The case, involving an objection to confirmation by eCast Settlement Corporation, involved a debtor who proposed a Chapter 13 Plan proposing the pay approximately 20% of unsecured claims over 60 months. The debtor’s actual monthly rent of $1,150 was lower than the IRS standard deduction of $1,494 for a household of his size.

In a case of first impression in Southern District of New York, the court looked to Section 1325(b)(1) of the U.S. Bankruptcy Code to note that the Plan may be approved over objection if it provides that all of the debtor’s projected disposable income during the life of the Plan will be applied to make payments to unsecured creditors. Looking to Section 1325(b)(2) and 1325(b)(3), the Court reviewed how “disposable income” is to be defined.

The Court also reviewed three reported decisions by other Second Circuit bankruptcy judges, all concluding that a debtor may properly claim the full expense amounts allocated under the Local Standards even when the debtor actually spent less. See In re Schneider, 2008 WL 1885768, No. 07-32487, slip op. (Bankr.N.D.N.Y. Apr. 28, 2008) (overruling objections by creditor and trustee after finding that § 707(b)(2)(A)(ii)(I) is unambiguous, allowing a debtor to deduct the full expense amount under the Local Standards for transportation/ownership expenses); In re Roberts, 2008 WL 542503, No. 07- 210247, slip op. (Bankr.D.Conn. Feb. 28, 2008) (overruling objection by chapter 13 trustee and allowing debtor to deduct the full amount of a transportation ownership expense for a vehicle she owned free and clear of any lease or other encumbrance); In re Austin, 372 B.R. 668 (Bankr.D.Vt.2007) (holding that Congress’s intent in adopting the new § 1325(b)(3) was to allow courts to adopt a mechanical view in determining projected disposable income, looking to the deductions set out in § 707(b)(2) to determine the expense amount of the disposable income equation rather than actual expenses shown in a debtor’s schedule J).

Now comes the Connecticut case of In re Caraballo, Case No. 07-32469 (D. Conn. 2008) which faced head on the question of whether, after the enactment of BAPCPA, Capital Communications Federal Credit Union v. Boodrow (In re Boodrow), 126 F.3d 43 (2d Cir. 1997), cert. denied, 522 U.S. 1117 (1998) and BankBoston, N.A. v. Sokolowski (In re Sokolowski), 205 F.3d 532 (2d Cir. 2000), remain binding authority that (1) a debtor has an option (the “ride through option”) to retain real property collateral and maintain current performance under the subject loan documents and (2) the secured creditor may not foreclose based solely on the debtor’s filing of the bankruptcy petition and failure to reaffirm.

Caraballo involved a debtor who sought to reaffirm a mortgage owed to HSBC Mortgage Services.  Though the court found no reason to deny the reaffirmation, it raised the issue sua sponte of whether such a move was necessary at all.

The court used Northwest Airlines Corp. v. Association of Flight Attendants-CWA (In re Northwest Airlines Corp)., 483 F.3d 160, 169 (2d Cir. 2007) and Garcia v. Teitler, 443 F.3d 202, 207 (2d Cir. 2006) to determine that Congress would have been aware of the pre-BAPCPA “existing landscape” of Boodrow and Sokolowski allowing ride-through for real property and personal property.  Noting that Congress eliminated the ride through option for personal property in BAPCPA, the court assumed that by failing to specifically do so as to real property in BAPCPA the intention was to leave it intact post-BAPCPA.

The question, then, is how the court could have affirmed the so-called fourth option for real property but not for personal property?  True, BAPCPA eliminated the automatic stay for unreaffirmed personal personal but did it provide a secured lender with the ability to repossess based solely on the bankruptcy trigger?

Here’s the thing - Boodrow and Sokoloski both accepted that it was a stream of payment, not a “technical default” such as bankruptcy, that prohibited a secured creditor from repossessing property.  There is nothing in BAPCPA that changed those rules; in fact, BAPCPA merely addressed the automatic stay.  It gave a creditor the ability to seek non-bankruptcy recourse to the extent permitted by law.  In the Second Circuit, such non-bankruptcy law is a non-starter.  So in my mind, the secured creditor is left with nothing but an empty bag; no automatic stay, but no ability to repossess in the face of current payments.

In re Caraballo is attached for your review.

This flies in the face of the bankruptcy discharge injunction, and the prohibitions of the US Bankruptcy Code. What the court in Eady failed to realize was the the Code prohibits collection activities against a debtor once a discharge has been issued. It is incumbent upon a creditor to ensure that it refrains from such prohibited activities, and the argument put forth here amount to what I like to call the, “Stupidity Rule.”

If you’re too stupid to read the law, dear creditor, that’s alright - we forgive you.

The defendant in this case, however, is not stupid. In fact, the website maintained by the creditor clearly states that its entire business model centers around bankruptcy.

How can such a defendant be deemed too stupid to know the law, and the consequences of its actions?

That’s why each year only 400 of the 3,000 NACBA members vote in the elections.

The result never represents the needs of the members.

This year needs to be different.

Why? Because the future of consumer bankruptcy practice is in your hands. You pay dues to an organization, and it’s important to have that organization reflect your needs.

Without your input, NACBA is nothing more than a waste of space and time.

You need to vote. And to know who gets your vote, you need to be informed.

What do you care about? Lobbying? Technology? Managing your office? Getting NACBA to help you in day-to-day issues with your local judges and trustees? Education?

I have issued a challenge to the candidates.

It’s called “30 Questions.”

Each candidate will choose 10 questions for the other candidate to answer. The members of NACBA will submit an additional 10 questions.

No holds barred, folks. Any serious question is fair game.

I will call each candidate separately and ask the questions. The entire conversation will be recorded and disseminated to the members online via mp3 audio.

To wrap it up, I will ask 10 questions. They will be the following:

1. What is your educational background?

2. How large is your firm or organization?

3. How long have you been a consumer bankruptcy attorney?

4. How many cases do you file on an average month (or year)?

5. Where do you practice law?

6. How long have you been a member of NACBA?

7. What has been your greatest professional achievement thus far in your career?

8. If you were the “King of NACBA” for one day and one day only, answering to no other individual or group for your actions, what is the single thing that you would do to better the organization?

9. Do you believe that the current vetting process for new members is sufficient to protect the interests of the membership?

10. What is the single most important issue confronting the members of NACBA at this time?

Questions submitted by the members will be selected at random, but both candidates will answer the same questions.

Candidates will not be given the questions (except for the above) until they are asked.

The election is important.

Questions should be posed to me by email (bankruptcy [at] gmail.com) Friday, April 11, 2008 at 5:00pm Eastern time.

I will be doing Q&A sessions with each candidate next week, and will post the audio of our conversations shortly thereafter.

The debtor filed a lawsuit against Chase seeking damages and legal fees, and Chase failed to answer or appear. The debtor’s attorney presented a request for compensation for $810. In reducing the award to $400, the court noted that the debtor’s lawyer had not attempted to contact Chase prior to filing the case. In so doing, the court noted that the preference is for

debtors and their attorneys to contact the offending creditor by mail or phone before commencing an action for damages. In re Risner, 317 B.R. 830 (Bankr.D.Idaho 2004). Attorney fees awards may be reduced or denied entirely where the debtor fails to make any reasonable effort to request that the creditor withdraw its offending pleading or cease its offending communication before escalating the matter into a “federal case” by immediately initiating an action for damages. Id. There may, of course, be exceptional circumstances where a creditor by the nature of its conduct or the substance of its communication engenders a reasonable belief that a cease and desist request would be futile.

In the case at bar, the DEBTOR did not call or write CHASE before commencing this adversary proceeding. When CHASE received the Complaint and Summons, it took no further action to prosecute its claim and promptly dismissed the state court complaint. This mitigating response indicates that CHASE likely would have dismissed its complaint based upon a communication from the DEBTOR or the DEBTOR’S attorney directly referencing the pending bankruptcy case and CHASE’S violation of the automatic stay.

This is not to say that the stay violation should be entirely excused. CHASE is a large, sophisticated creditor with a wealth of bankruptcy experience. It can be assumed that CHASE has systems in place to make sure that the automatic stay is honored whenever a borrower files for bankruptcy relief. For reasons not a part of the record, those systems failed here and a willful violation of the stay occurred.