In Horny (E.D. Mich 2011), Judge Ludington ruled that not all contract interest rates can be crammed down to the Till rate. Ludington held that the Till rate of cramming or reducing interest in a secured obligation is not a universal rule. Ludington followed the Till holding – maintaining that an interest rate may be adjusted higher to protect a creditor from the risk of nonpayment – provided this rate isn’t too high to impede a plan’s success. Extreme or high risk to a creditor mandates that a “markedly higher” interest rated be allowed. Ludington cautioned that interest can be adjusted – “but not so high as to doom the plan”. Ludington relied on the Till plurality opinion and held that when “the likelihood of…

In Mobley (Bank. E.D. Mich. 2011), the court held that a fully exempted pre-petition personal injury award cannot be included as part of the disposable monthly income (DMI) calculation. The Mobley court maintained that a Chapter 13 repayment plan is exclusively related to paying creditors out of future income or earnings. A Chapter 13 proceeding option is only viable when “an ongoing stream of regularly anticipated income” is available. In its decision, Mobley concluded that “disposable monthly income” is a practical consideration based on income and earnings – not the liquidation of assets. Mobley relied on the Lanning standard in concluding that pre-petition assets do not have to be committed to the DMI that will be used to fund a Chapter 13 plan. Our State…

The Court in Connor (E.D. Mich. 2012) recently addressed the issue and concluded that prospective amounts do not have to be included in a DMI analysis in filing a bankruptcy in Michigan. Typically, disposable monthly income (DMI) includes all the know or certain income as of the date of confirmation of a Chapter 13 plan. In some cases, courts have maintained that injury awards must be included in the DMI calculation. In Lanning, the US Supreme Court held that “the average monthly income during the six-month look-back” period prior to filing provides the general basis for determining the DMI in any Chapter 13 proceeding. The Connor court relied on Baud to grant the Court broad discretion in determining whether certain types of future income or…

Here is a summary of the important Bankruptcy Cases before the US Supreme Court: In re Puffer, No. 11-1831 (1st Cir.) Issue: Whether chapter 13 fee-only plan is necessarily bad faith under 1325(a)(3) & (7) Argued: January 10, 2012 Jed Berliner had the opportunity to present his argument to Justice Souter who was on the three-judge panel in this case.   In re Friedman, No. 11-1149 (B.A.P. 9th Cir.) Issue: Absolute priority rule in individual chapter 11 case. Argument date: January 18, 2012 NACBA participated as amicus in oral argument with Daniel Press presenting NACBA’s position   In re Hamlin, No 11-1083 (B.A.P. 9th Cir.) Issue: Whether chapter 7 debtor may exempt inherited IRA. Argument date: January 19, 2012   In re Massey, No. 11-60…

The Mortgage Forgiveness Debt Relief Act of 2007 has been extended through 2012. This Act allows homeowners to exclude income from the discharge of debt on their principal residence. Despite this Act, your lender may still send you a Form 1099 A or a Form 1099 C. This form must be addressed – otherwise the IRS will treat the amount on Form 1099 as income. Form 982 is used to exclude IRS Cancellation of Debt through mortgage foreclosure, auto repossession. This Form must be filed with your return to exclude any income alleged through a 1099 C. IRS Publication 4681 Cancelled Debts, Foreclosures, Repossessions and Abandonments (found at www.irs.gov discusses the general rules and examples to complete the form depending on the type of debt…

Following the lead of several Bankruptcy Courts across the country, Local Chapter 13 Trustee Thomas W. McDonald Jr. has proposed a Mortgage Modification Mediation program that would function through a Chapter 13 proceeding. McDonald’s proposal addresses several of the major complaints about the voluntary Making Home Affordable Program (HAMP). The Obama Administration designed HAMP to assist defaulting homeowners in avoiding foreclosure and keeping their homes. The stories of frustrated homeowners who attempt to obtain loan modifications are retold every day. After faxing and refaxing voluminous documentation supporting their loan modification, home owners are told that their documents cannot be found or are otherwise misplaced. Follow up calls to check on the status of a loan modification reveal that that homeowners file has been transferred to…

The Mortgage Debt Relief Act of 2007  – which was extended through 2012 – allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring and mortgage debt forgiven in connection with a foreclosure also qualifies for the relief. So, if you filed for bankruptcy in Michigan in 2011 and received a 1099 from your former mortgage lender – don’t panic. Just make sure your income tax preparer is aware of the law. Or – if you do you own taxes (not such a good idea in my opinion) make sure you fill out your forms properly so that you don’t get hammered with an unforeseen tax bill.