Saturday, July 4, 2015

"Lien Stripping" - Still Available in Chapter 13

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"Lien stripping" of underwater mortgages or other junior lien is still available under chapter 13 bankruptcy. In order to lien strip, in some cases the mortgage or other junior must be wholly underwater and in some case it need not.  The lien stripping would be provided for in a chapter 13 debtor's proposed chapter 13 plan.

The avoidance or "lien stripping" of "underwater" second or other junior liens was been much in the news in June, 2015 when the U.S. Supreme Court issued its ruling in the Bank of America cases. The Court held that wholly underwater second or other junior mortgages are not avoidable in a chapter 7 bankruptcy case. But this ruling did not effect the availability of "lien stripping" wholly underwater mortgages in chapter 13.

Wednesday, July 1, 2015

Chapter 13 Bankruptcy Plan

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In chapter 13 bankruptcy, only the chapter 13 debtor is allowed to file a chapter 13 plan. That is, creditors are not allowed to propose a plan as they are in chapter 11.

Chapter 13 plans generally are designed to adjust payment of debts under a flexible repayment plan. Usually these payments are made from future wages or income. There are some mandatory provisions for a chapter 13 plan, but most are permissive.

A chapter 13 plan is usually three to five years in length. Not all secured creditors - such as an up-to-date car loan - are required to be paid as part of the chapter 13 plan. Priority claims, such as child support and alimony arrearages, may be paid through the plan. Defaults in mortgage payments may be cured in a chapter 13 plan.

Fallacy of Reasoning: "Post Hoc Ergo Propter Hoc"

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"Post hoc ergo propter hoc"  is Latin for the fallacy of reasoning of "after this, therefore because of this."  In an episode of West Wing, President Bartlet  challenged the 27 lawyers in the room that at least one of them should know the meaning of this Latin phrase.  In an episode of Big Bang, Sheldon also mentions this logical fallacy. 

Logical Fallacy

"Post hoc ergo propter hoc" is a logical fallacy referring to questionable causation, that is, "since event Y followed event X, event Y must have been caused by event X." This example is given:  "The rooster crows immediately before the sunrise, therefor the rooster causes the sun to rise." Even Ernie on Sesame Street falls victim to this fallacy of reasoning in this clip where he reached the conclusion that it is the banana in his ear that is keeping the alligators away.  

5th and 11th Circuit

The Court in Huss v. Gayden, 571 F.3d 442 (5th Cir. 2009) refers to this logical fallacy in the determination of the admissibility of expert testimony. The Court in Huss reviewed that it "is axiomatic that causation testimony is inadmissible if an expert relies upon studies or publications, the authors of which were themselves unwilling to conclude that causation had been proven."  

More Logical Fallacies to Avoid

  • "Argumentum ad Hominen" - argument directed to the person - instead of attacking the opponent's argument, the character of the opponent is attacked.
  • "Argumentum ad Misericordian" - an appeal to pity - the audience is asked to accept an argument not due to the strength of the argument but rather because of the speaker's piteous circumstances.
  • "Argumentum ad Populum" - the appeal to emotion - the attempt to establish its conclusion with values the speaker's audience holds dear. 
  • "Ignoratio Elenchi" - proving an irrelevant conclusion - attacking the "straw man"
  • "Petitio Principii" - a circular argument - begging the question. 

The Beatles 

It is now known that the Beatles' song were full, full, full of logical fallacies, such as: sweeping generalizations ("all you need is love"), ad agnorantium/appeal to ignorance ("no where man, please listen, you don't know what you're missing"), oversimplification ("it's easy"), straw man ("everywhere  there's lot of piggies living piggy lives"), and a popular idea must be correct ("I get by with a little help from my friends"). But here Paul actually warns making logical fallacies: ("Think of what you're saying, you can get it wrong, and still you think that it's all right.")  


Here is an explanation of further logical fallacies and critical thinking that may help a lawyer. Here is more and more and more and more and more and finally the logical fallacy that has caused some much trouble:  "Home prices have not fallen since the Great Depression. Therefore, home prices will not fall."

Introduction to Chapter 13

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A chapter 13 case is started by filing a petition with the Bankruptcy Court along with the schedules and statements that explain the person's financial situation. Under chapter 13, the debtor must submit a plan or reorganization to provide for his various classes of debt - priority, secured, and unsecured. A chapter 13 debtor is generally required to devote all of his "projected disposable income" to repay a percentage of unsecured debt over a period of three to five years.

A chapter 13 case is overseen by a chapter 13 trustee. The main duties of a chapter 13 trustee is to receive the monthly chapter 13 plan payments and to distribute them to the creditors pursuant to the chapter 13 plan.

A chapter 13 debtor receives a discharge after all payments required under the chapter 13 plan have been completed.

Tuesday, June 30, 2015

Choice of Law in a Bankruptcy Case

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When a person files for bankruptcy in Florida and owes a gambling debt in Nevada, which state's law apply in determining the various issues about the claim for gambling debt? In the bankruptcy case there may be issues as to the allowability of the claim or whether the claim should be dischargeable or nondischargeable?  A 2006 Florida bankruptcy ruling dealt with this issue.

The Bankruptcy Court reviewed that normally a federal court hearing a matter pursuant to diversity jurisdiction must apply the law of the state in which it sits, but that such rule does not apply to a bankruptcy court as it is not sitting as a federal court with jurisdiction based on diversity. The bankruptcy court reviewed that the choice of which state's law applies should in part be based on which state's law more logically relates to the claim and the "significant relationship" test.