Michigan Bankruptcy Blog
Auday v. Wet Seal Retail, Inc., Case No. 12-5057 (6th Cir., Oct. 25, 2012) (recommended for full-text publication).
As most bankruptcy practitioners know, a debtor’s pre-petition cause of action – whether for personal injury, breach of contract, or other claim – is property of the bankruptcy estate. Now, the Sixth Circuit has clarified that only the trustee can file suit in connection with a Chapter 7 debtor’s pre-petition cause of action, unless the action is abandoned.
Moyer v Koster et al (In re Przybysz), Adv. Pro. Case No. 12-80174 (Hon. Scott W. Dales, Sept. 25, 2012).
A recent decision from the Bankruptcy Court of the Western District of Michigan serves as a lesson and reminder to attorneys that complaints must do more than recite legal conclusions – they also must allege sufficient facts to put defendants on notice of the claims and of possible defenses.
The Sixth Circuit Court of Appeals recently held that Michigan's bankruptcy-specific exemption statute is constitutional under the Bankruptcy Clause and Supremacy Clause of the United States Constitution.
Historically, Michigan has allowed bankruptcy debtors to use the federal exemptions under 11 U.S.C. § 522(d), the general state exemptions under M.C.L. § 600.6023, or the state exemptions pursuant to M.C.L. § 600.5451 that are specific to debtors in bankruptcy (prior to it being declared unconstitutional).
Michigan is one of a few states that has a bankruptcy-specific exemption statute available to bankruptcy debtors only. In the Western District of Michigan, the constitutionality of the bankruptcy-specific scheme was called into doubt by the Hon. James D. Gregg in In re Pontius, 421 B.R. 814 (Bankr. W.D. Mich. 2009) and the Hon. Jeffrey R. Hughes in In re Wallace, 347 B.R. 626 (Bankr. W.D. Mich. 2006). Contrarily, the Hon. Scott W. Dales, held that the bankruptcy-scheme was constitutional in In re Schafer, 428 B.R. 720 (Bankr. W.D. Mich. 2010), pursuant to Sixth Circuit precedent and Congress' delegation of power to the states pursuant to 11 U.S.C. § 522(b) to create bankruptcy exemptions.
The Sixth Circuit Court of Appeals recently affirmed a decision of the United States District Court for the Southern District of Ohio based upon the District Court's holding that the automatic stay does not prevent the issuance of injunctive relief.
The local rules for the Bankruptcy Court for the Western District of Michigan have been amended, effective August 1, 2012. The new rules can be found here in their entirety.
A redline version of the rules, showing the amendments, can be found here. (We have identified that the following link is no longer active, and it has been removed)
Among other changes, practitioners should review the following amendments:
This blog entry includes material originally prepared by the author for the 2012 FBA Bankruptcy Seminar.
The U.S. Supreme Court’s decision in Stern v. Marshall, 131 S. Ct. 2594 (2011), immediately cast a shadow of uncertainty on bankruptcy courts’ constitutional authority to enter final orders. But Stern leaves many questions unanswered, and the bankruptcy judges within the Western District of Michigan have differed as to whether the case should be interpreted narrowly or broadly. As a result, depending on the presiding judge in a particular case, Stern may be critically important or unworthy of mentioning. The following is a brief review of cases in this district that address the scope of Stern.
On an issue of first impression before the Sixth Circuit, the Court held that post-petition income that becomes available after a debtor completes repayment of a 401(k) loan is projected disposable income that must be turned over to the Trustee for distribution to unsecured creditors pursuant to Section 1325(b)(1)(B) and may not be used to fund voluntary 401(k) plans.
In this case, both debtors (on consolidated appeal) were making payments to a 401(k) loan, which would be paid off during the life of the Chapter 13 plan. Neither debtor was making contributions to their 401(k) retirement accounts at the time the petitions were filed. The debtors proposed to use the income (available after full repayment of the 401(k) loan) to start making contributions to their 401(k) retirement accounts. The Trustee objected on the issue of whether the debtors must include the income resulting from the payoff of the 401(k) loans to their respective plans considering neither debtor was making 401(k) contributions at the time the petitions were filed.
In re Hopkins, Bankr. W.D. Mich., Case No. 10-13592, Hon. Scott W. Dales (Feb. 2, 2012).
When the sole member of a limited liability company files Chapter 7 bankruptcy, the membership interest is property of the bankruptcy estate that the trustee may liquidate, subject to claimed exemptions and liens. But if the LLC owns property, can the trustee also liquidate that property for the benefit of the sole member's creditors?
In re Pellegrini, Bankr. W.D. Mich., Case No. 09-90464, Hon. James D. Gregg (Jan. 17, 2012).
When Congress adopted BAPCPA, it added an exemption for "[r]etirement funds to the extent that those funds are in a fund or account that is exempt from taxation" under certain provisions of the Internal Revenue Code. 11 U.S.C. § 522(d)(12). Although broader than the exemption previously available for retirement funds, § 522(d)(12) is not limitless – as the Bankruptcy Court for the Western District of Michigan recently emphasized.
Effective December 1, 2011, the Federal Rules of Bankruptcy Procedure (FRBP) that govern filing a proof of claim will change dramatically.
FRBP 3001 will be amended to increase the types of information required to be attached to a proof of claim. While Rule 3001 has always required a claimant to produce a writing to support its claim, now a claimant must also attach information relative to the principal, interest, fees, and any other expenses incurred pre-petition - including arrearages.
