributes of the judicial power’ from the Art. III district court, and has vested those attributes in a non-Art. III adjunct,”[14]and was accordingly struck down as unconstitutional.            Having decided that the jurisdiction granted to bankruptcy judges under the Act was unconstitutional, the Court next considered whether the holding “should be applied retroactively to the effective date of the Act.”[15]  The Court declined to apply it retroactively, reasoning that such application would incur hardship, and instead chose to have its holding take effect on October 4, 1982, in order to give Congress an opportunity to “to reconstitute the bankruptcy courts or to adopt other valid means of adjudication, without impairing the interim administration of the bankruptcy laws.”[16]  The result of this was an Emergency Model Local Rule taking effect for the next two years until Congress passed the Bankruptcy Amendments and Federal Judgeship Act (BAFJA) in 1984.[17]            Although Marathon holds that the system as established by Congress was unconstitutional, the Court nevertheless holds in dicta that it cannot “discern any persuasive reason, in logic, history, or the Constitution, why the bankruptcy courts here established lie beyond the reach of Art. III.”[18]  Thus, had Congress decided to go all the way with the protections afforded to bankruptcy judges and extended Article III  status to them, the Marathon  Court strongly suggests that such a decision would have been constitutionally valid.  Although “the functions of the adjunct must be limited in such a way that ‘the essential attributes’ of judicial power are retained in the Art. III court,”[19]that is not to say that the bankruptcy court itself could not be one of those Article III courts.             The main problem with the holding in Marathonis perhaps best explained by the dissent written by Justices White, joined by Chief Justice Burger and Justice Powell.  Justice White dissented from the plurality’s opinion on the basis that, among other reasons, “there is no basis for doing more than declaring the section unconstitutional as applied to the claim against Marathon, leaving the section otherwise intact.”[20]  Essentially, White’s charge is that the plurality failed to exercise constitutional restraint in rendering their opinion.  Beyond that, however, Justice White gave reasons for which he felt that the new system established by Congress in 1978 was not a significant departure from the bankruptcy procedure previously in place: he noted that bankruptcy referees could “adjudicate counterclaims against a creditor who files his claim against the estate,”[21]and that “under both the old and new Acts, initial determinations of state-law questions were to be made by non-Art. III judges, subject to review by Art. III judges,”[22]concluding that “there is very little reason to strike down § 1471 on its face on the ground that it extends, in a comparatively minimal way, the referee’s authority to deal with state-law questions.”[23]  In sum, then, Justice White believed that the Court’s plurality answered a question they were not called on to ask in Marathon, and further failed to see the Bankruptcy Act of 1978 in its accurate historical context.In subsequent years, the Court itself has narrowed the initially-broad holding of Marathon,[24]giving further weight of authority to these dissenting opinions.  Perhaps, then, Marathon represents the high watermark of the Court’s willingness to remove jurisdiction from bankruptcy judges, and Justice White’s dissenting opinion is more accurate of the way in which the Court would adjudicate an issue such as the one in Marathon today: with a greater degree of judicial restraint. Political Pressure
Justice White wrote in his Marathon dissent that “[b]ankruptcy matters are, for the most part, private adjudications of little political significance.”[25]  Unfortunately, Congress did not feel the same way.  Due to the fears that the current Republican Congress would have over the bankruptcy judges that President Obama would likely appoint to the courts, many of the political reasons that existed nearly thirty years ago to stop bankruptcy judges from receiving Article III status likely continue to exist today.  In 1978, Congress did discuss and consider giving bankruptcy judges life tenure, consistent with the privileges associated with Article III judges.  In fact, the bill that passed through the House of Representatives would have given bankruptcy judges life tenure.[26]  The Senate, however, did not accept this provision, and instead gave them a fixed term of fourteen years.[27]  The Senate apparently declined to give life tenure to bankruptcy judges, at least in part, due to then-Chief Justice Burger’s urging them not to, on the thought that an overload of Article III judges would diminish the prestige of the courts,[28]which is interesting givien the lengthy dissent he joined in Marathon, as well as the short dissent he wrote on his own.[29]  While such concerns comprise the official explanation as to why Congress declined to extend Article III status to bankruptcy judges, there is a plausible argument to be made that the refusal was made more as a result of political concerns.  Specifically, one suggestion is that “expansion of the federal judiciary occurs during political alignment because expansion offers the controlling party an opportunity to appoint judges who share its political views and to dilute the influence of the sitting judges who do not.”[30]  While a response to this argument is that it is unlikely that Congress is overly concerned over the political stances of bankruptcy judges,[31] it is worth noting that if bankruptcy judges were appointed Article III judges, they would once again have the broad grant of jurisdiction which they enjoyed pre-Marathon, and would also be appointed by the President for life terms to adjudicate such broad claims.  Having so many hundreds of judges appointed by a single President at one point in time would be a frightening proposition for any Congress in opposition to the sitting President’s political party. In addition to refusing to give bankruptcy judges Article III status in the original Bankruptcy Act of 1978, Congress once again decided not to make bankruptcy judges Article III judges when it had another chance to in 1984.  At this point, it passed the Bankruptcy Amendments and Federal Judgeship Act (BAFJA) of 1984, the time at which the Emergency Model Local Rule expired.[32]  As a result of BAFJA, although bankruptcy judges are still appointed for fourteen-year terms, they are now appointed by the United States Courts of Appeals, rather than the President.[33]  Rather than allowing bankruptcy judges Article III status under the Constitution, Congress decided to term bankruptcy judges as non-Article III “units” of the district court.[34]  Under the 1984 system, when district courts received bankruptcy cases, they would refer the cases to their adjuncts in the local bankruptcy court.  Additionally, BAFJA kept the bankruptcy court’s broad jurisdiction of matters “related to” a bankruptcy case, although the bankruptcy judge’s adjudication of a matter related to, but not a “core proceeding,” has limited precedential value in the federal court system.[35]  Interestingly, although it took only four years for the constitutionality of the Bankruptcy Reform Act of 1978 to reach the United States Supreme Court, the constitutionality of the BAFJA still has not reached the high court to this day, twenty-eight years later. Should Bankruptcy Judges Have Life Tenure?Giving Article III status to bankruptcy courts would be both practical and efficient.  A cogent explanation for the reasons why bankruptcy judges should be reclassified under Article III can be found in a 1997 report by the National Bankruptcy Review Commission.[36]  Two of the main purposes for which the report advocates are to make the system “more efficient and [to] reduce its costs.”[37]  The current jumbled system for bankruptcy adjudication has several characteristics which are well-described as inefficient, such as the determinations which must be made about whether a case is a “core” or “noncore” proceeding, and the referral from the district court to the bankruptcy courts in appropriate cases. Recharacterizing bankruptcy courts as Article III courts would allow such proceedings to move directly to the bankruptcy courts, rather than having to be referred by the district courts, since, as Article III courts themselves, they would not need to be put through that filter, nor would they have to spend time determining which cases are and are not core proceedings. The substantial costs and labors of these processes would also be eliminated, a characteristic the system should strive for in a less-than-ideal economy where bankruptcy filings are relatively common.  That time and expense would better be served by solving the merits of bankruptcy cases, but, unfortunately, Congress has yet to give any signs that it is considering such a move. The Federal Constitutional specifically mentions that the Congress has the power to “establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States.”[38]  Bankruptcy law, thus, is an enumerated power of federal law, meant to be uniform throughout the country, which the states may not legislate upon.  With that being the case, it makes more sense for these judges of federal law to have the same benefits as do the district court judges, for whom the bankruptcy judges serve as adjuncts. Further, among the Article I courts, bankruptcy courts are geographically unique.  Other Article I courts are largely territorial.  Several of them, including the United States Court of Federal Claims,[39]and the United States Tax Court,[40]are located in Washington, D.C. exclusively, and adjudicate matters of federal law.  Other Article I legislative courts have been created for federal territories to adjudicate matters that would otherwise take place in state courts, including the courts in Guam, the Northern Mariana Islands, the Virgin Islands, and the District of Columbia.[41]  Thus, bankruptcy courts are unusual in their geographic disbursement throughout the country; although federal magistrates, too, fall under the category of Article I judges,[42]  they do not fuse together to form their own court.  For this reason, with their condition of being dispersed throughout the United States as a “unit” to each of the district courts, the federal courts that are, at least geographically speaking, the most similar to the bankruptcy courts, it would be equitable to give these bankruptcy judges the same status and benefits for their counterparts in the district courts. One argument against giving bankruptcy judges Article III status is to preserve the prestige of the Article III federal courts.  Essentially, the thought is that in order to maintain esteem on the federal bench, the raw number of judges who hold the distinction of Article III judges should be kept low, in order to keep the positions competitive, attracting the best candidates.[43]  This argument fails for a number of reasons.  First, it presumes that bankruptcy judges, individuals who also hear claims under federal law, are for some reason inferior to United States district court judges.  Constitutionally speaking, both the district courts and the bankruptcy courts are “inferior” courts to the Supreme Court;[44]there is no reason to believe that the bankruptcy courts are similarly inferior to the district courts.  Rather, many current bankruptcy judges (as well as litigants) would likely find offense to such a notion, considering the frequency of bankruptcy claims, as well as the fact that bankruptcy law is also federal law. Another argument put forward against giving bankruptcy judges Article III status is that their position does not require it in order to achieve judicial independence.[45]  The thought is that since bankruptcy judges are appointed by other federal judges, as opposed to the President, the appointments and reappointments of judges to the bankruptcy courts are less likely to be made with political considerations, and, instead, are more likely to result in judges who are appointed because of their higher qualifications.[46]  There is, however, a valid counterargument to these points.  Rather, judges who are in the position of being appointed for a certain period of time, and then have the possibility of later being reappointed, are more likely to act in a partisan manner which would more safely assure their reappointments.  Although the appellate judges who choose such appointments concededly may be less likely to let such political factors influence their decisions than the President or the electorate,[47]this by no means establishes that the bankruptcy judges will not act in ways simply to enhance their chances of being reappointed by the appellate judges, even if they are mistaken in their beliefs. Conclusion
While Marathon is clear that bankruptcy judges may not adjudicate certain issues because they lack Article III status, the solution to this problem is relatively simple: Congress should use its constitutional authority to make bankruptcy courts “inferior Courts” under Article III of the Constitution.  Although bankruptcy judges in the United States enjoy a position in the federal court system that is structurally more similar to the U.S. District Court than any other, bankruptcy judges have been denied life tenure and other benefits seemingly for political, rather than legal, reasons.  Although Congress declined to extend Article III status to bankruptcy judges in either 1978 or 1984, the current Congress should nonetheless retreat from its prior choice and extend the protections to bankruptcy judges.  Though the bankruptcy courts are currently characterized as “units” of the District Courts, this is not to imply that they are inferior to their counterparts.  To the contrary, the fact that they are so-called “units” of the District Court, as well as the fact that the bankruptcy judges are appointed by Article III judges themselves in the Federal Court of Appeals judges, shows that the position of the bankruptcy courts is more analogous to Article III courts than to Article I courts, with the obvious exception to that being the lack of Article III protections for bankruptcy judges.  Unfortunately, due to the overbreadth of the plurality opinion in Marathon, as well as the political fear of the President’s choosing bankruptcy judges who fail to satisfy Congress, bankruptcy judges are unlikely to be granted Article III protection at any time in the near future, despite the efficiency and equitable results which would occur if Congress decided to do so.  In the end, the issue is not whether bankruptcy judges may become Article III judges; the Supreme Court has said relatively clearly than they can.  However, it appears that the Supreme Court’s decision in Marathon is that Congress should pick one: bankruptcy judges fall under the category of either Article I judges or Article III judges, and some sort of hybrid status between the two, such as that found in the Bankruptcy Reform Act of 1978, is unconstitutional.  Regardless of whether or not the Supreme Court was right to answer the questions that it did with the facts before it in Marathon, it has left Congress to decide what to make of the bankruptcy judges. Unfortunately, based on its declining to give Article III status in both 1978 and 1984, and with no indications of a change in stance, the current, relatively inefficient system appears to be in place for the foreseeable future.
[1]458 U.S. 50 (1982).  The Court failed to reach a majority opinion, and instead issued a plurality opinion authored by Justice Brennan, joined by Justices Marshall, Blackmun, and Stevens. [2]Bankruptcy Reform Act of 1978, Pub. L. No. 95-598, 92 Stat. 2549 (1978)(repealed 1984). [3]Troy A. McKenzie, Judicial Independence, Autonomy, and the Bankruptcy Courts, 62 Stan. L. Rev. 747, 758 (2010). [4]Charles J. Tabb & Ralph Brubaker, Bankruptcy Law Principles, Policies, and Practice 757 (3rd ed. 2010). [5]Erwin Chemerinsky, Federal Jurisdiction 244 (4th ed. 2003).  .
[6]Id.  This standard is much narrower than Article III’s allowing judges to stay in offices “during good Behavior.” See U.S. Const. art. III, § 1. [7]Id. [8]Charles S. Custer, Bankruptcy Judges: Article III Beckons, 16 Pac. L.J. 957, 957 (1985). [9]Marathon, 458 U.S. at 56. [10]Id. at 56-57. [11]Id. [12]Id. at 84. [13]Id. [14]Id. at 87. [15]Marathon, 458 U.S. at 87. [16]Id. at 88. [17]Tabb & Brubaker, supra note 4, at758. [18]Marathon, 458 U.S. at 76. [19]Id. at 81. [20]Id. at 95. (White, J., dissenting). [21]Id. at 99. [22]Id. at 100. [23]Id. [24]Susan Block-Leib, The Costs of a Non-Article III Bankruptcy Court System, 72 Am. Bankr. L. J. 529, 530 (1998).  For a case that gives an example of this, see generally Thomas v. Union Carbide Agric. Prods. Co., 473 U.S. 568 (1985). [25]Marathon, 458 U.S. at 116. [26]Chemerinsky, supra note 5, at 244. [27]Id. [28]Id. [29]This divergence can best be reconciled as positing that while Chief Justice Burger did not believe that bankruptcy judges need Article III status, they could adjudicate with the same authority while remaining Article I judges.   [30]Eric A. Posner, The Political Economy of the Bankruptcy Reform Act of 1978, 96 Mich. L. Rev. 47, 87 (1997). [31]Id.  This is the position that the author of the referenced Article, Professor Posner, takes. [32]Tabb & Brubaker, supra note 4, at 758. [33]Chemerinsky, supra note 5, at 249. [34]Tabb & Brubaker, supra note 4, at 758-759. [35]Tabb & Brubaker, supra note 4, at 759.  Such decisions are restricted to submissions of proposed findings of fact and conclusions of law, unless the parties consent otherwise.  Similarly, this standard of both parties consenting to it is the standard used for determining whether bankruptcy judges can hear jury trials, along with the additional requirement that the bankruptcy judge has been “specially designated” by the district judge.  See 11 U.S.C.A. 157(e). [36]National Bankruptcy Commission, Bankruptcy: The Next Twenty Years (1997).  [37]Id.  See Section: Preface. [38]U.S. Const. art. I, § 8. [39]United States Court of Federal Claims, (last visited Mar. 1, 2012). [40]United States Tax Court, (last visited Mar. 1, 2012). [41]Chemerinsky, supra note 5, at 29. [42]Id. at 30. [43]For a fuller discussion of this argument, seeAnthony Michael Sabino, Jury Trials, Bankruptcy Judges, and Article III: The Constitutional Crisis of the Bankruptcy Court, 21 Seton Hall L. Rev.258, 330-331 (1990).  This article also discusses how at that time, twenty-two years ago, it was all the more important for bankruptcy judges to have Article III status because of the economy at the time, and that more entities would be seeking protection under the bankruptcy laws as a result.  This point is even more exacerbated today with the dramatic increase in the number of bankruptcy filings since that point in time. [44]U.S. Const. art. III, § 1, supra note 6.               [45]For a complete discussion of this argument, see generally Thomas A. Plank, Why Bankruptcy Judges Need Not and Should Not be Article III Judges, 72 Am. Bankr. L.J. 567 (1998). [46]Id. at 623-624. [47]Id. at 622-623. 

4 years 6 months ago

RC Willey is a very common creditor of bankruptcy filers. However, RC Willey is not your common unsecured creditor. Rather, RC Willey is a secured creditor, like the lien holder on your car or home. As a secured creditor, RC Willey has the right to repossess the collateral (the items you purchased) if you stop making payments, even if you have filed bankruptcy. RC Willey is often the only creditor to show up to the 341 meeting of creditors with the bankruptcy trustee. RC Willey likes to send a representative to the meeting to ask the debtor if he/she wants to reaffirm the debt and keep the items, or arrange for a time to surrender the items. These representatives are usually quite nice, and aren't there to badger you, but rather to present options to you. Often, if the items were purchased a long time ago, you have the option to pay a lesser amount then the contract amount.  Your attorney will help you decide which options is the best for you.

Adam Brown is a bankruptcy attorney for Dexter & Dexter, a debt relief agency helping people file for bankruptcy.

5 years 2 months ago

Sometimes simpler is not better.  Sometimes cheaper is more expensive in the long run.  Those thoughts occurred to me after meeting with a new client regarding her financial problems.  The client, a 61-year-old single women earning $14 per hour, was struggling to pay $9,000 of credit cards.   Her income had declined after a change in jobs and there was simply not enough money left over to pay the credit cards after paying the mortgage, utilities, the car payment and a home equity loan she obtained to pay off previous credit card balances.
On the surface, this was an easy Chapter 7 case.  I say that because she was well below the Nebraska median income level of $40,429 and she had no unprotected assets.  To file Chapter 7 a person’s income  cannot be too high and they can protect only so many assets.  This client had no problems with either of these issues and I believe most attorneys would have recommended that she file Chapter 7 to alleviate the monthly credit card payments. 

this client did not belong in a Chapter 7 case and the cheapest attorney hired would probably be the most expensive choice in the long run

Some clients may have elected to file their own case based on these factors to save themselves the cost of hiring an attorney, and since this is an easy Chapter 7 the only real difference in the attorney chosen would be the price they would charge.  The only problem with this view is that this client did not belong in a Chapter 7 case and the cheapest attorney hired would probably be the most expensive choice in the long run.
My recommendation is that the client file Chapter 13.  I make this recommendation based on the following facts:
Chapter 13 Lien Stripping: The client owned a home worth $86,000 that was subject to a mortgage loan of $96,000 and a Home Equity Line of Credit (i.e., a second mortgage) of $8,500.  By filing Chapter 13 the client would be able to strip the home equity loan.  Lien Stripping is a procedure to discharge and remove a second mortgage through the bankruptcy process, and that option is not available in Chapter 7.  So, filing Chapter 13 removes an additional $8,500 debt.
Chapter 13 Cramdown: The client owed $18,000 for a truck purchased in 2007, and the value of the truck today was only $12,000.  Chapter 13 allows a debtor to pay only what the vehicle is worth today if the vehicle was purchased more than 910 days (about 2.5 years) prior to the bankruptcy.  In addition, Chapter 13 allows a debtor to pay a lower interest rate on the vehicle loan of 5.25%.  In this case, the monthly bankruptcy payment would be less than what the client was currently paying on the truck loan each month.
As you can see, Chapter 13 saves the client an additional $8,500 on the home equity loan and $6,000 on the vehicle loan plus all the associated interest savings.  Although Chapter 7 is faster (cases are completed in about 90 days) and cheaper in the short run, a 3 to 5 year Chapter 13 is clearly the better option in this case.  Sometimes simpler is not better.  Sometimes cheaper is more expensive in the long run. 

5 years 2 months ago

Living from paycheck to paycheck?  Had a major expense recently but not enough funds to cover it?  Are you frequently overdrawn at the bank?  Being desperate for cash can turn you into a victim.  Here are three things to do to avoid letting desperation keep you broke.
Deferred presentment agreements, or as we all know them, payday loans, have become the modern day loan sharks.  Typically, the agreement requires you to write a check to the business to hold and, in exchange, the company loans you amount of the check for a short time then they deposit the check to pay themselves back for the loan. The problem is, if you have to renew the loans, the company will charge you an astronomical interest rate just for holding your check.  Recently, I saw a contract from a local Montgomery, Alabama payday lender that charged the customer 425.83% interest!  The customer signed the contract because he was desperate for the money to pay his power bill.  Remember, desperation is never a good reason to sign a contract.
Ok, let’s say you need a sofa but you don’t have the $600 to buy one from the quality furniture store.  Then let’s say someone told you they had a couch that was not made well but they will let you rent it for a year for $200 a month.  If we do a little simple math, we can see that in three months’ time, you have paid enough for the low quality sofa to have purchased the new sofa outright.
That’s not the worst part, however.  You are still stuck with the sofa you are renting for another year.  Would you rather pay $2400 for a low quality sofa or $600 for a high quality sofa?  Save the money you would pay the rent-to-own company and sit on the floor until you have the money to purchase a good sofa for cash.
The number one way to avoid predatory lenders is to not be desperate for money in the first place.  Desperation is expensive.  When you don’t have savings to fall back on, your desperation can cause you to enter into some really abusive contracts.  Don’t let it happen.  If you have even a small nest egg, you can avoid being a victim of your desperation.  Start now to cut back on those things you don’t really need and put the money you save in a savings account. Here is an example.
Recently, my husband and I made the decision to cancel cable and keep the internet.  We invested in a $30 Leaf HD antenna for our local Montgomery news and weather (in HD, no less!) and use Netflix for movies.  In a year’s time we will be saving $840.  If you had that much in savings, chances are you would never have to go to a predatory lender.