Appeal of "Debt Relief Agency" Decision Dismissed for Lack of Standing

Within hours after the main provisions of BAPCPA became effective on October 17, 2005, a Bankruptcy Court in Georgia issued a sua sponte order entitled "In re Attorneys at Law and Debt Relief Agencies" which determined that attorneys are not included in the definition of "debt relief agency," and accordingly not subject to the obligations imposed on such entities under 11 U.S.C. 526. See "Georgia Judge Says Attorneys Not 'Debt Relief Agencies'".

The United States Trustee took an appeal of Judge Davis' order, arguing that it should be vacated because there was no actual "case or controversy" and that no "action, suit or proceeding" had been commenced. In ironic fashion, the District Court effectively agreed with the US Trustee that there was no case or controversy, but as a result dismissed the US Trustee's appeal for lack of standing! In re Attorneys at Law and Debt Relief Agencies, 2006 WL 2925199 (S.D. Ga. 8/25/06).

District Judge Moore noted that the order was entered sua sponte and posted on the Bankruptcy Court's website and later docketed as a miscellaneous proceeding, after which the United States Trustee took an appeal and "vaulted this Court into the BAPCPA rat's nest." The US Trustee argued, among other things, that the Bankruptcy Court lacked jurisdiction to enter the order because there was no "case or controversy" under Article III of the Constitution and no properly commenced "action, suit or proceeding" as required by 28 U.S.C. 151. After the appeal was filed, a local lawyer was permitted to intervene in the appeal on behalf of his law firm as an interested party in support of the order, and was later joined by two other attorneys. They argued in turn that the US Trustee lacked standing to challenge Judge Davis' order.

The District Court noted that standing typically requires that the party have suffered some actual or threatened injury that can be traced to the challenged action which is likely to be redressed by the relief sought. It also noted that the US Trustee in some circumstances also has standing to be heard on behalf of the "public interest" in matters relating to the US Trustee's ability to enforce a bankruptcy law. However, it found that the US Trustee's "public interest" standing only arises in "cases and proceedings" (see 11 U.S.C. 307). As a result, the District Court effectively agreed with the US Trustee -- finding that no petition was filed initiating this matter, and no "case or proceeding" was ever in existence -- but as a result, concluded that Congress "has not authorized [the US Trustee] to advance this peculiar appeal." Accordingly, the appeal was dismissed. (And yes, I think he meant to use "peculiar" and not "particular").

Catching Up on BAPCPA Decisions

A slow recovery from summer vacation has caused BAPCPA Blog to fall behind on our mission in keeping track of decisions interpreting the BAPCPA amendments. In the interest of getting current, we will be starting a new program: on a weekly basis, we'll post summaries of the new decisions issued that week. Then, as time permits, we'll continue to do lengthier postings analyzing which cases may break new ground, and how they fit into the existing bankruptcy and general jurisprudence.

So for this week, here's what's new:

It was a bad week for Chapter 13 trustees. In In re Lopez, 2006 WL 2848658 (Bankr. C.D. Cal. 10/3/06), the Court rejected a Chapter 13 trustee's argument that BAPCPA amendments to 11 U.S.C. 1326 now require all payments to creditors to go through the trustee and prohibit the debtor from acting as disbursing agent (as has long been the custom in many bankruptcy courts, particularly for payments to secured lenders).

It was a good week for Chapter 13 debtors' lawyers. In In re Mayer, 2006 WL 2850451 (Bankr. D. Ken. 10/2/06) and In re Chapter 13 Fee Applications, 2006 WL 2850115 (Bankr. S.D. Tex. 10/3/06), the courts increased the maximum flat fee which attorneys can charge for representing debtors in Chapter 13 cases which will be considered presumptively reasonable, based on the significant additional burdens on counsel under BAPCPA. The latter case also provides further guidance on what services should be included and may be excluded from a fixed fee arrangement.

It was a bad week for creditors, with yet another court concluding that the 362(c)(3) stay termination provisions only terminate the stay with respect to "property of the debtor" but not as to property of the estate. In re Pope, 2006 WL 2844576 (Bankr. D.R.I. 10/3/06).

Creditors likely won't be pleased with In re West, 2006 WL 2872275 (Bankr. E.D. Ark. 10/10/06) either, which concludes that the new 1328(f) prohibition on obtaining a Chapter 13 discharge for debtors who have obtained an earlier discharge in a prior case is tied to the filing date of the earlier case, and not the discharge date. For instance, the prohibition for debtors who have obtained a prior Chapter 13 discharge applies only to earlier Chapter 13 cases filed within two years of the new case -- not if the discharge was obtained within two years of the new case. Ah, if only Congress had followed the March Hare's advice.

In re White, 2006 WL 2827321 (Bankr. E.D. La. 9/29/06) was more of a mixed bag. In a case construing the "hanging paragraph" of 11 U.S.C. 1325(a) dealing with purchase money vehicle loans, the court rejected the lender's attempt to bootstrap obligations under an insurance program and extended warranty to the vehicle debt subject to treatment under that provision, and also concluded that the debtor was permitted to modify the terms of the claim and pay present value based on a Till formula interest rate. But it also rejected the debtor's attempt to argue that the car loan was either unsecured as a result of 1325(a)(*), and the attempt to "strip down" the car loan to the collateral value.

We'll continue to provide these weekly updates as we also get caught up on the more significant developments of the past couple months.