In May 2009, the Supreme Court U.S. handed down Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009), a decision which makes it harder for numerous civil plaintiffs to escape dismissal of claims brought in federal court. Although the facts in Iqbal concern a civil rights claim, the decision also has relevance in the context of bankruptcy adversary proceedings. This is because Iqbal expressly applies to the pleading of each element, including knowledge and intent, of every claim in federal court.

Iqbal arose out of the arrest and detention of Javaid Iqbal, a Muslim Pakistani. Mr. Iqbal filed suit in New York federal district court alleging that federal officials, including former Attorney General John Ashcroft and FBI Director Robert Mueller, adopted certain policies that unconstitutionally discriminated against him while he was in a special maximum security housing unit. Ashcroft and Mueller moved to dismiss for failure to state a claim. In particular, they argued that Mr. Iqbal ’ s complaint did not sufficiently allege that they had a discriminatory purpose in adopting the policies at issue. The district court denied their motion. While appeal to the Second Circuit Court of Appeals was pending, the Supreme Court decided Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955 (2007), which held that, at least in the context of an antitrust suit, a complaint must allege “ enough facts to state a claim to relief that is plausible on its face. ” The Second Circuit held that Twombly did not apply to Iqbal ’ s discrimination claims and affirmed the lower court ’ s decision. The Supreme Court reversed. In reaching this result, Justice Kennedy’ s majority opinion contains four significant holdings: (1) The heightened pleading standards of Twombly apply in all federal civil actions, (2) The heightened pleading standards of  Iqbal/Twombly apply to allegations of all elements of a claim, even when the plaintiff has not alleged fraud; (3) the Iqbal/Twombly standard specifically requires plaintiffs to “ plead factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”; and (4) plaintiffs cannot evade Iqbal/Twombly’s heightened pleading standards through promises that discovery will be limited.

Iqbal is a significant development for civil defendants seeking to dismiss complaints filed in federal court no matter what the type of claim – including, for example, consumer debtors who are facing adversary actions by Trustees or creditors. Iqbal clarifies that Twombly applies to all elements in all federal civil suits, and some attorneys say it adds a distinctly pro-defendant gloss on the Twombly standard.

The Michigan State Bar Business Law Section’s May 18, 2010 meeting in Southfield will explore the implications of this holding for bankruptcy adversary proceedings, particularly avoidance actions by Trustees.

-Drew Broaddus

I was listening to Dave Ramsey today, while eating lunch.  A woman called in and said she had heard some folks tell her that she could settle with credit cards for a lesser amount than what is owed.  While Dave told her that is possible, but not likely (since she was behind on the cards,according to him) what he did not tell her was something very, very important that we always tell all of our clients.  Why Dave did not share this important information with her, I do not know.

What is that information that is so important?  Quite simply, it is the fact that if you do settle with ABC Credit Card for a smaller amount, then the amount that you don’t pay them can be, and likely will be,  sold to a debt buyer, lets call them XYZ Debt Buyer, and then XYZ Debt Buyer will likelycome after you years down the road for that debt.  Now, the statute of limitations may prevent them from suing you, but they may still try to collect on the debt they purchased.

You see,  XYZ Debt Buyer has purchased that, let’s say, $3000 debt that ABC Credit Card did not get from you (let’s say you paid them $2000 to settle a $5000 debt) for pennies on the dollar, or sometimes fractions of a penny on the dollar. So, any moneys that XYZ Debt Buyer is able to get out of you down the road is profit for them !  I have several clients a month that come in and are being contacted for debt that they thought they paid and settled, albeit only a portion, several years ago. 

So, you see, when discussing your financial situation with a non-attorney, it is not always what you are told, but maybe what you are not told, that could be very important  information that you need to help you decide what course of action to take.

John Rogers, Kentucky Bankruptcy Attorney

Effective March 15, 2010, the Census Bureau’s Median Family Income Data, Chapter 13 Administrative Expense Multipliers and IRS Allowable Living Expense figures have been revised; those revisions are available from the U.S. Department of Justice’ website here. As noted on the Department of Justice’ website, most individual debtors filing for bankruptcy relief are required to complete either Official Bankruptcy Form 22A or 22C (Statement of Current Monthly Income and calculations). Bankruptcy Form 22A is the form Chapter 7 debtors will complete for “means testing” purposes while Form 22C is the form Chapter 13 debtors will complete.

A debtor must enter income and expense information onto the appropriate form and then make calculations using the information entered. Some of the information needed to complete these forms, like the debtor’s current monthly income, comes from the debtor’s own personal records. However, other information needed to complete the forms comes from the government-issued statistics referenced above.

If you are considering bankruptcy, it is important to consult with an attorney to determine whether you qualify for Chapter 7 under the Means Test.

-Drew Broaddus

Serena V.

Brief description of your legal issue:
I am in serious debt, besides my mortgage I owe roughly 20+ thousand in credit card debt.I owe the IRS
and have been trying to make payments as best as possible. I need help!

Generally, a creditor is required to issue IRS Form 1099-C to a debtor for any debts forgiven greater than $600.  What does this mean in bankruptcy? Settling a debt before filing for bankruptcy potentially transmutates a dischargeable unsecured debt into a non-dischargeable tax debt. Credit card debt is generally unsecured and is dischargeable in bankruptcy. However, forgiven debt becomes income which is subject to income taxes, and tax debts less than 3-years old are generally not dischargeable in bankruptcy.

Example: You owe American Express $20,000 and you settle the debt for $5,000. American Express issues a 1099-C to you for $15,000 which you need to declare as income when you file your tax return. If you are in a 20% tax bracket you may incur a $3,000 tax liability that is non-dischargeable in bankruptcy.

Steven R. Striffler

Law Office of Steven R. Striffler

21 McGrath Highway, Suite 301

Quincy, MA 02169

Admitted in Massachusetts and Rhode Island

Click here to read the article.

A debt buyer is a company or individual who purchases note paper. When you purchase a home, or a car, you sign a promissory note. This promissory note is what entitles the creditor to collect money from you for payment on the loan. Often times, the original creditor who you signed the promissory note with will sell the note to a new creditor for a discounted value.

For instance, you sign a promissory note to ABC Finance with a face value of $15,000.00. You will pay this amount over the next 5 years with interest. ABC Finance doesn’t want to wait 5 years to received their payments, so they sell the promissory note to DEF Finance Company for a discounted value of $12,000.00. DEF Finance now has the right to collect the full $15,000.00 face value of the note from you.

When the note falls behind for non payment, some companies consider that promissory note to be worthless. In the past 10 years, an entire industry has cropped up with companies who will buy this ‘worthless’ paper for pennies on the dollar.

In the end, debt buying companies might pick up your $15,000.00 note for $150.00 with the right to collect on the full $15,000.00 face value of the note.

When you file for bankruptcy, these debt buyers purchase the notes from the creditor, obtain the right to collect, and file their claims in your bankruptcy case.

Typically, these companies have no documentation to prove that the original loan is valid. In a recent 6th Circuit decision, B-Line, LLC v. Wingerter the Court Ruled that it was OK for B-Line to file claims without documentation until the claim was challenged for validity. It became clear from B-Line’s arguments that they file claims without documentation on a regular basis. In fact, it is part of their profitable business model.

In my opinion, for bankruptcy attorneys, this invites an objection to claim in each and every B-Line case. Where you don’t see any kind of documentation, an objection should be brought demanding that B-Line prove up it’s claim foundation. The reason this is a valid objection is that B-Line asserts reliance on a ‘warranty’ from the original creditor as justification not to file documentation. Thus their business practice does not violate any of the Court Rules.

This may be well and true, but as a practitioner, you now know that B-Line will not be filing claims with any documentation. All claims must have a basis for their validity. In this case, B-Line is officially stating that they do not know if the claim has any basis for validity, they simply have the right to collect. It places the burden on debtor’s counsel, but it is one we should endeavour to use for the benefit of our clients anyway.

Good luck out there,

Jay S. Jump
Law Offices of Jay S. Jump, PLLC
PO Box 1028
Davenport, WA 99122

Offices in Kent and Davenport, WA.

This part is bad for the attorneys:

Attorneys who provide bankruptcy assistance to assisted persons are debt relief agencies under the BAPCPA. By definition, “bankruptcy assistance” includes several services commonly performed by attorneys, e.g., providing “advice, counsel, [or] document preparation,” §101(4A). Moreover, in enumerating specific exceptions to the debt-relief-agency definition, Congress indicated no intent to exclude attorneys. See §§101(12A)(A)–(E). Milavetz relies on the fact that §101(12A) does not expressly include attorneys in advocating a narrower understanding.

And this part is bad for the debtors:

Section 526(a)(4) prohibits a debt relief agency only from advising a debtor to incur more debt because the debtor is filing for bankruptcy, rather than for a valid purpose. The statute’s language, together with its purpose, makes a narrow reading of §526(a)(4) the natural one. Conrad, Rubin & Lesser v. Pender, 289 U. S. 472, supports this conclusion. The Court in that case read now-repealed §96(d), which authorized reexamination of a debtor’s attorney’s fees payment “in contemplation of the filing of a petition,” to require that the portended bankruptcy have “induce[d]” the transfer at issue, id., at 477, understanding inducement to engender suspicion of abuse. The Court identified the “controlling question” as “whether the thought of bankruptcy was the impelling cause of the transaction,” ibid. Given the substantial similarities between §§96(d) and 526(a)(4), the controlling question under the latter is likewise whether the impelling reason for “advis[ing] an assisted person . . . to incur more debt” was the prospect of filing for bankruptcy. In prac- tice, advice impelled by the prospect of filing will generally consist of advice to “load up” on debt with the expectation of obtaining its discharge. The statutory context supports the conclusion that §526(a)(4)’s prohibition primarily targets this type of conduct.

What does this mean for you? It means that debtor’s counsel will no longer be able to give advice to debtor’s about obtaining debt in order to qualify for a discharge or to exchange unsecured debt for secured debt. While we have previously referred to this as ‘bankruptcy planning’, the Supreme Court believes that this is an invitation to commit fraud.

However, I completely disagree with this analysis as I don’t intend for my client’s to commit fraud. I intend for them to use the law to their maximum advantage. I don’t see how that is fraudulent. In every law school class I ever intended, I was tasked with the mandate of zealously representing my clients to the best of my ability and to use every ‘legal’ method available to maximize their results. Anything less was not acceptable.

Now the Supreme Court has drawn a line in the sand by intruding on the sanctity of the attorney/client relationship. I can no longer feel free to provide the best level of advice that I can to my clients. I now have to censure myself and it is to the detriment of my client’s case. That is not an acceptable outcome for myself or my clients.

This is a bad ruling. What’s even more unfortunate is that the Court ruled unaminously on the issue. A 9-0 opinion. This is also a dangerours precedent for the legal community at large. The ABA needs to sit up and take notice that speech restrictions have been placed on the attorney/client relationship. Today Bankruptcy Attorneys, tomorrow, who knows where it will lead?

Jay S. Jump
www.jumplawgroup.com
Washington State
Offices in Kent and Davenport

In most cases the proper venue will be clear. However, in cases involving joint debtors with separate residences or debtors, who have recently moved a decision as to where to file the bankruptcy proceeding is necessary. While the federal exemptions remain consistent, not all exemptions offered under state law are equal. Depending on the situation, it may benefit the debtor to file a bankruptcy case right away to take advantage of the exemptions offered in their prior jurisdiction while others may benefit from waiting until they establish residence in a new jurisdiction. Although the benefit of waiting may not be available to every debtor, a knowledgeable bankruptcy attorney can assist a debtor in making the decision where to file a Chapter 7 bankruptcy case.

- Richard V. Stokan, Jr.