2009 Consumer Law Recent Developments (Part II)

Attorney may not limit representation by excluding reaffirmation. Chapter 7 debtor's attorney attempted to limit representation by excluding negotiations or representation concerning reaffirmation agreements in the contract with debtor. The court found that limitation impermissible, first because entry into a reaffirmation is so important to debtors and assistance from an attorney is part of the necessary services "that make up competent representation of a Chapter 7 debtor. Second, the Code [§ 524(c)] lays the responsibility for advising a debtor about the reaffirmation process and evaluating the effect of each agreement at the feet of debtor's counsel." In re Minardi, 399 B.R. 841 (Bankr. N.D. Okla. 2009).

Mortgage servicer lacks legal authority to reaffirm. At hearing on approval of a reaffirmation agreement, it became clear that mortgage servicer lacked legal interest in the underlying note and had no authority in its own right to enter into reaffirmation. In re Waring, ___ B.R. ___, 2009 WL 499501 (Bankr. N.D. Ohio Feb. 27, 2009).

Section 524(m) doesn't apply when attorney certification is filed and no presumption of undue hardship arises. The statutory deadline in § 524(m) doesn't apply when the debtor's attorney files a certification with the reaffirmation agreement, and the agreement indicates a positive cash flow, or when other conditions of the Code are met. If no court action is required, then § 524(m) is irrelevant. In re Clark, ___ B.R. ___, 2009 WL 523099 (Bankr. D. Conn. Feb. 23, 2009).

8. Chapter 13 Issues

8.1. Eligibility and Means Test

Deduction of mortgage and vehicle ownership when surrendered is permitted. Construing the phrase "scheduled as contractually due" for secured debts under § 707(b)(2)(A)(iii), the court found the statute not to be ambiguous, giving the phrase its ordinary meaning. A secured payment is contractually due on the date of the petition filing, even though the debtor may intend to surrender the collateral, and the liability on the debt may not be eliminated until discharge. The debtor may deduct the "average monthly payments on account of secured debt" payable over the 60 months, without regard to whether the debtor intends to surrender the home. As to vehicle expense, the court also holds that the debtor may deduct ownership costs for a vehicle even though there is no outstanding debt on the vehicle, following the Seventh Circuit decision, In re Ross-Tousey, 549 F.3d 1148 (7th Cir. 2008). The court notes that passing the means test by such deductions does not insulate the case from dismissal under § 707(b)(3). In re Ralston, ___ B.R. ___, 2009 WL 322946 (Bankr. M.D. Fla. Feb. 10, 2009).

8.2. Preconfirmation and Confirmation Issues, Current Monthly Income and Disposable Income

©2009 Hon. William Houston Brown