Bankruptcy Article of the Week
Seventh Circuit Court of Appeals Rules on 910 Surrender in Chapter 13, but Split Continues
Last month, the U.S. Court of Appeals for the Seventh Circuit (Appellate Court) weighed in on the issue of shortfalls in surrendering vehicles that fall under the "hanging paragraph" of § 506, deciding against the majority of published decisions. (In re Wright, No. 07-1483) Most bankruptcy courts and Bankruptcy Appellate Panels that have published opinions on the issue have concluded that 910 creditors are precluded from filing unsecured claims for any deficiency balance after surrender of the vehicle. However, other courts have treated the deficiency as unsecured debt.
The Appellate Court, mindful of the division among bankruptcy courts and the fact that "the issue arises in a large fraction of all consumer bankruptcy proceedings", and noting that the issue seemed to be "stuck in the bankruptcy courts" and no other Appellate Court had ruled, accepted the appeal directly from the bankruptcy court pursuant to 28 U.S.C. § 158(d)(2)(A).
In a July 3 opinion, Chief Judge Easterbrook wrote that deeming surrender to fully satisfy a borrower's obligations would render many secured loans non-recourse, regardless of contract provisions. The court rejected the majority view that § 506 is the only source of authority for a deficiency judgment when collateral is insufficient, relying instead on the rule that state law determines rights and obligations when the Code does not supply a federal rule. Thus, the court determined, taking § 506 out of play simply means defaulting to the terms of the contract. The contract in question, like most automobile loan agreements, provided that if the vehicle were seized and sold pursuant to the contract, "[b]uyer shall be liable for any deficiency."
The court concluded:
By surrendering the car, debtors gave their creditor the full market value of the collateral. Any shortfall must be treated as an unsecured debt. It need not be paid in full, any more than the Wrights' other unsecured debts, but it can't be written off in toto while other unsecured creditors are paid some fraction of their entitlements.
The Seventh Circuit Court of Appeals, by its own declaration, sought to settle the inconsistency among bankruptcy courts, but this ruling directly impacts only three states (Illinois, Indiana and Wisconsin), and leaves the question wide open across the country. In fact, just two days after the Wright decision, the Bankruptcy Appellate Panel of the Tenth Circuit (BAP) reached the opposite conclusion. (In re Quick)
The 10th Circuit BAP agreed with prior bankruptcy court rulings that the elimination of the bifurcation offered by § 506 operates equally against the debtor and the creditor-the "fiction" that the vehicle is worth exactly the amount of debt operates regardless of whether the vehicle is retained or surrendered. In the words of the court, "The hanging paragraph of § 1325 is unambiguous and eliminates § 506 bifurcation in all 910 cases."
Viva Las Vegas and NACBA
How does this sound for a nice weekend away in Las Vegas? The National Association of Consumer Bankruptcy Attorneys (NACBA) is holding a Members-Only Workshop at the JW Marriott Resort in Las Vegas on Friday, October 26th and Saturday, October 27th.
The NACBA Workshop will cover a wide range of topics, including consumer law for bankruptcy attorneys, office management and technology, mortgage issues, and bankruptcy basics for new practitioners. The Friday program will also include a special session on the Hot Issues in Bankruptcy Law.
Since this event is for NACBA members only, all attendees' memberships must be current at the start of the workshop.
Not a NACBA member? Interested in joining NACBA and attending the workshop? Simply sign up as a first-time member when registering for the workshop and receive a one-time dues discount of $100.
Learn more about joining NACBA and registering for this workshop in Las Vegas at the NACBA website. Hurry before the workshop and hotel room reservations are full!
Satisfaction in the Organization
Here's what one attorney had to say about the value of having his own SFT online account:
"No matter how many clients I've registered, they're organized using my firm's online account. All of the documents I need are easily accessed. With StartFreshToday.com I have the tools and support I need to run a profitable practice, even with the obstacles imposed by the new law."
- Sean Quinlan
Camp Hill, PA
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Kevin's Corner
Practice Management Tip of the Week:
"It's all about asking questions when talking with a consumer interested in filing bankruptcy.
"In the old days, bankruptcy was called a 'loss leader.' Most people going through bankruptcy had other problems and were often sources for personal injury, workers compensation, social security and divorce cases. Here's a good example.
"Imagine that you're speaking to a consumer who's been out of work for a long time. After asking more questions, you find out that this consumer has been caring for his father, who was injured in a serious car accident. By asking more and more questions, you determine that a much larger personal injury claim exists.
"When speaking to a bankruptcy prospect, ask questions to determine other potential revenue sources from that client. Consider the lifetime value of that consumer and make this consideration the foundation of your questions.
"While you may not get a bankruptcy client out of every inquiry, asking questions may lead to a bigger case for you to handle yourself or to refer to another firm."
- Kevin Chern
President, Start Fresh Today
Did You Know...
that you can create multiple attorney profiles within your SFT account?
That's right. As the main Admin attorney, you can create secondary attorney profiles under one account.
Get started by logging into your SFT account and clicking on the 'Account' button. On the left hand side, you will see a button that says 'Manage Attorneys.'
After clicking on this button, you will be brought to a screen allowing you to add another attorney account and to edit any secondary attorney profiles that you've already created. These secondary accounts will allow attorneys in your office to keep track of their own clients by simply logging in with their own username and password.
And as the Admin attorney, you will have access to all secondary attorney client profiles.
Got questions? Call (800) 435-9138. We're glad to help you out.
How to Order More Client Inserts
Our Chicago office is expecting the new order of client inserts to arrive this week. Once we receive the order, we will send out the inserts to those of you who have requested additional copies for your client intake folders.
And if you need more credit counseling and debtor education inserts for your client intake folders, the ordering process couldn't be any easier. Simply call (800) 435-9138 or send us an email at info@startfreshtoday.com.
Once again, all we ask is that you include your new inserts in your client intake folders. Thanks for your time and patience.