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THE CONSUMER BANKRUPTCY LETTER
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In This Issue:
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Nov. 17, 2003
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BANKRUPTCY THIS WEEK . . .
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LEGISLATION & REFORM NEWS . . .
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PERSONAL BANKRUPTCY FILINGS SOAR 7.8%
WASHINGTON (AP) - The record-setting pace of new personal bankruptcies continued in the 12 months ending Sept. 30, with their number rising 7.8 percent, according to data released Friday.
Personal bankruptcies jumped to 1,625,813 from 1,508,578 during the same period a year earlier, Administrative Office of the U.S. Courts data show.
The upward trend had been expected to continue despite signs of recovery in the economy and as effects still linger from the consumer spending binge of the 1990s. The rate of bankruptcies generally lags other economic indicators.
The bankruptcy filings "are being overwhelmingly driven by individuals with household debt," said Samuel Gerdano, executive director of the American Bankruptcy Institute, a group of bankruptcy judges, lawyers and experts. "They do reflect the buildup of heavy consumer debt."
By MARCY GORDON
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ENRON BK ATTORNEY FEES CALLED "SHOCKING"
Bankruptcy costs expected to hit $1 billion
By Enron's own reckoning, the legal and accounting costs of its bankruptcy will exceed $1 billion in 2006. The company's budget through 2006 estimates more than $300 million will be spent after Enron confirms its plan. That's more than any company has ever spent confirming a Chapter 11 bankruptcy plan. According to Enron's budget estimates, it will spend $156 million in the second half of 2003 on professional fees. It projects professional fees of $229 million in 2004, $112 million in 2005 and $68 million in 2006. "It's shocking," said Lynn Lopucki, a law professor at the University of California at Los Angeles law school who studies bankruptcy professional fees.
By ERIC BERGER
Copyright 2003 Houston Chronicle
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SEN. EDWARDS CALLS FOR GOVERNMENT HELP FOR STRAPPED MIDDLE CLASS
Senator John Edwards (D-NC) today released the following statement on a new report showing a 7.8 percent increase in the number of bankruptcy filings, which have risen to a record high of 1.63 million.
"We face a quiet crisis in America. Middle class families stand on the edge of a financial cliff, and unless we act, more and more families will fall off of that cliff.
"We have seen a historic change in the last generation. A generation ago, Americans were saving 11 percent of their income and had just 4 percent of their income in credit card debt. Today, Americans are not saving at all, and they have 12 percent of their income in credit card debt. Our families are just one lost job or one medical emergency away from bankruptcy.
"We need to help families find their way out of debt, with strong measures to crack down on abusive mortgage lenders, payday lenders, and credit card companies. Next, we need tax cuts that will help families build up their savings and give themselves real security. That is why I have proposed tax cuts to help families own a home or save for the future. These measures will help families save and help our economy work for the middle class again."
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FRAUDULENT TRANSFER LIMITATIONS PERIOD TOLLED DURING DEBTOR'S PREVIOUS BANKRUPTCY
Appellant argues that the bankruptcy court improperly tolled the one-year fraudulent transfer provision of 11 U.S.C. § 727(a)(2)(A) by relying on the Supreme Court's decision in Young v. United States, (holding that tax discharge periods are tolled during pendency of debtor's previous bankruptcy). The guiding principles of law set forth by the Court are applicable here.
Creditor was prevented from protecting its claim during the pendency of Appellant's Chapter 13 case. Accordingly, the bankruptcy court was correct to apply equitable tolling in this case to the one-year fraudulent transfer lookback period.
WOMBLE v. PHER PARTNERS, (N.D.Tex. 2003)
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"DOUBLE JEOPARDY" TAX PENALTY HELD DISCHARGEABLE
Ilinois Department of Revenue argued the penalty claim was a "jeopardy assessment" rather than a " penalty" and, therefore, nondischargeable pursuant to section 523(a)(7)
By the IDR's logic, all jeopardy assessments would be nondischargeable penalties under § 523(a)(7) whether or not the underlying debt was normally dischargeable in bankruptcy. Such reasoning subverts the policies embedded in the Bankruptcy Code.
IN RE HALL, (S.D.Ind. 2003)
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DEBTOR COULD NOT USE TRUSTEE'S AVOIDING POWERS TO SET ASIDE A TAX LIEN AS A "JUDICIAL" LIEN
Section 522(h) allows a debtor to use the bankruptcy trustee's power under § 545 to avoid statutory liens, including liens. 11 U.S.C. § 522(g)(1), (h) & § 545. Section 522(c)(2)(B), however, provides that exempt property remains liable for a debt secured by (1) an unavoided lien or (2) a tax lien, notice of which is properly filed.
The courts have reasoned that § 522(c) protects a tax lien from avoidance under § 522(h) and § 545 when notice of the lien was properly filed.
IN RE RAMSEY, (E.D.Tenn. 2002
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DEBTOR COULD NOT HAVE HARDSHIP DISCHARGE WHERE SHE CHOSE LOWER PAYING EMPLOYMENT
The Debtor must show that additional circumstances exist indicating that inability to earn higher income is likely to persist for a significant portion of the repayment period. These additional circumstances must be "extraordinary and exceptional and generally indicate a hopelessness for the indefinite future as to any possibility of repayment." "Current financial adversity, characteristic of all debtors in bankruptcy court, is not a determinative factor in establishing dischargeability."
"A debtor does not have the luxury of remaining underemployed when saddled with debt that created other opportunities." "It has been stated that "[i]nformed free choice of one's chosen pursuits is to be respected and even encouraged, but not to the extent of the judicial forgiveness of debt because of hardships that are both foreseeable and voluntarily assumed."
IN RE HAMILTON, (N.H. 2003)
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SECURED CREDITOR VIOLATED AUTOMATIC STAY BY PURSUING NON-FILING SPOUSE'S PROPERTY IN WHICH DEBTOR HAD A COMMUNITY PROPERTY INTEREST
Although property was deeded as a Chapter 13 debtor's wife's separate property, a secured creditor violated the automatic stay by foreclosing on the property when the creditor had notice that the debtor asserted that he had a community interest in the property regardless of the fact that he was not a grantee on the title.
IN RE CHESNUT (Bankr. N.D. Tex. 2003)
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DEBTOR'S LAVISH LIFESTYLE PREVENTS TAX DISCHARGE
A bankruptcy court recently rebuked a taxpayer for spending thousands of dollars monthly to maintain a lifestyle she could no longer afford in light of huge unpaid tax liabilities. The court acknowledged that the taxpayer testified truthfully that she did not think of herself as a tax evader, having "only" invested in tax shelters like many other wealthy individuals. However, her actions spoke louder than words: her conduct precluded any discharge of her tax debt in bankruptcy. Over the course of eight years, the court found that she spent nearly $400,000 on housing, restaurant meals, vacations, tithing to her church, and other personal expenses. The money could have gone to her tax debt.
IN RE LYNCH (Bkrtcy.D.N.Y. 2003) Source: Standard Federal Tax Reports; Taxes on parade
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There's one thing that should warn everybody. If you forget everything else tonight, remember this, that when you hear someone say, "We have entered a new era of permanent prosperity," then you should immediately take cover, because that shows that financial idiocy has really taken hold and that history, all history, is being rejected.
I once spent some months of my life on the 1929 crash. And in a way, I'm grateful. That book, which I wrote, which was published in 1955, has been in print ever since, because every time it was about to go out of print we had another crack-up and the book was saved.
So, I'm prepared to accept the degree of economic uncertainty and some degree of international speculation as the unfortunate result of a larger good fortune. I don't know whether or not I answered your question or not, because I didn't understand the question.
- John Kenneth Galbraith, economist
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