Thursday, August 29, 2013

BREAKING NEWS - Ninth Circuit Requires Negative DMI Ch.13 Plans Last Five Years

In re Flores (9th Cir. Aug. 29, 2013)

In 2011, the Flores family filed for bankruptcy protection under Chapter 13.

The Floreses' plan proposed to pay all their disposable household income ($148 per month) to their creditors for three years. After three years, whatever debts weren't paid would be discharged.

The Chapter 13 trustee objected because the plan didn't last for a full five years, as he argued Bankruptcy Code section 1325(b)(1)(B) required.

The Ninth Circuit Court of Appeals agreed with the trustee and held that the Flores family must commit to making payments for a full five years.

The Floreses' family attorney cited a 2008 case called Kagenveama, where the Ninth Circuit decided that consumers with no "projected disposable income" could file Chapter 13 plans that lasted less than five years.

However, the trustee argued that the Supreme Court essentially overruled Kagenveama  in a 2010 case called Hamilton v. Lanning, 130 S. Ct. 2464 (2010).

The Ninth Circuit agreed with the trustee and required the Floreses' plan last five years.

The Court reasoned that Congress intended all consumers with above-average income to make a five year commitment, to allow for larger payments to creditors over time if household income increased.

Read the full opinion for complete analysis: http://cdn.ca9.uscourts.gov/datastore/opinions/2013/09/04/11-55452%20web.pdf

Commentary: Despite its harmful effects on working-poor consumers, I tend to interpret the text of 1325 as the majority does.

In any event, this result was expected. The Supreme Court's writing was on the wall in Lanning, and all other appellate courts have reached the same conclusion.

What I didn't expect was Chief Judge Kozinski joining Judge Pregerson in a heartfelt dissent.

It's refreshing to see lawyers of this stature who can passionately relate to the plight of the average American.

To paraphrase my favorite quote from the dissent:

Lengthy repayment plans are 'the closest thing there is to indentured servitude.'

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