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| vol 18, num 3 | September 2020 |
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| Happy Anniversary, Taggart! |
| The Supreme Court’s opinion in Taggart v. Lorenzen articulated an objective standard for determining whether a party should be held in civil contempt for a violation of the discharge order. In light of Taggart’s recent one-year anniversary, we are revisiting the Supreme Court’s opinion and cases that have applied it.
Recap of Taggart
In the underlying case, a plaintiff in a pre-petition state court suit sought post-petition attorneys’ fees from the defendant after the defendant received a discharge in his chapter 7 bankruptcy case. The state court allowed the plaintiff to collect those fees, and the debtor-defendant filed a motion with the bankruptcy court to hold the plaintiff in civil contempt for violation of the discharge injunction.
The bankruptcy court initially determined the fees were exempt from the discharge order because the defendant had, after filing for bankruptcy, “returned to the fray” in state court. The district court disagreed, and on remand, the bankruptcy court held that if the fees were subject to the discharge injunction, the plaintiff was in violation of that injunction because it was “aware of the discharge” and “intended the action.” On further appeal, the Ninth Circuit applied a standard far from strict liability. It held that a creditor could not be held in contempt for violation of the discharge injunction if it had a “good faith belief” that the discharge injunction did not apply to its action, “even if the creditor’s belief is unreasonable.” |
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| Means Test at 15 |
| Happy Birthday to the “means test,” enacted in 2005 and the centerpiece of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). In chapter 7 cases, the means test stands for the general proposition that consumers with the “means” to repay some or all of their debts are barred from filing. More accurately, debtors with family income in excess of their state median are subject to a “presumption of abuse.” Such cases receive additional scrutiny from the U.S. Trustee (UST), which can result in a motion to dismiss. Conversely, in chapter 13 cases, the means test helps determine the amount of money that over-median
debtors should pay to their general unsecured creditors. |
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| The Student Loan Discharge Crisis: How We Got Here and Where We Go from Here |
| As overall consumer debt has increased over the years, student loan debt has correspondingly increased to astronomical levels. In 2019, 45 million borrowers collectively owed more than $1.5 trillion in student loan debt. By comparison, in 2005 — the year the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) went into effect — student loan debt was $391 billion with 24.7 million borrowers. The delinquency rate has increased as well. The percentage of loans that are 90+ days delinquent has increased from around 6.5% in 2005 to 11.4% in 2019. These numbers beg the questions: How did we get here, and what can we do to mitigate
the crisis? |
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| Preserving Chapter 13 Debtors’ Ability to Modify Plans |
| A recent Fifth Circuit ruling provides significant protection of a debtor’s inherent rights under the Bankruptcy Code. In Brown v. Viegelahn, the court struck down the bankruptcy court’s requirement upon confirmation that the debtor agree to add the following so-called “Molina language” to the Order confirming plan:
The plan as currently proposed pays a 100% dividend to unsecured claims. The Debtors shall not seek modification of this Plan unless said modification also pays a 100% dividend to unsecured claims. Additionally, should this Plan ever fail to pay a 100% dividend to unsecured claims the Debtors will modify the Plan to continue paying a 100% dividend. If the Plan fails to pay all allowed claims in full, the Debtors will not receive a discharge in this case. Molina v. Langehennig, No. SA-14-CA-926, 2015 WL 8494012, at *1 (W.D. Tex. Dec. 10, 2015).
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| Committee Webinar: “Evolution of Consumer Bankruptcy Practice in the COVID‑19 Era.” |
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| The Consumer Bankruptcy Committee hosted a riveting webinar on July 17 on the “Evolution of Consumer Bankruptcy Practice in the COVID-19 Era.” Panelists were Margaret Burks (Chapter 13 Trustee; Cincinnati), John Crane (Robertson, Anschutz, Schneid & Crane LLC; Duluth, Ga.), Jenny Doling (J. Doling Law, PC; Palm Desert, Calif.) and Charissa Potts (Freedom Law PC; Eastpointe, Mich.).
The panel reviewed the trends for consumer bankruptcy practices that have emerged during the COVID-19 pandemic. Marge Burks discussed actions that chapter 13 trustees are taking to hold down costs while continuing to assist debtors. Charissa Potts and Jenny Doling analyzed how the pandemic affected their clients and gave updates on practices In Michigan and California that have developed due to the pandemic, including suspension of plan payments. They also examined the variables that have caused consumer filings to drop precipitously due to the pandemic, and what filing trends will look like moving forward. Finally, John Crane reviewed notices of forbearance, deferments and mortgage modifications, along with agreed orders so that debtors may stay in their homes.
All panelists agreed that we are a long way from being finished with the COVID maelstrom and must continue to be able to work remotely when needed. The panelists also hoped Congress might extend some benefits.
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