Brian Cahn, Adam Goodman, Karen Visser, Melissa Youngman, the Consumer Bankruptcy Panel: Hot Consumer Bankruptcy Plan Issues

• Jurisdiction: United States,Federal
• Publication year: 2011
• Citation: Vol. 28 No. 2

CONSUMER BANKRUPTCY PANEL

HOT CONSUMER BANKRUPTCY PLAN ISSUES

Brian Cahn* Adam Goodman** Karen Visser***

Melissa Youngman****

MR. ZISHOLTZ: We’re going to start our final panel. This panel will be moderated by Ms. Karen Visser, who was gracious enough to volunteer as our moderator. Karen has served as a law clerk to the Honorable W. H. Drake, Jr., Bankruptcy Judge for the Northern District of Georgia, since 2001. She graduated summa cum laude from Georgia State University College of Law in 2000. Karen is a co-author of Bankruptcy for the General Practitioner. She is also an adjunct professor at Mercer University’s Walter F. George School of Law. Thank you for participating with us today, Karen.

MS. VISSER: Thank you, Jeremy. It’s my pleasure to introduce the rest of our awesome consumer panel. To my immediate right, we have Melissa Youngman. Melissa is a managing attorney of McCalla Raymer’s bankruptcy practice in Florida. She focuses on representation of secured creditors in consumer bankruptcy practice. She also represents creditors in all aspects of insolvency, including workouts, bankruptcy, reorganizations, and assignment for the benefit of creditors. She received her J.D. from St. John’s University School of Law in 2002 and her B.A. from the University of Florida in 1998. While in law school, she served as an editor of the American Bankruptcy Institute Law Review. She also serves currently as a board member of the Central Florida Bankruptcy Law Association and is a former board member of the New York chapter of IWIRC. Welcome to Atlanta, Melissa.

Next to Melissa we have Adam Goodman. The Office of Adam M. Goodman, Standing Chapter 13 Trustee, is responsible for administering chapter 13 bankruptcy plans here in the Northern District of Georgia for cases

* Partner, Perrotta, Cahn & Prieto PC.

** Standing Chapter 13 Trustee, Northern District of Georgia.

*** Managing Attorney, McCalla Raymer LLC.

**** Career Law Clerk for Judge W. H. Drake Jr., U.S. Bankruptcy Court for the Northern District of Georgia.

assigned to Judge Drake, Judge Murphy and Judge Sacca. Adam is the co- author of Chapter 13 Practice and Procedure.

MR. GOODMAN: Go out and buy a copy.

MS. VISSER: And at the end we have Brian Cahn, who is a partner with Perrotta, Cahn & Prieto, P.C. Mr. Cahn received his bachelor’s degree from the University of Georgia in 1991 and his J.D. from Sanford University’s Cumberland School of Law in 1994. He is a member of the National Association of Consumer Bankruptcy Attorneys and the ABI. Welcome, Brian.

MR. CAHN: Thank you.

MS. VISSER: We’re very glad to have you as our debtor attorney on the panel.

So what we’ve done today in order to frame our discussion is give you a typical but hypothetical fact pattern involving a married couple who have two young kids and they’ve come into our office today seeking bankruptcy relief. If you wouldn’t mind taking about three minutes to go ahead and read through the hypothetical, we’ll jump into Issue 1. So just stop when you get to the part that says, “Issues.”

All right. I know that you all are speed readers, so I’m going to go ahead and throw our first issue out to Brian. Basically, our first issue is that Donna Debtor has a student loan debt. And as you all know that under 11 U.S.C.

§ 523(a)(8),1 the debt is presumptively non-dischargeable. And to get that debt

discharged, the debtor is going to have to get a determination that failure to discharge the debt would impose an undue hardship on her and her family. So under Rule 7001(6),2 we’re supposed to file an adversary proceeding to get that determination. But Brian says that he has a friend who told him that the

Supreme Court recently ruled that all you have to do is put language in the plan that says it’s discharged and get your plan confirmed. So, Brian, is that really what the Supreme Court said? And if so, can we just go ahead? It seems really easy to do that.

MR. CAHN: Well, if you just look at the holding at the ruling,3 you’re going to miss the essence of the opinion. You don’t want to make the mistake of

1 11 U.S.C § 523(a)(8) (2006).

2 FED. R. BANK. P. 7001(6).

1. Mr. Cahn refers to the United Student Aid Funds, Inc. v. Espinosa case. United Student Aid Funds, Inc. v. Espinosa, 130 S. Ct. 1367 (2010).

   overreaching with plan provisions. They call it “discharge-by-declaration.” Now, when I first read the case and I saw that this debtor was able to discharge the student loan debt by virtue of a plan provision, this sounded great to me because the last adversary that I filed for a client that was clearly disabled was very much contested. It involved a two-day trial, doctors’ depositions, and it seemed like a cut-and-dried case to me. But after all the evidence, the judge said it was a close call and ultimately did give my client a discharge on his

   student loan. But these are very difficult cases to prove. The Brunner test4 is

   pretty much the universal standard. The debtor in Espinosa was able to avoid all of that. The debtor did not have to go to a trial. The debtor did not have to prove the elements under the Brunner test. He did it the easy way.

   
   

   Now, if you look at the opinion, the Supreme Court decided this case on very narrow procedural grounds. That was more of a due process issue. Because United Student Aid Funds did receive notice of the plan and, for whatever reason, chose not to object to it, they had waived their rights, even though the way the debtor did it was illegal. But the opinion warned debtors’ attorneys about doing it this way. Debtors’ attorneys could be looking at the

   possibility of sanctions under Rule 115 or Rule 9011,6 and that could be

   considered a bad faith litigation tactic.

   
   

   So for a student loan case, I wouldn’t touch it with a plan provision. I wouldn’t want to risk being on the other end of a Rule 11 or 9011 motion for sanctions. It’s just in practice not something that I would risk doing. But there are other options that may be available, may be appropriate, and those options I would consider.

   
   

   MS. VISSER: For example, you would perhaps try to strip a second lien through a plan provision without filing a motion or an adversary proceeding?

   
   

   MR. CAHN: I wouldn’t do that.

   
   

   MS. VISSER: Why?

   
   

   MR. CAHN: The reason I wouldn’t do that is because Rules 3012 and 70017 require, respectively, either a motion or an adversary proceeding. So this is very much like the Espinosa situation where you are at risk of employing a bad

   
   

2. Brunner v. N.Y. State Higher Educ. Servs. Corp., 831 F.2d 395 (2d Cir. 1987) (articulating a three-part test for a finding of “undue hardship”).

3. FED. R. CIV. P. 11.

4. FED. R. BANKR. P. 9011.

7 Id. 3012, 7001.

faith litigation tactic by trying to strip a second lien by virtue of a plan provision. So I wouldn’t suggest doing that. But there are other options that are less aggressive, but more common.

One provision that I’ve incorporated into plans has been a situation where a client has a pawned vehicle. This is very common now with this economy. We’re seeing more and more clients come in with vehicles subject to a title pawn. Most of the times you don’t know whether that client is still within the redemption period, and you don’t really know what it takes to appropriately redeem that vehicle through a chapter 13 plan. There are a couple of cases out there that indicate that the debtor must take adequate affirmative steps in the plan to redeem that vehicle. So I hate to risk the probability of filing a plan that doesn’t take those appropriate affirmative steps.

On page 130 of the materials, I incorporated a plan provision that said that the debtor is going to retain this vehicle by paying the title lienholder in full, and that confirmation of the plan shall constitute an affirmative finding that the grace period for redemption has not expired, that the vehicle is property of the estate, and that the payments in the plan to the title pawn lender do constitute affirmative appropriate steps to redeem that vehicle. I think that shifts the burden to the title pawn lender to object and tell me that these are not appropriate steps.

MS. VISSER: In fact, the title pawn holder didn’t come to court, more than likely in that case, but someone else did.

MR. CAHN: Yes. I believe that is a function of the Espinosa opinion. The Espinosa opinion shifts the burden of policing these provisions, not only to the debtor and the debtor’s attorney, but to the chapter 13 trustee and judges as well. So the creditor has to protect itself, and everybody else has to be proactive in policing these provisions.

I don’t think that two years ago I would’ve had to argue this provision because it wouldn’t have come before the judge, but now our chapter 13 trustees have been instructed by the Supreme Court to police plan provisions that are unconventional or off the menu. So it does add more work, not only to the trustees but to the judges and the creditors.

MR. GOODMAN: I actually look a little bit further back than Espinosa. I look to the Eleventh Circuit’s Bateman decision8 which preceded Espinosa by,

1. Universal Am. Mortg. Co. v. Bateman (In re Bateman), 331 F.3d 821 (11th Cir. 2003).

   I think, at least ten years. In that case, it was a case that emanated out of Miami regarding mortgage arrearage cures and the fact that the debtor’s plan did not properly address a nonmodifiable mortgage and did not propose to cure what the proof of claim actually provided for. The case went past confirmation and was actually, by the time the Eleventh Circuit decided the case, near that five- year mark if it hadn’t already passed it. In that case, the Eleventh Circuit crafted relief to all the parties but instructed all the parties, pointing to the court, to the trustee, to the debtor’s attorney, and to the creditor, that everybody had a responsibility under the Code and needed to honor what the Code provided for. So I think the Bateman case really to me is where I’m looking towards, and certainly Espinosa supports obviously that same logic.

   
   

   So, as long as I’ve been trustee, I look at...