Cleveland Law Library Weblog

Arter & Hadden Bankruptcy Settlement a Done Deal

The Plain Dealer reports that the Northern District of Ohio bankruptcy court has approved a settlement involving the former partners of the now defunct Cleveland law firm of Arter & Hadden. Under the terms of the settlement, about 180 lawyers will pay a combined $11 million to about 400 creditors, including court reporters, legal researchers, landlords, suppliers and retired partners. Despite the enormity of this settlement, there are still other suits pending against Arter & Hadden, which closed its doors in 2003.

Bad Faith Debtors Not Entitled to Conversion to Chapter 13

Per Lawyer's Weekly USA, Feb. 22, 2007: "A Chapter 7 debtor does not have an absolute right to convert to a Chapter 13 bankruptcy filing where the debtor engaged in "bad faith" conduct, the U.S. Supreme Court has ruled."  The case is Marrama v. Citizen's Bank of Mass. (Feb. 21, 2007), U.S. Supreme Court Case No. 05-996.  Also see:High Court Says Concealment of Assets Can Take Away Important Right in Bankruptcy by Pete Yost, Associated Press, Law.com, Feb. 22, 2007.

Bankruptcy Fraud Hotline

Members of the public can report suspected bankruptcy fraud via an Internet hotline.  Just go to the U.S. Trustee's Office Fraud Reporting Page.  You can send an email to the U.S. Department of Justice, or call or send mail to the U.S. Trustee's Office to report bankruptcy fraud. 

Disability Insurance Settlement Exempt from Bankruptcy Even If Invested

In re Alam (Dec. 29, 2006), Sixth Circuit Case No. 05-8091 held that a settlement payment made by a disability insurer is exempt from bankruptcy under ORC 2329.66.  ORC 2329.66 creates an exemption for benefits and lump sum payments under sickness and accident insurance policies, but does not specifically mention settlements.   The court also held that the settlement payments are still exempt from bankruptcy, even though the funds were reinvested in mutual funds and money market accounts.  However, the settlement payment may not be exempt in its entirety because ORC 3923.19 limits the exemption to the amount of a lump sum payment made under the insurance policy or $600 per month.  In Alam, the parties agreed that the settlement payment was not a lump sum payment made under the terms of the policy. 

New Fee Schedule for Federal Appellate and Bankruptcy Courts

Effective Jan. 1, 2007, the fees for various services provided by the federal appellate and bankruptcy courts are revised.  Source: Fees to Change In Appellate, Bankruptcy Courts by Nancy Stinson, Stark County Law Library Blog, Dec. 13, 2006, citing Fees to Change In Appellate, Bankruptcy Courts, BeSpacific, Dec. 12, 2006 (which has links to the fee changes). 

D. Minnesota Finds 2005 Bankruptcy Law Violates Attorney Free Speech

The District Court in Minneapolis held that the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 violates the First Amendment rights of attorneys.  See In re Milavetz ( Dec. 7, 2006), District of Minnesota Case No. 05-CV-2626 (order denying the government's motion to dismiss) (Download milavetz.pdf ).  The Justice Department asserted that attorneys are "debt relief agencies" under the Act.  Thus, attorneys are required to tell their clients they can not incur more debt if they are considering filing bankruptcy.  Also attorney advertising is restricted.  The court held that applying these debt relief agency provisions to attorneys  violates attorneys' freedom of speech rights.  Judge Rules Against 2005 Bankruptcy Law by John Welbes, St. Paul Pioneer Press, Dec. 9, 2006; Restrictions on Attorney Speech Held Unconstitutional by Katie Porter, Credit Slips Blog, Dec. 9, 2006. 

See our prior post Bankruptcy Attorneys Challenge 2005 Bankruptcy Law, concerning a similar case filed in District of Connecticut, Connecticut Bar Assoc. v. U.S., 06-CV-00729. The District of Connecticut also held that the 2005 Act was, in part, unconstitutional (Download connbar.pdf ).  According to the Bankruptcy Lawyers' Blog, district courts in Texas and Oregon held the same way, while the Pennsylvania District Court granted the government's motion to dismiss for lack of standing.  See Third Court Finds Portions of BAPCPA Unconstitutional by Kevin Chern, Esq., Bankruptcy Lawyers' Blog, Nov. 14, 2006. 

Default Judgment in Legal Malpractice Case Held Dischargeable

The Sixth Circuit held that a default judgment against an attorney in a legal malpractice case can be discharged if the attorney files for bankruptcy.  Hughes v. Sanders (Nov. 13, 2006), Sixth Circuit Case No. 05-3945. 

More Businesses Opt for Receivership in Wake of Bankruptcy Reform

A recent article examines the impact of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 on business bankruptcies.  Bankruptcy attorneys in the Winston-Salem/Greensboro area were interviewed.  The attorneys said that more businesses are opting for state court receiverships or an assignment for the benefit of creditors, rather than filing for Chapter 11 bankruptcy.  The Bankruptcy Reform Act requires that in order to emerge from Chapter 11 bankruptcy, businesses must pay in cash any debts they incurred 20 days before declaring bankruptcy.  Businesses feel they will not have sufficient cash to emerge from bankruptcy.   The trend away from bankruptcies and towards receiverships or assignments has had both positive and negative results for creditors.   Bankruptcy Reform Alters Business-Failure Strategies by Matt Evans, Business Journal of the Greater Triad Area,July 7, 2006. 

Bankruptcy Attorneys Challenge 2005 Bankruptcy Law

The Connecticut Bar Association and the National Association of Consumer Bankruptcy Attorneys filed suit in U.S. District Court, District of Connecticut, challenging certain provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.  The lawsuit asserts that the Act treats attorneys as "debt relief agencies", thus they are required to give clients certain advice, such as not to take on more debts.  The plaintiffs assert this requirement unconstitutionally hampers the attorney-client relationship.   Lawyers Groups Challenge New Bankruptcy Law by Matt Apuzzo, Associated Press, MSNBC.com, May 12, 2006; Connecticut Bar Association and Consumer Bankruptcy Attorneys Challenge Parts of New Bankruptcy Law PR Newswire, May 11, 2006.   To see the complaint, go to: National Association of Consumer Bankruptcy Attorneys homepage. 

Chapter 13 Secured Creditor Not Entitled to Repossess Truck

Debtor lost his job and missed payments to the trustee.  The Chapter 13 bankruptcy plan was modified to delay payments made on a truck, so the debtor could make payments on his home.  The payments, as modified, were such that the value of the security would fall faster than the creditor receives payment.  The creditor moved to lift the bankruptcy stay, so he could repossess the truck .  The Sixth Circuit held that the modification did not result in a taking of creditor's property under the Fifth Amendment.  The creditor was not entitled to a stay because he failed to demonstrate that the value of the collateral was less than the amount owed at the time of the modification.  The creditor was not entitled to a stay for cause, because the missed payments were not the fault of the debtor.  The payments were in accordance with Memphis Bank & Trust Co. v. Whitman (CA 6 1982), 692 F.2d 427.   In re Nichols (Mar. 16, 2006), Sixth Circuit Case No. 04-2107.