Kentucky Bankruptcy

Bankruptcy Filings Up 20% in June

2010-08-17T13:25:00.004-05:00

Click on the image above to see a larger version of a map demonstrating bankruptcy filings per capita by county in the United States. A Press Release from the United States Court System reports that bankruptcy filings rose 20% during the 12-month period ending June 30, 2010. A total of 1,572,597 bankruptcy cases were filed during that time period, which is the highest number of cases since 2005.

July 2010 6th Circuit Bankruptcy Case Summaries

2010-08-12T17:23:00.004-05:00

Brock v. Branch Bank & Trust Co. (6th Cir.)

Debtor purchased a vehicle with financing from a Bank within 90 days of filing chapter 7 bankruptcy. Under Kentucky law, a lender perfects a security interest in a vehicle by having its lien noted on the vehicle's title. The Bank submitted the proper paperwork and fee to a county clerk to have its lien noted on the vehicle's title. However, there was a delay of almost 2 weeks between the date the Bank submitted the paperwork to the clerk and the date the lien was recorded by the clerk on the vehicle's title. The Bankruptcy Trustee moved to avoid the Bank's security interest as a preferential transfer under 11 U.S.C. Section 547. The Court determined that the Bank's perfection of its security interest did not occur until the date the lien was actually noted on the vehicle's title. Therefore, the transfer of the security interest did not fall within the 20 day "enabling loan exception" to the Trustee's avoidance powers. The troubling conclusion from this case is that a Kentucky bank may lose a lien on a vehicle during a bankruptcy proceeding as a consequence of a county clerk's delay in recording the lien on the vehicle's title.

Darrohn v. Hildebrand (6th Cir.)

Within 6 months of filing a chapter 13 bankruptcy, the Debtor lost his job. The Debtor remained unemployed for 3 months, but he secured employment before filing bankruptcy. Official Bankruptcy Form 22 attempts to calculate a debtor's disposable income for the purpose of determining a chapter 13 debt repayment plan by reviewing a debtor's average income in the 6 months prior to bankruptcy. In this case, the Debtor's disposable income calculation was inaccurate on his Form 22, because the Form did not take into consideration the Debtor's new employment which would result in future income at a higher amount than the 6 months prior to bankruptcy. The Court determined that when calculating a debtor's projected disposable income for a chapter 13 debt repayment plan, a Bankruptcy Court may consider changes in income and expenses that are not demonstrated by Form 22. The Court's decision is a good example of using substance over form.

FBI Reports that the Bankruptcy System is used to Perpetrate Foreclosure Rescue Schemes

2010-08-04T18:06:00.003-05:00

A recent FBI Intelligence Assessment describes use of the bankruptcy process in foreclosure avoidance schemes. The foreclosure rescue schemes occur when spurious individuals promise to save a home from foreclosure after a mortgage default in order to extract monthly fees from desperate homeowners. The perpetrators of the fraud then file fraudulent bankruptcy petitions to delay the foreclosure and maximize monthly fees. The Assessment further reports that from 2007 to 2009, US housing inventory increased from 127 million units to 130 million units; US properties in foreclosure increased more than 120 percent; and US home prices declined each consecutive year.

Kentucky Debtors in Bankruptcy Have Among the Lowest Average Assets and Debts

2010-07-27T17:38:00.005-05:00

The inaccurately named "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005" mandates the United States Courts to track certain statistics. Pursuant to that mandate, the Administrative Office of the Courts recently released a Report regarding 2009 statistics for consumer bankruptcies. The Report and Statistics reveal that both the average assets and average debts listed by debtors in Kentucky are close to the lowest in the United States. Consumer bankruptcy debtors in the Western District of Kentucky listed average assets of $90,159 and average debts of $135,614. An Interactive Map created by the Administrative Office of the Courts allows easy review of the statistics for each District.

Stonewall Stallions Files Bankruptcy

2010-07-21T11:04:00.004-05:00

Prominent thoroughbred owner Stonewall Farm Stallions filed bankruptcy on June 20, 2010. In its Bankruptcy Petition, the large horse operation lists Fifth Third Bank and Harleysville National Bank among the largest creditors with debts of approximately $1,000,000.00 each. JP Morgan Chase Bank is listed with a debt of $500,000.00. An Article from BloodHorse.com indicates that Stonewall Stallions plans to sell its farm in Kentucky and move operations to Florida. A previous post outlined the financial troubles recently suffered by Stonewall Stallions. The bankruptcy is proceeding as Case No. 10-52318 in the U.S. Bankruptcy Court for the Eastern District of Kentucky.

June 2010 6th Circuit Bankruptcy Case Summaries

2010-07-16T16:20:00.010-05:00

National Union Fire Ins. Co. v. VP Buildings, Inc. (6th Cir.)

After the Debtor filed for Chapter 11, it bought insurance whereby the Debtor agreed to reimburse the insurance company for certain potential future claims. Subsequently, the Debtor filed a bankruptcy plan to liquidate, and the insurance company argued that its claim related to future reimbursement payments was entitled to administrative priority status. Typically, administrative claims receive a much higher payout than general unsecured claims. Under 11 U.S.C. Section 503(b)(1)(A), a creditor's claim must be related to an "actual" cost that is "necessary" to the "preservation" of the company in Chapter 11 in order to qualify as an administrative expense. The Sixth Circuit determined that the insurance company's claim would not be "actual" until the insurance company made the future payments and sought reimbursement, and, therefore, declined to grant the insurance company's claim administrative priority.

Menninger v. Schramm (B.A.P.)

In a case involving a Debtor's effort to exempt life insurance proceeds from trustee liquidation in a Chapter 7 case, the Court noted that life insurance contracts owned by a Debtor are exempt from creditor claims under 11 U.S.C. Section 522(d)(7) and payments to a Debtor/Beneficiary who is a dependent of the insured are exempt to the extent reasonably necessary for the support of the Debtor under 11 U.S.C. Section 522(d)(11)(C).

Cusano v. Klein (B.A.P.)

The Debtor filed three Chapter 13 cases in three years, frustrating a California creditor's collection efforts. Oddly, the creditor at issue was the rock bank KISS. After the California creditor filed a Motion to Convert to Chapter 7, the Debtor filed a Motion to Dismiss. The Bankruptcy Court dismissed the case, barred the Debtor from refiling under Chapter 13 for two years, and ordered that the automatic stay for any future case would not prohibit the California creditor's future collection efforts. The Bankruptcy Appellate Panel affirmed in finding that 11 U.S.C. Section 349(a) and 11 U.S.C. Section 105(a) provide authority to sanction bad-faith serial filers and condition dismissal of a case upon prospective relief from the Bankruptcy Code's automatic stay of collection efforts.

Limor v. First Nat'l Bank of Woodbury (B.A.P.)

A Bank held a security interest in funds that were located in the Debtor's checking account. After the Debtor filed a Chapter 7 case, the Trustee asked the Debtor to turnover the funds in the account. The Debtor complied by delivering a check to the Trustee. After transfer of the funds pursuant to the check, the Trustee sought under 11 U.S.C. Section 544 to avoid the Bank's security interest in the funds. The Trustee argued that under UCC 9-332 the Bank's loss of possession and control of the collateral resulted in loss of perfection of the security interest. However, the Bankruptcy Appellate Panel determined that claims and their priority are determined as of the petition date pursuant to 11 U.S.C. Sections 502, 506 and 507, and, therefore, rejected the Trustee's argument.

Kentucky Bankruptcy Filings Did Not Follow National Trend

2010-07-12T14:35:00.003-05:00

While the filing of bankruptcies in the Western District of Kentucky remained strong, they do not evidence the surge that has been seen nationally. The American Bankruptcy Institute recently reported that bankruptcy filings for the first half of 2010 increased 14% over the prior year, including an 8 1/2 percent jump in the month of June as compared to the same month in 2009.

The Kentucky bankruptcy filings have seen only a small increase, from 6355 filings through June 30, 2009 to 6556 filings through June 30, 2010. The Western District did not see the same spike in filings in June as was seen nationally. To date, the monthly filings have been as follows:

January - 903

February - 1152

March - 1342

April - 1111

May - 1030

June - 1018

Likewise, there have not been as many filings of Chapter 11 reorganization proceedings as may have been expected. In 2009, the Western District saw 60 Chapter 11 cases filed. Through June 30, 2010, there have only been 14 cases filed.

The General Decline in Real Estate Value is Expected to Continue

2010-06-30T11:08:00.005-05:00

The ABI's Chart of the Day Website has an interesting post citing the Calculated Risk Blog regarding supply for the housing market. Typically, the housing market has under six months of supply. The ongoing problems in the economy have been linked to decreasing home prices. Many personal bankruptcy cases are the result of an individual taking a dramatic financial hit from a decrease in the value of the individual's home. The image above demonstrates that the amount of houses for sale in the market has historically had a major impact on house prices. More houses available on the market results in lower house prices. As shown by the image above, the months of supply in the housing market is back on the upswing, despite recent government programs attempting to support house prices. As a result, it appears that real estate values will continue to decrease throughout the country in 2010. A recent Article from the Bowling Green Daily News indicates that the national trend of declining home sales is likewise occurring in the local economy.

BAPCPA PowerPoint Presentation

2010-06-30T10:28:00.002-05:00

I attended a very informative presentation yesterday by Rob Blackford from the company Design(615). The presentation was sponsored by the company Werkshop Marketing and involved designing a website to integrate with social media. One of the tips I learned was to provide information for viewers of a website to "download and digest". My first effort to apply the lesson will be an embedded PowerPoint presentation in this post. Check out this SlideShare Presentation regarding the Bankruptcy Abuse Prevention and Consumer Protection Act:

bankruptcy abuse prevention and consumer protection act of 2005 presentation

View more presentations from wcodell.

May Bankruptcy Filings Decrease

2010-06-14T10:32:00.006-05:00

The image above represents bankruptcy filings in the Western District of Kentucky from January 1, 2010 through May 31, 2010. Monthly totals decreased by 81 in the Western District during May.

The image above represents bankruptcy filings in the Eastern District of Kentucky from January 1, 2010 through May 31, 2010. Monthly totals decreased by 142 in the Eastern District during May.

Holley Performance Products Gets the Green Light to Exit Bankruptcy

2010-06-08T19:39:00.004-05:00

Holley Performance Products, an auto parts maker based in Bowling Green, Kentucky, is scheduled to emerge from its Chapter 11 bankruptcy proceeding. Holley's Plan of Reorganization was approved by an Order of Confirmation entered by the Bankruptcy Court on June 7, 2010. Under the terms of the confirmed Plan, creditors holding Holley's $57.5 million of outstanding secured notes will receive the company's equity. Creditors with approximately $11 million in general unsecured claims are not projected to receive any recovery.

Holley has been in the business of selling performance aftermarket vehicle products for more than 100 years. Holley is involved with both NASCAR and NHRA racing. The company employs approximately 300 individuals.

May 2010 Western Dist. of KY Bankruptcy Court Memorandum-Opinion Summaries

2010-06-01T18:02:00.004-05:00

Akers v. CitiMortgage, Inc. (Judge Lloyd)

Debtors took a loan to purchase a manufactured home and granted Lender a mortgage on the associated real estate. The closing documents demonstrated that Debtors agreed to follow the procedure to have the manufactured home deemed part of the real estate under Kentucky law. After Debtors failed to follow the procedure, Lender procured an Order from state court deeming the manufactured home part of the real estate, thereby perfecting Lender's lien. Shortly thereafter, Debtors filed bankruptcy and attempted to avoid the lien perfection/transfer under 11 U.S.C. Section 522(h). The Court initially noted that a transfer may only be avoided under Section 522(h) in circumstances where the transfer was not voluntary. The Court further noted that the loan closing documents demonstrated the Debtors' intent to voluntarily transfer a security interest in the manufactured home, and, therefore, the Court granted judgment to the Lender.

In re Kuykendall (Judge Lloyd)

Debtors filed a motion to set aside a security interest in certain personal property under 11 U.S.C. Section 522(f)(1). That statute allows a debtor to avoid a nonpossessory, nonpurchase-money lien on personal property to the extent the lien impairs the value of the debtor's exemption. However, Debtors failed to list in the motion the aggregate value of the personal property at issue. Thus, the Court denied the motion.

Former Kentucky Basketball Star Files Bankruptcy

2010-05-31T16:30:00.003-05:00

Crain's Chicago Business reports that Antoine Walker has filed a Voluntary Petition seeking relief under Chapter 7. Walker was a star basketball player at the University of Kentucky and a big contributor for the team that won the 1996 National Championship. Walker listed assets of $4.28 million and liabilities of $12.74 million. Walker's Disclosure of Bankruptcy Attorney Compensation states that Nazr Mohammed paid 1/2 of the attorney's fees for the bankruptcy. Mohammed is likewise a former Kentucky basketball star. Mohammed played on the team that won the 1998 National Championship.

Receiver Appointed for Prominent Thoroughbred Owner Stonewall Stallions

2010-05-27T19:44:00.003-05:00

As recently Reported by The New York Times, the horse industry in Kentucky continues to feel pressure from the downturn in the economic climate. An Article from BloodHorse.com describes the troubles of another large horse operation, Stonewall Farms. Fifth Third Bank has recently been successful in seeking the appointment of a receiver for the sale of multiple horses owned by Stonewall Farms. As previously posted on this blog, Fifth Third Bank is likewise one of the primary creditors associated with the bankruptcy proceeding for major thoroughbred owner Zayat Stables.

April Bankruptcy Filings Decrease

2010-05-23T17:22:00.008-05:00

The image above represents bankruptcy filings in the Western District of Kentucky from January 1, 2010 through April 30, 2010. Monthly totals decreased by 231 in the Western District during April.

The image above represents bankruptcy filings in the Eastern District of Kentucky from January 1, 2010 through April 30, 2010. Monthly totals decreased by 286 in the Eastern District during April.

The decrease in monthly totals for both Districts in April is consistent with the trend of March being the month of the year in which the most bankruptcies are filed. The trend of the greatest number of bankruptcies being filed in March is generally believed to be linked to the timing of individuals receiving tax refunds. Many individuals in need of bankruptcy relief use their tax refunds to pay the flat fee that most bankruptcy professionals require to be paid in full prior to the filing of a bankruptcy case.

April 2010 6th Circuit Bankruptcy Case Summaries

2010-05-05T20:14:00.008-05:00

Maxus Capital Group, LLC v. Uhrich (B.A.P.)

The Bankruptcy Court dismissed a Creditor's Complaint attempting to revoke confirmation of a Chapter 11 plan. The Creditor alleged that copies of certain emails demonstrated that the Confirmation Order was procured by fraud. The Appellate Panel noted that under 11 U.S.C. Section 1144 a Confirmation Order may only be revoked for fraud in circumstances involving a materially false representation (or omission) that a Bankruptcy Court relies on in entering the Confirmation Order. However, the record demonstrated that the Bankruptcy Court had previously considered the emails and the fraud issue prior to the confirmation hearing. As such, the Creditor failed to establish fraud upon which the Bankruptcy Court relied as is required to revoke a Confirmation Order.

Wilhelm v. Uhrich (B.A.P.)

The Creditor and Debtor entered into a settlement agreement regarding the Creditor's specific claim. Subsequently, the Bankruptcy Court confirmed the Debtor's proposed Chapter 11 Plan. The Creditor then attempted to revoke confirmation of the Chapter 11 Plan in alleging that confirmation was procured by fraud. In examining whether the Creditor had standing to attempt revocation of the Confirmation Order, the Appellate Panel explained that an individual only has standing to appeal an order that diminishes the individual's property, increases the individual's burdens, or impairs the individual's rights. As a consequence of the settlement agreement, the Appellate Panel determined that the Creditor did not have standing to attempt revocation of the Confirmation Order.

Countrywide Home Loans v. Dickson (B.A.P.)

After a Chapter 13 Trustee declined to pursue avoidance of a lien on a manufactured home, the Bankruptcy Court determined that the Debtor had standing to pursue avoidance of the lien as a preference under 11 U.S.C. Section 547. The Appellate Panel determined that Bankruptcy Courts may properly exercise equitable powers in granting "derivative standing" to Chapter 13 Debtors that want to bring an action to avoid a lien, if the Trustee declines to pursue the claim.

The Official Committee of Unsecured Creditors v. Anderson Senior Living Property, LLC (B.A.P.)

The Committee of Unsecured Creditors sought review of the Bankruptcy Court's denial of the Committee's application to retain a particular lawfirm as its counsel. The Appellate Panel noted that under 28 U.S.C. Section 158, jurisdiction to consider appeals arises only from: 1) final orders; or 2) interlocutory orders with leave of court. After determining that an order denying an application to appoint counsel is not a final order, the Appellate Panel considered whether to grant leave for an interlocutory appeal under Bankruptcy Rule 8003. The Appellate Panel found that the interlocutory order did not involve a controlling question of law as to which there is substantial ground for difference of opinion, and, therefore, the appeal was dismissed.

New Statistics Demonstrate a Surge in the Rate of Business Bankruptcy Filings

2010-04-22T15:27:00.003-05:00

The Federal Court System's Newsletter has an interesting article in the April 2010 edition titled "By the Numbers - Changes in Business Bankruptcies". The article includes recent statistics documenting the fact that the rate of business bankruptcy filings is rising at an even faster rate than the rapidly increasing rate of consumer bankruptcy filings. One thought-provoking section of the article notes that the increase in the percentage of business bankruptcies compared to overall bankruptcy filings may be attributable to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"). It is widely acknowledged that BAPCPA was aimed almost exclusively at consumers. The article notes that BAPCPA may have disproportionately affected the number of consumer bankruptcies resulting in the acceleration of the percentage of business bankruptcies.

Kentucky City Contemplates Bankruptcy

2010-04-20T08:41:00.004-05:00

The City of Crab Orchard in Lincoln County, Kentucky is considering bankruptcy according to a Report from WBKO.com. Crab Orchard is struggling with debt arising out of a failed industrial project. Crab Orchard's Mayor has stated that the City cannot afford the debt, and, therefore, might be required to pursue bankruptcy protection.

Debtor Proposes Sale of Kentucky Derby Favorite Through Bankruptcy Court

2010-04-19T09:24:00.003-05:00

The horse Eskendereya is one of the favorites to win this year's Kentucky Derby. Eskendereya is owned by Zayat Stables, LLC, which filed a Chapter 11 bankruptcy in February. ESPN's website (an interesting source for bankruptcy news) is reporting that Zayat Stables filed a Chapter 11 Plan of Reorganization on Friday. Zayat Stables proposes to repay creditors by the end of December, 2014 under the Chapter 11 Plan. ESPN further reports that Keeneland Racetrack in Lexington, Kentucky is one of the Debtor's largest creditors. A NY Daily News Article states that Eskendereya would be sold to repay creditors under the terms of the proposed Chapter 11 Plan. It appears that a victory by Eskendereya in the Kentucky Derby would result in a better payout to creditors. As such, multiple creditors will have a greater interest than usual in this year's Kentucky Derby.

Goldman Sachs Charged With Fraud

2010-04-16T11:56:00.004-05:00

An interesting development related to the mortgage default crisis occurred today when Goldman Sachs was sued by the SEC for fraud. An Article from Reuters reports that the lawsuit arises out of a collateralized debt obligation ("CDO") transaction structured by Goldman Sachs. The CDO marketed by Goldman Sachs provided a way to sell securities to investors in connection with subprime residential mortgages. If payments were timely made on the mortgages, the investors would profit. In the SEC's Complaint, it is alleged that the same principals involved with selecting subprime mortgages for the transaction were also "shorting" or betting against the performance of the mortgages. Less than a year after the CDO transaction was finalized by Goldman Sachs, 99% of the consumer mortgages associated with the transaction were downgraded, costing investors more than $1 Billion. However, Goldman Sachs made a profit of $15 Million on the deal.

March Bankruptcy Filings Rise in Both the Western and Eastern Districts of Kentucky

2010-04-15T18:25:00.010-05:00

The image above represents bankruptcy filings in the Western District of Kentucky from January 1, 2010 through March 31, 2010. Monthly totals increased by 190 in the Western District during March.

The image above represents bankruptcy filings in the Eastern District of Kentucky from January 1, 2010 through March 31, 2010. Monthly totals increased by 377 in the Eastern District during March.

Kentucky's Revenue Receipts Increase 2.2%

2010-04-12T15:21:00.002-05:00

A Monthly Tax Report from Kentucky's State Budget Director demonstrates that Kentucky's revenue receipts increased 2.2% in March. The primary driver of the boost in revenue was Kentucky's Road Fund, which had an increase of 9.1%. The increase in Road Fund receipts is attributable to greater motor fuels and motor vehicle usage tax. Conversely, a 1.6% decline in sales and use tax receipts combined with an unemployment rate of approximately 10.9% demonstrates continued weakness in Kentucky's consumer sector.

Consumer Credit Declines

2010-04-08T16:13:00.003-05:00

The graph above demonstrates the monthly change in outstanding consumer credit. A Business Insider Article reports that outstanding consumer credit has recently undergone a significant decline. The decrease in available consumer credit directly affects the viability of many retail business operations.

A Fast Bankruptcy Estate Asset is the Kentucky Derby Favorite

2010-04-07T16:05:00.005-05:00

A Wall Street Journal Article reports that the horse Eskendereya is currently considered the favorite to win the Kentucky Derby. The horse is owned by Zayat Stables, LLC, which filed a voluntary petition for relief under Chapter 11 on February 3, 2010. The Lexington Herald Leader reports that Zayat Stables recently asserted a claim against Fifth Third Bank via an adversary proceeding. Zayat Stables alleges that it was forced to file bankruptcy after the Bank broke an agreement to restructure debt. It appears that this year's Kentucky Derby will have a significant impact on the valuation of the bankruptcy estate.

Private Sector Jobs Breakthrough, but Bankruptcy Filings also Increase in March

2010-04-02T17:28:00.006-05:00

Click the image above to see a graph demonstrating the monthly change in nonfarm payroll jobs from January 2008 through March 2010. The graph was generated from data released today in a Bureau of Labor Report. Nonfarm payroll employment increased by 162,000 jobs in March 2010, the best job growth since the U.S. entered a recession in December 2007. Conversely, an Article from Reuters reports that U.S. bankruptcy filings in March 2010 increased to the highest level since 2005. A total of 158,141 bankruptcies were filed in the U.S. during March 2010.

March 2010 Western Dist. of KY Bankruptcy Court Memorandum-Opinion Summaries

2010-04-01T17:21:00.003-05:00

Burton v. Mouser (Judge Lloyd)

The Debtor wrote a bad check that bounced and subsequently filed Chapter 7 bankruptcy. The relevant County Attorney initiated criminal proceedings against the Debtor regarding the bounced check, and the County Attorney failed to dismiss the criminal case after learning that the debt had been discharged in bankruptcy. The Court determined that the County Attorney's failure to dismiss the criminal case after the debt was discharged constituted a violation of the discharge injunction found at 11 U.S.C. Section 524. The Court imposed a sanction for civil contempt as a result of the violation.

In re Hunt (Judge Lloyd)

The Court granted the Debtor's Motion to waive the Chapter 7 filing fee after determining that the Debtor's income was 150% below the poverty line as required for waiver under 28 U.S.C. Section 1930(f).

March 2010 6th Circuit Bankruptcy Case Summaries

2010-03-31T09:58:00.003-05:00

Moyer v. Hollinshead (B.A.P.)

Debtor did not disclose an entitlement to a tax refund on the bankruptcy schedules. After the trustee filed a motion to compel turnover of the refund, Debtor filed an amendment to the schedules claiming an exemption to keep the refund. The Court noted that Bankruptcy Rule 1009(a) allows amendment of the schedules at any time before a case is closed and further determined that the record did not contain evidence of bad faith sufficient to deny the Debtor's amendment.

Kentucky Unemployment Rates By County

2010-03-26T08:31:00.004-05:00

Click on the image above to see a larger map demonstrating unemployment rates in Kentucky by county in January of 2010. Kentucky's overall unemployment rate of 11.7% remains above the national average of 10.6%.

6th Circuit Determines that Negative Equity Financing can be Protected From Cramdown

2010-03-24T19:12:00.004-05:00

In the case of Nuvell Credit Corp. v. Westfall, the Sixth Circuit issued an opinion today that addressed treatment of negative equity financing under the "hanging paragraph" found at the end of 11 U.S.C. Section 1325(a). Negative equity financing occurs when the seller of a new vehicle accepts an old "trade in" vehicle that is subject to a lien in an amount that exceeds the value of the old trade in vehicle. Typically, the total purchase price for the new vehicle plus the "negative equity" for the old vehicle is paid by the consumer in installments, and the dealer retains a lien on the new vehicle as collateral to secure the consumer's future installment payments. The rationale of financing a vehicle at greater than 100% is questionable from both the consumer and lender perspective. Regardless, the Sixth Circuit construed Ohio's version of the UCC in determining that the negative equity financing portion of a vehicle purchase transaction is eligible for protection from cramdown as a purchase money security interest pursuant to the "hanging paragraph" of the Bankruptcy Code.

KY Bankruptcies Up 104%

2010-03-12T11:15:00.004-06:00

The Image above demonstrates total bankruptcy filings in Kentucky for calendar years 1999-2009. The data was recently released on the U.S. Trustee Program's Website. In Kentucky, total filings were up by 104% in the last three years. Nevada was the state with the largest increase during that time period. In Nevada, total filings were up by 404% in the last three years.

February 2010 Western District of Kentucky Bankruptcy Filings

2010-03-09T08:51:00.003-06:00

Above is an image demonstrating the monthly bankruptcy filings by chapter through February 2010 in the U.S. Bankruptcy Court for the Western District of Kentucky. Total bankruptcies increased from January to February by 249 filings. In February of 2010, 845 chapter 7 cases were filed, 5 chapter 11 cases were filed, and 277 chapter 13 cases were filed in the Western District of Kentucky.

FDIC Bank Failures

2010-03-08T10:03:00.004-06:00

The image above from the ABI's Chart of the Day Website compares the number of FDIC bank failures during 2008, 2009, and the start of 2010. FDIC bank failures increased from approximately 25 in 2008 to 140 in 2009. The rate of bank failures in 2010 is on pace to exceed the total number of 2009 bank failures.

Bankruptcy Filings Per Capita

2010-03-06T14:25:00.006-06:00

Click on the image above to see a large map demonstrating 2009 bankruptcy filings per capita by County. A Press Release from the Administrative Office of the United States Courts reveals that Kentucky had 5.85 bankruptcy filings per 1,000 people during 2009, which was the 8th highest per capita bankruptcy rate in the United States.

Personal Bankruptcies Increase

2010-03-03T14:41:00.002-06:00

The Wall Street Journal Reports that personal bankruptcy filings continued on an upward trend last month. There were 111,693 consumer bankruptcy cases filed in February 2010, a 9% increase from January 2010. The report further states that approximately 1.4 million consumer bankruptcy cases were filed in 2009, a 32% increase from 2008.

February 2010 Western Dist. of KY Bankruptcy Court Memorandum-Opinion Summaries

2010-03-02T13:02:00.003-06:00

Moore v. Resource Energy Technologies, LLC (Judge Lloyd)

The debtor filed a chapter 11 case while confirmation of an arbitration award against the debtor was pending in Kentucky's Fayette Circuit Court. The Bankruptcy Court granted relief from stay to the creditor for liquidation of the creditor's claim in the Fayette Circuit Court.

In re Hettinger (Judge Lloyd)

After the debtors filed a chapter 7 case, a creditor called the debtor's attorney approximately 15 times. The debtors filed a Motion for Contempt against the creditor. The Bankruptcy Court explained that the "automatic stay" provision of 11 U.S.C. Section 362 broadly prohibits collection efforts and harassment by creditors attempting to collect debts after the filing of a bankruptcy case. The Bankruptcy Court determined that the creditor's collection efforts in this case after receiving notice of the bankruptcy justified awarding attorney's fees to the debtors.

February 2010 6th Circuit Bankruptcy Case Summaries

2010-03-01T14:36:00.003-06:00

Cassim v. Educational Credit Management Corporation (6th Cir.)

The Debtor filed a chapter 13 case proposing a 29 month payment plan and initiated an adversary proceeding seeking to discharge student loan debt as an undue hardship under 11 U.S.C. Section 523(a)(8). The student loan creditor argued that the case was not constitutionally ripe for adjudication until the debtor received a discharge. Generally, a debtor does not receive a discharge in a chapter 13 case until completion of a payment plan. The Sixth Circuit determined that the facts of this particular case demonstrated a substantial controversy of sufficient immediacy to meet constitutional ripeness. The Sixth Circuit further noted that the facts of the case did not warrant sue sponte review of prudential ripeness factors.

Amendments to the Fair Credit Reporting Act

2010-02-26T13:49:00.003-06:00

Recently, House Resolution 4538 was referred to the House Committee of Financial Services. The Resolution proposes amendments to the Fair Credit Reporting Act ("FCRA") that would require the inclusion of credit scores when free annual credit reports are provided to consumers. Currently, consumers may Request one free credit report per year under the FCRA. The Resolution would additionally require the Comptroller General of the United States to conduct an examination of credit reporting agencies to learn about the methods used by such agencies to determine bankruptcy risk scores that are assigned to consumers.

2005 - 2009 Mortgage Delinquencies

2010-02-23T13:41:00.003-06:00

Above is a graphic from the ABI's Chart of the Day Website demonstrating total mortgage loan delinquencies from 2005 through 2009. From the start of 2007 until the end of 2009, delinquency rates more than doubled in rising from approximately 6% to 14%.

The Proposed Consumer Financial Protection Agency

2010-02-18T16:59:00.003-06:00

An Article in Time makes the case supporting the creation of a new Consumer Financial Protection Agency (the "CFPA") by the Federal Government. The proposed CFPA was included in financial reforms passed by the House and is currently the subject of debate in the Senate. The CFPA is proposed as an independent agency for the creation and enforcement of rules for financial products aimed at consumers. As Reported by The Huffington Post, a group of small business owners is supporting the proposed CFPA.

January Foreclosures Up 15%

2010-02-11T16:08:00.007-06:00

An Article from USA Today reports that U.S. households facing foreclosure in January increased 15% from the same month last year. In January of 2010, more than 315,000 households received a foreclosure-related notice, 1 in 409 homes were sent a foreclosure filing, and banks repossessed more than 87,000 homes.

January 2010 Western District of Kentucky Bankruptcy Filings

2010-02-09T19:02:00.005-06:00

Above is an image demonstrating the monthly bankruptcy case filings by chapter for January 2010 in the United States Bankruptcy Court for the Western District of Kentucky. The total of 903 bankruptcy filings in January of 2010 exceeds the total of 762 bankruptcy filings in the Western District of Kentucky in January of 2009. The increase in bankruptcy filings corresponds with Bureau of Labor Statistics demonstrating that Kentucky's unemployment rate was 7.6% in December of 2008 and 10.7% in December of 2009. The unemployment rate in the Bowling Green Statistical Area was below the state average at 9.4%. An Article from the Louisville Courier-Journal reports that the Kentucky Legislature is in the process of increasing taxes on businesses while simultaneously lowering unemployment benefits for jobless workers in an effort to ease the financial strain currently impacting Kentucky's unemployment insurance trust fund.

January 2010 Western Dist. of KY Bankruptcy Court Memorandum-Opinion Summaries

2010-02-02T15:48:00.007-06:00

JPMorgan Chase Bank v. Woods (Judge Lloyd)

Prior to his bankruptcy, the debtor and his wife had transferred real estate to a trust. The debtor and his wife were both beneficiaries and trustees of the trust. After creating the trust, the debtor mortgaged the real estate without his wife's consent. Subsequently, the debtor initiated a chapter 7 bankruptcy.

Problems arose regarding the validity of the mortgage due to ambiguities in the trust documents concerning the debtor's authority to mortgage the property without his wife's consent. Even worse, the notarial certificate on the mortgage was defective. In responding to motions by certain lien creditors and the bankruptcy trustee to hold the mortgage invalid, the mortgage creditor argued that the debtor had authority to mortgage the property and that the real estate was not property of the bankruptcy estate.

Initially, the Bankruptcy Court noted that property of the bankruptcy estate is defined broadly under 11 U.S.C. Section 541(a)(1). Further, where a debtor has the power to terminate the trust, the debtor's interest in the trust is property of the bankruptcy estate. See 11 U.S.C. Section 541(c)(2). Therefore, the debtor's interest in the real estate was property of the bankruptcy estate.

The Bankruptcy Court further noted that the notarial attestation was defective pursuant to KRS 382.270, and, therefore, subject to challenge by the bankruptcy trustee. Eventually, the mortgage on the property was avoided. This case is a good example of the importance of diligent examination of all documents associated with a transaction involving trusts and/or a power of attorney.

Streich v. Smith (Judge Fulton)

Debtor was an attorney sued in Bankruptcy Court by his former law partner in connection with a claim that debts were exempt from discharge under 11 U.S.C. Section 523(a)(4) , 11 U.S.C. Section 523(a)(2)(A), and 11 U.S.C. Section 523(a)(6). The primary contention by the former law partner was that the debtor failed to share income generated by personal injury advertisements pursuant to the parties' informal partnership. During the case, it was discovered that the former law partner submitted altered copies of checks as purported evidence. The Bankruptcy Court determined that the informal partnership did not result in a technical trust necessary to except debt from discharge under the defalcation prong of 11 U.S.C. Section 523(a)(4). The Bankruptcy Court further determined that the former law partner presented no credible evidence regarding the debtor's intent as is necessary to except debt from discharge under 11 U.S.C. Section 523(a)(2)(A) and 11 U.S.C. Section 523(a)(6). The primary lesson from this case is the negative outcome that results from a party's loss of credibility in a case.

January 2010 6th Circuit Bankruptcy Case Summaries

2010-02-01T13:25:00.015-06:00

General Motors Acceptance Corp. v. Cline (B.A.P.)

Creditor provided floor plan financing for the debtor's automobile dealership, and, in return, creditor received a security interest in the vehicles. The debtor liquidated a large amount of inventory prior to filing for bankruptcy without remitting proceeds to the creditor. The resulting debt was excepted from discharge under the embezzlement prong of 11 U.S.C. Section 523(a)(4). The Court found that the creditor entrusted debtor with its property, the debtor put creditor's property to a use for which it was not entrusted, and debtor possessed the requisite level of fraudulent intent. The primary focus of the case concerns identification and analysis of traditional indica of fraud.

Ingram v. JP Morgan Chase Bank (B.A.P.)

Debtor attempted to avoid a creditor's mortgage in arguing that the mortgage impaired the debtor's exemption for the real estate. The debtor's Motion was denied by the Court in holding that the provision of 11 U.S.C. Section 522(f) providing for avoidance of judicial liens applies only to nonconsensual liens as opposed to consensual mortgage liens.

B-Line, LLC v. Wingerter (6th Cir.)

In a chapter 13 case, a creditor that regularly purchases debt claims from an "intermediary" filed a proof of claim without any supporting documents concerning the origins of the claim. The debtor objected to the proof of claim, and the creditor withdrew the claim after being unable to find supporting documentation. In response to a subsequent Show Cause Order from the Bankruptcy Court, the creditor admitted that it generally does not acquire supporting documentation when purchasing debt claims.

The Bankruptcy Court stated that the creditor's actions fell short of Bankruptcy Rule 9011's requirement of a reasonable pre-filing inquiry into the validity of a claim. However, the Bankruptcy Court declined to impose sanctions in citing the good faith effort undertaken by the creditor in responding to the Show Cause Order.

The Sixth Circuit reversed in concluding that the creditor's action in requesting warranties of validity from the intermediaries selling the claims was sufficient for Bankruptcy Rule 9011 purposes. Surprisingly, the majority's decision in this case could potentially support the argument that a creditor's intentional and repeated violation of Bankruptcy Rule 3001(c) is not sanctionable conduct. In a persuasive dissenting opinion, Circuit Judge Rogers contends that the creditor lacked standing to appeal in light of the fact that the Bankruptcy Court declined to impose sanctions.

Chapter 7 and 13 Filing Fees are Likely to Increase

2010-01-28T16:38:00.003-06:00

The House Judiciary Committee sent Bill H.R. 4506 to the full Congressional House of Representatives only one day after its introduction, January 26, 2010. While the primary focus of the Bill is the creation of certain bankruptcy judgeships, it further increases filing fees for debtors filing chapter 7 or chapter 13 cases in the amount of $1.00. To date, the Bill is moving at a relatively quick pace through Congress, and, therefore, seems likely to become law in the near future. The proposed fee increase would raise total court fees to the amount of $300.00 for chapter 7 cases and $275.00 for chapter 13 cases.

New Credit Card Rules

2010-01-27T15:02:00.002-06:00

The Federal Reserve Board recently adopted a Final Rule Amending Regulation Z (Truth in Lending). The primary purpose of the Rule is to promote greater transparency and disclosures regarding credit card accounts. Generally, the new Rule will require several changes to credit card account rates and statements, including the following:

No Interest Rate Increases for the First Year: A credit card company may not increase the rate of interest for the first 12 months after an account is opened, with some limited exceptions.

Increased Rates Apply Only to New Charges: If a credit card company raises the rate after the first year, such increase will apply only to subsequent charges, and will not apply to the prior balance.

Protection for Underage Consumers: Applicants under the age of 21 will need to demonstrate the ability to make payments or have a cosigner.

Payoff Disclosures: Each monthly credit card bill will include information demonstrating the amount of time necessary to pay the debt if only the minimum monthly payments are applied. Each bill will additionally demonstrate the amount of monthly payments that will be necessary to pay the debt within 3 years.

45 Day Notice Requirements: Credit card companies will be required to provide notice 45 days before increasing interest rates, changing certain fees (such as annual fees or late fees), or making other significant changes to an account.

The new Rule will be effective on February 22, 2010. Consumers should notice changes caused by the new Rule on their March bill statements.

Bankruptcy and America's Middle Class

2010-01-25T17:43:00.002-06:00

In an interesting Article from the Buffalo News, the increased frequency of bankruptcy in America's Middle Class is discussed. The report attributes the increased cost of education, decreases in home equity values, and instability within the relevant employment markets as the primary causes of more frequent bankruptcy cases within America's Middle Class. The most thought-provoking section of the Article cites the statistic that while 46.5% of people who filed bankruptcy had college degrees in 1991, the figure had increased to 58.9% by 2007.

Kentucky City at Risk for Bankruptcy

2010-01-22T10:32:00.002-06:00

The City of Lynch in Harlan County, Kentucky is currently struggling with debt repayments. An Article from WVLT reports that the City of Lynch is having problems with debts owed to multiple creditors, including the IRS and Kentucky Utilities. The current Mayor for the City of Lynch asserts that the debts were incurred by previous city politicians. Although the City of Lynch is a relatively small community, its bankruptcy risk is a concern for all Kentucky citizens. The default and bankruptcy of one Kentucky city could substantially impair the ability of other Kentucky cities to raise money for government projects and development.

BlackRock Proposes a New Bankruptcy Option

2010-01-21T18:52:00.003-06:00

An Article From Bloomberg reports that BlackRock is proposing a new type of bankruptcy. BlackRock is a global investment management firm based in New York City. BlackRock is one of the largest money managers in the world.

BlackRock's apparent proposal of a new chapter under the Bankruptcy Code may be viewed as odd and possibly inappropriate, but the proposal is interesting. Under BlackRock's proposal, the terms of a consumer's mortgage could be eased through bankruptcy after elimination of other debts. BlackRock's version of a new chapter under the Bankruptcy Code would additionally provide a formulaic approach to the determination of whether a consumer's mortgage should be modified.

Previously, proposals in Congress to allow Bankruptcy Courts to modify consumer mortgages have been based on the "cram down" model. Under the cram down model, a Bankruptcy Judge can bifurcate a mortgage debt into a secured debt and an unsecured debt. The mortgage creditor would then have a secured debt equal to the value of the residence and a general unsecured debt for the balance. The cram down model mirrors the outcome of a mortgage foreclosure proceeding. After a home is sold in foreclosure, the mortgage creditor receives the proceeds of the sale and has a general unsecured claim for any remaining balance of debt.

Proponents of the cram down model argue that it is the most efficient method to modify mortgages. Bankruptcy Courts already have the power to cram down certain car loans and are well-equipped to value collateral for debt bifurcation purposes. The cram down model further protects general unsecured creditors such as medical service providers. If a "secured" creditor receives payment in a bankruptcy proceeding that is substantially greater than the value of the collateral, general unsecured creditors may receive a disproportionally low payment.

However, the cram down model has proven to be politically unpalatable. Several efforts to insert the cram down option into the Bankruptcy Code for residential mortgages have failed. BlackRock's proposal may provide a politically acceptable compromise for modifying residential mortgages.

Bankruptcy and Free Speech

2010-01-20T09:38:00.002-06:00

One of the more curious provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 is 11 U.S.C. Section 526(a)(4). That provision states that a bankruptcy attorney may not tell a consumer bankruptcy client that it is legal to incur additional debt prior to bankruptcy. In some circumstances, legitmate reasons may exist to justify an individual taking more credit while contemplating bankruptcy. For example, an individual on the verge of bankruptcy may need to finance emergency medical treatment. In that circumstance, the provision would appear to potentially be a technical constraint prohibiting an attorney from giving a bankruptcy client legal guidance.

Recently, the US Court of Appeals for the Eighth Circuit held that 11 U.S.C. 526(a)(4) is unconstitutional. The Eighth Circuit determined that the provision violates Constitutional free speech rights under the First Amendment in the case of Milavetz v. United States of America. The Eighth Circuit Court's decision was appealed to the US Supreme Court, where the case is still pending. A recent Article from The Washington Post reports on the case's progression through the Supreme Court and describes the Oral Arguments in the case. A decision from the Supreme Court is anticipated in early 2010. The Supreme Court's decision in this case will undoubtedly have a material impact on the practice of law by bankruptcy attorneys.

US Senators to Propose New Bankruptcy Court

2010-01-18T11:40:00.002-06:00

A recent Article in Business Week reports that the US Senate Banking Committee will likely propose a new Bankruptcy Court in the near future. The new Bankruptcy Court will specialize in administering the takedown of failed financial institutions. Such a Bankruptcy Court would take power away from the FDIC, which currently regulates failing financial institutions. The new Bankruptcy Court proposal may include a specially trained federal judge for each of the US Circuits and/or the creation of a dedicated court. The proposal for a new Bankruptcy Court is expected to be included within new federal financial institution regulations in 2010.

Western District of KY Bankruptcy Filings

2010-01-15T15:37:00.008-06:00

Above is an image demonstrating the annual bankruptcy case filings by chapter for the year 2009 in the United States Bankruptcy Court for the Western District of Kentucky. The annual filings represent the filing period beginning January 1, 2009 and ending December 31, 2009. The greatest number of bankruptcy cases were initiated during the month of March of 2009. Chapter 7 bankruptcy cases were by far the most common type of proceedings filed in the United States Bankruptcy Court for the Western District of Kentucky during 2009.

The ABA's Bankruptcy Pros and Cons

2010-01-15T14:50:00.010-06:00

The American Bar Association is a voluntary association of lawyers with about 410,000 members. The American Bar Association's website contains an article with some good information regarding both the benefits and negatives associated with bankruptcy. Bankruptcy issues discussed in the article including the following:

What exactly is bankruptcy?
What is the process of filing for bankruptcy?
If you cannot pay your debts, what other options do you have besides bankruptcy?
What are the advantages of filing for bankruptcy?
What are the disadvantages of filing for bankruptcy?

You can read the entire article by clicking the following link: Bankruptcy Article Link. I would recommend that anyone with general questions about bankruptcy read the publication on the American Bar Association's website.