2009 Consumer Law Recent Developments (Part II)

1. Prefiling Issues

Empirical Study of BAPCPA. The first report of the effects of BAPCPA, based on data from a random national sampling of debtors, has been published. R.M. Lawless, et al., Did Bankruptcy Reform Fail? An Empirical Study of Consumer Debtors, 82 AM. BANKR. L. J. 349 (2008). A summary of the article is found in Melanie Sonnenborn & John A.E. Pottow, 2009 Consumer Bankruptcy Project-- Empirical Analysis Suggests Initial Failure of BAPCPA to Produce Intended Results, NORTON BANKR. LAW ADVISER (Feb. 2009).

1. Credit Briefing Prebankruptcy credit briefing doesn't apply in involuntary case. After filing of an involuntary Chapter 7, which was not contested, the debtor moved for an extension of time to obtain the § 109(h) credit briefing. The motion was moot, concluding that § 109(h) doesn't apply to involuntary debtors. In re Sims, 2009 WL 161343 (Bankr. D. Kan. Jan. 7, 2009).
2. Automatic Stay Creditor's state court suit exceeds relief from stay order. Affirming the BAP, the Ninth Circuit restates that actions taken by state court in violation of the stay are void ab initio, with the bankruptcy court not obligated to give full faith and credit to such orders. The motion seeking stay relief was directed toward the creditor's pursuit of the debtor's bonding company, and the BAP and Circuit noted that the stay relief order could be no broader than the relief sought in the motion. If in the course of a state court proceeding after stay relief is granted, it is found that broader relief is needed, the creditor should move for such relief from the bankruptcy court. Another remedy may be to seek retroactive stay relief. But, proceeding to a state court order that exceeds the relief granted by the bankruptcy court is not the appropriate creditor course. Griffin v. Wardrobe (In re Wardrobe), ___F.3d ___, 2009 WL 640432 (9th Cir. Mar. 16, 2009).

IRS is entitled to stay relief for setoff. The bankruptcy court denied a motion by IRS for stay relief to permit setoff against prepetition tax refunds, and by administrative mistake IRS paid the refunds to the debtor, but the BAP holds that this payment did not make IRS's appeal constitutionally or equitably moot. See discussion under Appeal. IRS established that it had right of setoff under 26

U.S.C. § 6402(a), which permits credit of any overpayment by the taxpayer against any liability owed by the taxpayer, with "overpayment" being a different concept from "refund" under authority of IRS v. Luongo (In re Luongo), 259 F.3d 323 (5th Cir. 2001). When it filed its motion for stay relief to permit setoff, IRS made a prima facie showing of its right to setoff, shifting the burden to the debtor to demonstrate that stay relief was inappropriate. Under its prior authority, Pieri v. Lysenko (In re Pieri), 86 B.R. 208 (B.A.P. 9th Cir. 1988), the BAP held that if any conflict existed, § 553 would control over § 522(c). Since the debtor presented no evidence that the tax refunds at issue were necessary for effective

©2009 Hon. William Houston Brown