We have the first decision out of the Western District of Oklahoma addressing the deduction of secured debt that the debtor intends to surrender in the Bankruptcy. The case is In re: Galyon, decided by Judge Weaver March 22, 2007. (Judge Weaver got it right, by the way, he ruled for the Debtor.)

Like several of the cases before it Galyon flirts with the idea of examining the debtor’s financial position (income and expenses) retrospectively and prospectively. So far, though, none of the opinions has used this issue to make sense of the intersection of the Means Test and I and J.

When BAPCPA was first passed it appeared that the Means Test should be completely retrospective. After all, it defines income in terms of all income received by the debtor in the six complete months prior to the time the Bankruptcy was filed. It doesn’t say, if those six months are typical or if the Debtor still has that income. It is a carved in stone formula, and it doesn’t make sense to say that you use pre-petition income and expenses from a different time period when income might be completely different. (Yea, yea, I know trying to make sense out of BAPCPA is a 0% argument. I keep trying.)

Ok, so the Means Test is retrospective and I and J is prospective. Got it. This makes sense. The Means Test determines whether the Debtor should have been making payments prior to filing, and I and J determines whether or not the Debtor has the capacity after filing to pay his debts.

Except it didn’t seem to work that way. To date, there have been at least a half dozen opinions on this very issue. Most have come down on the Debtor’s side. None of them have taken the position which seems very supportable by the Statute that the Means Test is retrospective and I and J prospective. It is simple. It is easy. It makes sense — It can’t possibly have anything to do with the new BK Code.

Instead, Judge Weaver relied on the plain language of the Statute. Of course, most of the courts to decide the issue have said that. Some of them, have done a better job of torturing the plain language than others. Judge Weaver, siding with the emerging majority, found that “scheduled as contractually due” means that if the Debtor was contractually obligated to pay the debt — its deductible.

Ok, so now who is going to be the first person to try to deduct the full amount of an accelerated mortgage?

Elaine

I was going to write a scintillating post about FHA loss mitigation regulations and how they may or may not apply to defend (or just bog down) foreclosure proceedings. I would say that they make fascinating reading, but I try not to violate more than one of the Ten Commandements before lunch.

Anyway, I had almost forgotten something much more pressing. The Bankruptcy Code with its almost endless source of numbers — changes a few effective April 1. You would think that the Bankrutpcy software providers had paid for frequent updates to threshold numbers in the new act, but this set of changes has been around for a while. Evey third April since 1998 virtually all the dollar figures in the Code get a cost of living adjustment.

So, in addition to the change in median income figures and IRS allowables effective in February (you did update your software the first of last month if you do Bankruptcy work, right?); starting April 1, 2007 virtually all of the dollar amounts in the BK Code change. That includes the debt limits for Chapter 13, dollar values for Federal exemptions (no longer meaningless in Oklahoma), and the required monthly dividend to unsecured creditors necessary to flunk the means test. So, if you have a really close means test, hold off about 9 days. Here is the complete list, straight from the Federal Register. Cost of Living Adjustment to BK Code 2007

Oh, and don’t forget, that $1,000,000 cap on qualfiied retirement accounts — is now $1,095,000. Fortunately, in Oklahoma our retirement account exemption is unlimited, so this won’t effect my single parents raising kids on $8.50 an hour.

Oh, I’ll be out of town this weekend, but there should be something equally relevant and fascinating posted by Monday.

Elaine

The massive amendment to the Bankruptcy Code known as BAPCPA has been law for well over a year now. That really doesn’t seem possible. What seems even less possible is how much of this law we still don’t really have figured out, and how unaware the local bar (myself included) seems to be of that as we go along avoiding issues.

Some things that are issues elsewhere, haven’t been here. Other things we have managed to work around instead of arguing and getting decided. Most people filing now are in such bad shape that claiming an ownership allowance for a paid-for vehicle or deducting secured debt on the means test for property that is to be surrendered simply doesn’t make a difference.

I think it is a little too easy to follow the path of least resistance. If I know that something will draw an objection — even if I think that objection is flat out wrong — it is still easier to find another way around the problem.

Regardless, it is time for that to stop. We need to start facing some of the absurdities of the Code head on.

Brave words, I know.

Elaine