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					            Idaho-Montana Bankruptcy Newsletter
                             Ken Anderson, Attorney at Law
                               504 Main Street, Suite 330
                                  Lewiston ID 83501

                                      August, 2009

                                NOTICES OF MEETINGS

     The Moscow Area Bankruptcy Bar will meet again on Monday, the 21st day of
September, 2009, at noon at the Sandpiper Restaurant, 414 N. Main, Moscow.

         The North Idaho Debtors= Counsel will meet again on Thursday, the 24th day of
September, 2009, at noon in the judges= conference room in the clerks=s suite on the
first floor of the Federal Building in Coeur d=Alene.

       Discussion topics this month: (1) Ransom, 9th Circuit, confirming the earlier BAP
decision.. (See case #1, below.) (2) Hypothetical case: Debtors wholly own a
corporation which has $10,000 in debt (all general unsecured) and the only corporate
property is a widget worth $8,000. The corporation is thus insolvent and has ceased
doing business. Debtors want to shut it down and move on with a Chapter 13
bankruptcy. How should the widget be treated in the Chapter 13 Plan? (See Case # 2,
below.)

      None of this is researched and it is not legal advice. It is provided solely to assist
members of the Idaho and Montana bankruptcy bars in identifying issues and resources
which might affect their practice and assist them in representing their clients before the
U.S. Bankruptcy Court. I am merely passing on things I have noted in the ABI and
NACBA blogs, various updates, highlights, etc. I also read and draw on Consumer
Bankruptcy News, an excellent biweekly newsletter available on annual subscription
from LRP Publications, 747 Dresher Road, PO Box 980, Horsham, PA, 19044-0980),
and Consumer Bankruptcy Abstracts, subscription info available at www.cbar.pro.


                           CURRENT ISSUES OF INTEREST


1.     Consumer filings are up 37% during the first six months of 2009 compared with
       the same period a year ago according to the ABI. In June alone, they were up
       41% over June of 2008. ABI Update, 2 JL 09.

2.     In preparation for the effective date of the new credit card regulations passed by
       Congress, card issuers have been quickly changing the terms of their cards to
       make up for the restrictions on changes they will face in the future. Interest rates

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     will be restricted on fixed-rate cards, so issuers are changing their fixed-rate to
     variable-rate cards based on the U.S. prime rate. ABI Update, 9 JL 09.

3.   Foreclosures are up 15% in the first half of 2009 compared with the same period
     last year. California led the nation in this statistic; one out of every 34 homes
     were in some stage of foreclosure. AbI Update 16 JL 09. Also, according to
     RealtyTrac=s annual U.S. Foreclosure Market Report for 2008, properties in
     some stage of foreclosure were up 81% over 2007 and a whopping 225% over
     2006. The trend for 2009 appears to be even steeper. (Thanks to Montana
     attorney Jim Cossitt for this info.)

4.   Credit card charge-offs reached a record high in June: 10.76%, compared with
     only 6.46% in the same month a year ago. AbI Update, 23 JL 09.

5.   Senate democrats haven=t given up on eliminating the mortgage loan protection
     against Ch 13 cramdowns. This measure failed earlier this year in the Senate but
     as mortgage foreclosures continue to skyrocket, Sen Durbin (D-Ill) last month
     called for reconsideration of the proposal. BI Resident Scholar Adam Levitin of
     Georgetown University Law pointed out that lenders would still receive the actual
     value of their collateral, but by a continued stream of payments instead of by
     foreclosure sale. AbI Update, 23 JL 09.

6.    A new study released late last month showed that older Americans are racking
     up credit card debt faster than other consumers and that the likely causes are
     dwindling retirement portfolios coupled with medicals costs rising faster than the
     rate of inflation. ABI Update, 28 JL 09.

7.   The Obama administration is ending the previous administration=s experiment
     with farming out IRS tax collection duties to corporations. The trend in state and
     local governments, however, is going the other way. Cash-strapped states,
     counties, and districts are selling their claims to the highest bidders in private-
     enterprise who are charging double-digit interest. Some claim this is
     exacerbating the foreclosure crisis by pushing homeowners out of their houses
     faster than would local governments elected by and responsible to the people.
     The private enterprise holders of these tax liens have priority over mortgages
     lenders. ABI Update 28 AG 09, citing a piece in the New York Times edition of
     the same date.

8.   The FTC and 25 other federal and state agencies haves brought 189 civil actions
     against defendants who deceptively marketed foreclosure rescue and mortgage
     modification schemes. AOperation Loan Lies@ targets con artists who see money
     to be made by preying on people in distress. New York=s attorney general alone
     has sued 35 law firms and two debt collectors in an effort to throw out an
     estimated 100,000 default judgments allegedly taken improperly against


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     consumers. CBN, 13 AG 09. The collections industry itself has laudably
     endorsed the governmental effort to weed out wayward entities in its midst,
     noting that such activity worsens their industry=s already-poor public image.
     Collections and Credit Risk, AG-SE 09, page 8.

9.   Here is a nightmare scenario for mortgage-holders: of the up to $10 trillion of
     mortgages in effect in the US, perhaps as many as $8 trillion of them may have
     become unenforceable because the mortgages were improperly converted into
     securities. This is according to Richard F. Kessler, CEO of Documentary
     Clearing House LLC (DCH). DCH was established to compel reform of
     foreclosure and the secondary mortgage market. The company is offering for
     sale its new, ready-to-file ACancel the Mortgage Now! Omnibus Motion to
     Dismiss.@ This offering consists of allegedly well-documented and researched
     legal arguments that conversion of a mortgage into a security renders the
     mortgage unenforceable, according to Kessler. If this succeeds across the
     county, the consequences to the mortgage industry could be stunning. The
     product is offered to solo practitioners for $599 and to law firms for $799. More
     info may be had at richardfkessler@verizon.net or at www.cancelthe
     mortgagenow.com. (Thanks to Montana attorney Jim Cossitt for bringing my
     attention to this.)

                          RECENT CASES OF INTEREST


1.   Ransom, __ BR __, 2009 WL C, 14 August 2009. Two years ago, the 9th Circuit
     BAP held that an above-median Ch 13 debtor could not claim ownership
     expense for a vehicle on which there are no purchase contract or lease
     payments. 380 BR 799 . Here, the 9th Circuit acknowledged the wide split in
     prior decisions of other courts including the 5th and 7th Circuits which have
     answered this question in the affirmative , but nevertheless affirmed the BAP
     decision and tossed a hot potato to the Congress. The court stated that it based
     its decision on statutory construction (turning back an invitation to rely on the IRS
     collection literature), specifically, '707(b)(2)(A)(ii)(I), turning on the meaning of
     >debtor=s applicable monthly expense amounts specified under... the Local
     Standards.@ Also, A...how is the vehicle ownership expense allowance capable
     of being applied to the debtor if he does not make any lease or loan payment on
     the vehicle?@ ATo interpret that statute otherwise is counterintuitive to one of
     the main objectives of BAPCPA...@ (This same court didn=t seem to have any
     problem with its Kagenveama decision being counterintuitive.) Also, AIronic it
     would be indeed to diminish payments to unsecured creditors in this context on
     the basis of a fictitious expense not incurred by a debtor.@ (Again, this doesn=t
     seem to square with the thinking in Kagenveama, although consistency across
     the whole of the BAPCPA legislation is probably impossible.)



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     At bottom, the court seems actually to be deciding this as much as on perceived
     intent of Congress as much as on statutory construction. The final paragraph of
     the Opinion is worth quoting in full:

            The Acorrect@ answer to the question before us, which the courts have
            been struggling with for years Bat the unnecessary cost of thousands of
            hours of valuable judicial timeB depends ultimately not upon our
            interpretation of the statute, but upon what Congress wants the answer to
            be. We would hope, in this regard, that we the judiciary would be relieved
            of this Sisyphean adventure by legislation clearly answering a
            straightforward policy question: shall an above-median income debtor in
            chapter 13 be allowed to shelter from unsecured creditors a standardized
            vehicle ownership cost for a vehicle owned free and clear, or not?
            Because resolution of this issue rests with Congress, we have taken the
            unusual step of directing the Clerk of the Court to forward a copy of this
            opinion to the Senate and House Judiciary Committees .


     Note re ASisyphean adventure:@ In Greek mythology, Sisyphus was a mortal
     who offended the gods and was therefore condemned to a never-ending task.
     (He was to spend eternity trying to push a heavy boulder up a hill. As soon as he
     almost reached the top, the rock would slip away and return to the bottom,
     requiring him start over.)


2.   The Idaho State Bar Commercial Law and Bankruptcy Section=s Tip of the
     Month for August dealt with the disposition of property of failed corporations prior
     to a personal bankruptcy filing by the sole owner. The tendency is to suppose
     that the corporate assets somehow flow to the owners of the corporation but that
     isn=t the case. Instead, the defunct business entity must undergo a winding-up
     process whereby its assets are liquidated for the benefit of creditors first and
     then, if anything is left, to the equity holders. Two recent Idaho cases penned by
     Judge Myers illustrate and explain this. In re Young, 09-00174-TLM and in re
     Aldape Telford Glazier, Inc., No. 09-00834-TLM. (It would appear that the same
     principle would hold for an LLC.)

3.   In a recent case from the 10th Circuit Court of Appeals, it was held that a creditor
     cannot rely on mere listing of his claim in debtor=s schedules to relieve the
     claimant of his responsibilities under Rule 3001. In order to have his claim
     allowed over the objection of a trustee, the creditor must still meet his burden of
     evidencing the claim (normally by attachments to the Proof of Claim). Caplan,
     Trustee, v B-Line LLC (in re Kirkland), 572 F3d 838 (10th Circuit, 14 July 2009).


                                        -Ken Anderson, Editor

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