Georgia Bankruptcy Blog

The latest edition of Preference Quarterly, as newsletter devoted to §547, is out and you can get a copy by clicking here.  The newsletter is edited by Byron Starcher of Nelson Mullins and Mark Duedall of Alston & Bird.  To get on the mailing list, send a request to preferencequarterly@nelsonmullins.com

You can also download the June 2005 and January 2006 editions of the newsletter.

As Bankruptcy Courts may have reached the point where they are entertaining individuals' second petition filed under the BAPCPA, the distinction between dismissing or striking the petition will become more important for debtors and creditors. If the prior case was stricken, and deemed a nullity, the debtor may reap the benefits of the full automatic stay, as if a prior case had never been filed. The distinction also may alter the way creditors operate. In those jurisdictions that strike, and deem a nullity, petitions filed by an ineligible person, creditors may be inclined to make their own determination (at their own risk) as to eligibility and proceed to foreclose or collect if they do not see the counseling certificate on the docket. After all, if they play it safe and wait for the court or clerk to strike the petition, the same individual may file obtain a certificate and file a second petition, presumably with an entitlement to the full stay. Thus, the cautious secured creditor who awaits a judicial determination in the first case may be delayed an additional two or three months, or more, if the individual files a second case before the creditor can advertise and foreclose.

We have previously noted that Judge Bonapfel has held that petitions filed by a person ineligible to filed under §109(h) should be dismissed and not stricken. In re Ross, 338 B.R. 134, Case No. 05-86669 (Bankr. N.D. Ga. February 7, 2006). Other courts have subsequently analyzed and ruled on the issue. In re Seaman, 2006 Bankr. LEXIS 582 (Bankr E.D.N.Y. March 30, 2006)(following Ross, cases should be dismissed); In re Salazar, 2006 Bankr. S.D. Tex. March 29, 2006)(such cases should be stricken). The Court in Salazar, recognizing the uncertainty, certified its decision for direct appeal to the 5th Circuit pursuant to 28 U.S.C. §158(d)(2).

In his ABI BACPA Blog, David Rosendorf has an excellent post analyzing the issue and the recent opinions -- You Say Strike It, I Say Dismiss It - What Happens When an Ineligible Debtor Files. David's conclusion is --

So what's the right answer? My two cents -- remember that "syllogism" in Salazar which led to the conclusion that a filing of a petition by an ineligible debtor does not trigger the automatic stay? Here's where I think the flaw is. Section 362 says that "a petition filed under section 301, 302 or 303" operates as a stay. But 301, 302 and 303 do not actually say that a petition may only be filed by an eligible debtor; rather, what they is that "a case is commenced" by the filing of a petition by an eligible debtor. Thus, the filing of a petition by an ineligible debtor can trigger the automatic stay under 362 (which refers to the filing of a petition, not to the commencement of a case), but that petition will not commence a "case" unless the petitioner is eligible. So the stay would be in effect temporarily pending determination of eligibility, but if the debtor is determined not to be eligible, then the petition would be dismissed (or stricken, if you prefer), and would not be regarded as a "previous case" for purposes of 362(c)(3) or (4). To the extent this presents an opportunity for abuse by debtors seeking to take advantage of the temporary stay, courts could remedy such abuse in the same ways they have dealt with serial filings before -- through retroactive annulment of the stay, dismissals with prejudice, in rem stay relief orders, and so on. Would it work?

Further discussion may also be found at the Bankruptcy Litigation Blog.

PRESS RELEASE
For Immediate Release
April 12, 2006

FELICIA S. TURNER TO SERVE AS U.S. TRUSTEE IN KANSAS, OKLAHOMA, AND NEW MEXICO FOR INTERIM PERIOD

WASHINGTON, D.C.–Felicia S. Turner, United States Trustee for Georgia, Florida, Puerto Rico, and the U.S. Virgin Islands (Region 21), is also serving as United States Trustee for Kansas, Oklahoma, and New Mexico (Region 20) for an interim period, the United States Trustee Program announced today. She replaces United States Trustee Mary E. May, who died on March 25, 2006, after serving with great distinction since September 2002.

Since August 2003, Ms. Turner has been the U.S. Trustee for Region 21, which is headquartered in Atlanta, with additional offices in Macon and Savannah, Georgia; Miami, Orlando, Tallahassee, and Tampa, Florida; and San Juan, Puerto Rico. Immediately before her appointment as U.S. Trustee, Ms. Turner was a partner in an Atlanta-based law firm, where she was a member of the bankruptcy practice group and the litigation section. Ms. Turner received her law degree from Duke University School of Law in Durham, North Carolina, and her undergraduate degree in mathematics magna cum laude from DePauw University in Greencastle, Indiana.

The U.S. Trustee Program is the component of the Justice Department that protects the integrity of the bankruptcy system by overseeing case administration and litigating to enforce the bankruptcy laws.

The U.S. Trustee Program has 21 regions and 95 field offices. Region 20 is headquartered in Wichita, Kansas, with additional offices in Oklahoma City and Tulsa, Oklahoma, and Albuquerque, New Mexico.

David Rosendorf has posted several new articles in his ABI BAPCPA Blog, each of which is very informative.  In the first article, Chapter 13 Plans, Substantial Abuse and Related Issues Addressed, David discusses several issues surrounding Chapter 13. 

In Dude, Where's My Car? Most Courts Hold Purchase Money Vehicle Loans Still Secured Under BAPCPA, David analyzes two cases from the Southern District of Georgia in which the issue was the application of section 1325(a) and 506 to vehicles purchased within 910 days of the petition date. See In re Brown and In re Carver.  Both of these cases are summarized in the Casenotes sections, but David's post provides a very thorough analysis of these and other cases addressing the issue. 

In a wide-ranging, 62 page unpublished opinion, Judge Sonderby denied the creditors' motion to dismiss Count I, but granted the motion to dismiss Count II. In so doing, the opinion --

• details the complex procedural history of the case, including the quick thinking employed by the litigants when the district court's bombshell reversal came down a mere two days before the start of Kmart's confirmation hearing (pp. 2-13);
• rejects the movants' "plain meaning" arguments that recovery should be denied under Code section 549 because the Court had previously authorized such payments (pp. 13-24);
• notes the banishment by the 7th Circuit of the term "equitable mootness" from the local lexicon (pp. 20-21);
• dissects when a "private right of action" arises in the bankruptcy context (such as "in connection with alleged violations of the discharge injunction and the filing of inflated secured claims"), and concludes that no such "separate and independent action exists under §105(a)" (pp. 24-33);
• reviews at length the doctrine of judicial estoppel and its inapplicability to this case, finding not only that Kmart was not "exploiting" the 7th Circuit's reversal of the critical vendor order, but that "application of the doctrine under the circumstances of this case would itself amount to [] a perversion [of the doctrine of judicial estoppel]" (pp. 33-48);
• affirms the adequacy of provisions in the confirmed plan purporting to retain these avoidance actions, even though the pre-confirmation plan modifications were made without attempting to resolicit votes on the plan (pp. 48-58); and
• punts the remaining arguments, including detrimental reliance, equitable estoppel, and recoupment, as "fact-intensive defenses inappropriate for disposition at this time" (pp. 58-61).

Judge Sonderby obviously has long ruminated about the mess spawned by the reversal of her "critical vendor" order. Now, in an unpublished decision, she has given us much to ruminate about too.

As of this date, the Eleventh Circuit has not ruled upon the critical vendor issue. However, some cases within the Circuit that have addressed the issue include In re Tropical Sportswear Int'l Corp., 320 BR 15 (M.D. Fla. 2005) and In re Fultonville Metal Products Co., 330 B.R. 305 (Bankr. M.D. Fla. 2005).

FirstLine Corp., manufacturer of building products and industrial packaging, filed a Chapter 11 petition in the Middle District of Georgia on March 6, 2006. FirstLine has over 400 employees, and 2005 revenues of $70 million.

Update: The Debtor has filed a Motion to Approve the Sale of its assets pursuant to Section 363 and to Approve Bidding Procedures. The Motion does not identify any potential suitors for the assets, but states that the debtor has engaged in extensive marketing efforts.

An article in the March 19, 2006 Atlanta Journal, entitled Bankruptcy Tide Rolls On (one time registration may be required), discusses the steady rise in consumer filings since the effective date of the BAPCA.  Several local consumer bankruptcy attorneys are qouted.  It remains to be seen if this purported trend has taken off in the Northern District, but filings are increasing in 2006.  According to Clerk statistics,  filings in the Northern District in February 2006 are still less than half of filings in February '05.  January '06 filings were down over 67% from January '05.

On March 16, 2006, International Management Associates, LLC  ("IMA") and nine related entities filed Chapter 11 petitions in the Northern District of Georgia (06- 62966-PWB, et al.).  IMA, and related debtor International Management Associates Advisory Group, LLC, reportedly had approximately $166 million in funds under management in hedge funds. Seven related entities are the funds.  Filings indicate that the petitions were filed after both the Superior Court of Fulton County and the US District Court entered a TRO's and appointed a Receiver for some or all of the related entities. Debtors have filed a Motion to jointly administed the cases under the IMA case number.

Update - The March 21, 2006 Atlanta Constitution has an article about the Debtor entities and their missing principal.  The article may be viewed by clicking here.

Steve Jakubowski at the Bankruptcy Litigation Blog has posted "Picks of the Month: Required Reading for February 2006," recently published articles of relevance to the bankruptcy practitioner, scholar, student, and Judge. 

The National Association of Consumer Bankruptcy Attorneys has released a study of over 61,000 consumers who sought credit counseling after October 17, 2005.  The study concludes that "nearly all (97 percent) are unable to repay any debts and that four out of five would-be filers (79 percent) were forced into dire financial straits by circumstances beyond their control, such as the loss of a job, catastrophic medical expenses or the death of a spouse."  Thus, the BAPCPA may serve only to add an additional roadblock to consumers who are already in dire financial straits.  The full report, summaries and commentary may be viewed at the NACBA website.