Monthly Archives: September 2014

Bankruptcy Appeals And The Appellate Process In Kansas And Missouri

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Johnson County Kansas Bankruptcy Lawyers

Under Section 158 of the Bankruptcy Code, appeals of bankruptcy court orders can be heard when the order if final, or when the order is “interlocutory” (with the leave of the District Court). In deciding when an order is final, courts take a realistic and pragmatic approach. Under Section 158(a)(3), an appeal from an interlocutory order can be heard only with leave of the court. Under this section, the district court or the bankruptcy appellate panel (BAP) can hear an appeal from an interlocutory order (a circuit court of appeals’ jurisdiction is limited to final orders). Thus, under F.R. Bankr. P. 8001(b) and 8003(a), an appellant must file a notice of appeal under Rule 8002, and also file a motion for leave to appeal.

Bankruptcy appeals can technically be heard in three possible forums: the local district court, the BAP of the circuit, or to the circuit’s court of appeals in some situations. As a practical matter, most bankruptcy attorneys will find themselves raising issues of bankruptcy law before the BAP, which operates in both the Eight Circuit (Missouri) and the Tenth Circuit (Kansas). This is so because the issues raised in bankruptcy cases are often complex and specialized, and the BAP is specifically designed to be a forum for bankruptcy appellate law.  US District Court judges may not have had as much exposure to the issues presented.

The 2005 amendments to the Bankruptcy Code created a limited ability to appeal matters directly to the circuit courts. This would be in situations where there is no controlling authority on legal issues involved, or where the issue requires the resolution of conflicting decisions, or where an immediate appeal “may materially advance the progress of the case or proceeding.” 28 U.S.C. Section 158(d)(2).

The deadlines are given in F.R. Bankr. P. 8002. The deadline for filing the notice of appeal can be extended in situations of “excusable neglect”, but this should never be relied on. Pushing the envelope is never a good idea in dealing with deadline issues. In determining what is “excusable neglect”, a court will look at the danger of prejudice to a debtor, the length of the delay and any potential impact on judicial proceedings, the reason for the delay, and whether the movant is acting in good faith.

Perfecting an appeal requires that certain other steps be made. The issues to be presented on appeal must be stated, and the record must be identified that the appeals court is supposed to review. Under F.R. Bankr. P. 8006, the following things are part of the record of appeal:

  • Items designated by the parties
  • The notice of appeal
  • The order, judgment, or decree that is the subject of the appeal
  • Opinions, findings of fact, and conclusions of law by the court

The parties then wait for the appeal record to be docketed. The appeals brief is then filed. From past experience, we have found that calling the BAP court clerks with questions is a very pleasant experience. The lack of crowded dockets gives them the ability to become personally acquainted with many cases, and makes for productive communication.
In reviewing an order, judgment, or decree from the bankruptcy court, the appellate court reviews the legal issues de novo, the factual findings for “clear error”, and its exercise of discretion for “abuse.” In Re United Healthcare Systems Inc. 396 F.3d 247 (3rd Cir. 2005). If there are mixed questions of law and fact, the appellate court will defer to the bankruptcy court’s finding of facts unless those are “clearly erroneous.” Frivolous appeals are very rare, but may possibly be found when the “overwhelming weight of precedent is against [appellant’s] position, where appellant can set forth no facts to support its position, or where, in short, there is simply no legitimate basis for pursing an appeal. In Re Alta Gold Co., 236 Fed. Appx. 267 (9th Cir 2007).

Under F.R. Bankr. 8005, there is a mechanism for getting a stay of an order pending the outcome of an appeal. Appellants will want to do this to preserve their position. Requests for stays pending an appeal must ordinarily be made to the bankruptcy judge. The court then has the discretion to grant a stay pending the appeal. A party seeking a stay pending the appeal is asked to show:

  • It is likely to prevail on the merits of its appeal
  • It will suffer harm unless a stay is granted
  • A stay will not substantially harm other interested parties
  • A stay is not harmful to the public interest

All of these conditions need to be met. Once the appeal has been docketed and scheduled, the litigants appear before the BAP judges and make their arguments, relying on the points raised in briefs.

Read More:  Confidentiality Orders And Sealing Records In Bankruptcy Court

Landlords, Tenants, And Leases In Chapter 13 Bankruptcy In Kansas City

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Overland Park Bankruptcy Law Firm

When a debtor files a Chapter 13 bankruptcy, the automatic stay under Section 362 bars the lessor (landlord) from “any act to obtain possession of property of the estate or of property from the estate” except through the bankruptcy court. A debtor who remains in possession of leased property will be expected to continue to pay the rent for such property. But there can arise many legal issues regarding when the rent is payable, what priority it has in relation to other debts, the measure of the rent, and the collectability of any past rent due.

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Interest Rates In Chapter 11 And Chapter 13 Cramdowns

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“Cramdown” is a term of art used to describe a situation in a Chapter 13 or Chapter 11 bankruptcy in which a secured creditor is being paid to the fair market value of the collateral secured by its claim, rather than the full loan balance. In a Chapter 11 plan, if the plan proposes to pay the secured claim in deferred cash payments, those payments would include post-confirmation interest at the “market rate.”

The market rate is a rate that the bankruptcy court considers fair in light of current market factors. In Re Hardzog, 901 F.2d 858, 860 (10th Cir. 1990); Till vs. SCS Credit Corp., 541 U.S. 465, 476 n. 14 (2004).

In the case of In Re American Homepatient, Inc., 420 F.3d 559 (6th Cir. 2005), the court determined that the Chapter 11 cram down interest rate should be market rate where there exists an efficient market; if a market does not exist, then a court should employ the “formula approach” described by the Till case for Chapter 13 cases.

Under this “formula approach”, the interest rate is set as the national prime rate adjusted to reflect risk posed by the debtor. Of course, secured creditors in a Chapter 11 or Chapter 13 case are never really going to be satisfied with this “market rate.” Several methods have been advanced by courts in determining how this “market rate” should be determined. We will describe each of these approaches.

Formula Approach. Under the so-called formula approach, as stated above, the court begins with a base rate (such as prime rate) and then adds points for “risks” posed by the debtor. The formula approach was adopted by the Second Circuit in In re Valenti, 105 F.3d 55, 64 (2nd Cir. 1997) and by the Tenth Circuit in In re Hardzog, 901 F.2d 858, 860 (10th Cir. 1990).

Cost of Funds Approach. Under this method, the rate is determined based on what interest the creditor would have to pay to borrow the funds. This approach is apparently not favored and has not been formally adopted by any circuits.

Coerced Loan Approach. There are two variations of the “coerced loan approach.” One variation is that the cram down interest rate is set as the same as the creditor would receive if it could foreclose and reinvest the proceeds in loans of equivalent duration and risk. Koopmans v. Farm Credit Servs., 102 F.3d 874, 875 (7th Cir. 1996). Another permutation on this approach is to examine the rate that the debtor would pay outside of bankruptcy to obtain a loan on terms comparable to those proposed in the Chapter 11 plan.

Presumptive Contract Rate Approach. Under this approach, the court begins with the pre-bankruptcy contract rate. This rate then creates a rebuttable presumption that either the creditor or the debtor can counter by persuasive evidence that the current rate should be different. In re Smithwick, 121 F.3d 211, 214 (5th Cir. 1997).

What is the guiding principle behind all of these approaches? Bankruptcy courts generally take the position that in reviewing reorganization and cramdown issues, it is important to balance the interest of the creditor in obtaining protection and compensation, while at the same time, setting an interest rate that is consistent with the fresh start offered by bankruptcy. There should be some consistency in approaches. Bankruptcy courts have the power to modify interest rates. There should be objective economic analysis applied, that weighs the risks of default with the fresh-start objective of bankruptcy.

Starting with the national prime rate of interest makes good sense. The “prime” rate (in the view of the Till case, cited above) is the “national prime rate, reported daily in the press, which reflects the financial market’s estimate of the amount a commercial bank should charge a creditworthy commercial borrower to compensate for the opportunity costs of the loan, the risk of inflation, and the relatively slight risk of default.” Till, 124 S. Ct. at 1960. “A bankruptcy court is then required to adjust the prime rate to account for the greater nonpayment risk that bankrupt debtors typically pose.” Id.

But how should this “risk adjustment” be determined? There are several factors that need to be weighed. The interest rate should be high enough to allow the creditor some relief, but not so high as to torpedo the plan. As discussed in Till, the following factors are normally relevant:

  • Circumstances of the estate. This term is rather vague, but presumably means any factor or issue that will impact on the debtor’s ability to perform on the loan, or otherwise increase risk.
  • Nature of the security. This means specific things directly related to the security. Value, depreciation characteristics, and the debtor’s use of the collateral are some of these things.
  • Duration of the plan. Inflation and expected market volatility are typically factors here.
  • Feasibility of the plan. This would be the projected likelihood of success, that is, the debtor’s ability to perform the terms of the plan.

Regardless of the methods used, the setting of a cramdown interest rate is important in both Chapter 13 and Chapter 11 cases. In Chapter 13 cases, the issue may not come up with as much frequency as in Chapter 11 cases.

This is because many jurisdictions already have procedures whereby “trustee’s discount rates” of interest may be used. However, even model Chapter 13 plan formats allow debtors to set their own rates. Chapter 11 cases typically allow more creativity (or freedom) in crafting interest rates that can assist in the success of a Chapter 11 plan.

Read More:  Assigning An Executory Contract In A Chapter 11 Bankruptcy

Drunk Driving Debts And Bankruptcy In Kansas And Missouri

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Section 523(a) of the Bankruptcy Code deals with various types of nondischargeable debt.  On of the subsections of Section 523(a) addresses the matter of a debt for “death of personal injury caused by the debtor’s operation of a motor vehicle, vessel, or aircraft if such operation was unlawful because the debtor was intoxicated from using alcohol, a drug, or another substance.”  11 U.S.C. §523(a)(9).  In other words, Section 523(a)(9) deals with certain types of debts arising from drunk driving.  While this type of debt is not common, it is important to spot it when it does arise.

The intent behind Section 523(a)(9) was to allow victims (or their families) of drunk driving crimes to pursue wrongful death or other civil actions against persons who may have committed drunk driving offenses.  Unlike some other nondischargeability provisions under Section 523(a), Section 523(a)(9) is “self-executing”, meaning that a victim creditor is not required to file an adversary proceeding to seek a determination of nondischargeability.  There is no requirement that the debtor actually be convicted of a DUI or DWI offense in state or municipal court.  A creditor seeking to use Section 523(a)(9) need only show that (1) the debtor was “intoxicated” within the meaning of state law; (2) the debtor was “operating” a motor vehicle or other type of vehicle while intoxicated; and (3) that the claim for personal injury or death resulted proximately from such conduct.

Despite the current climate of aggressive prosecution and enforcement of DUI and DWI offenses, the bankruptcy code construes exceptions to discharge strictly against creditors.  In other words, there is a presumption that debts should be discharged, and that a creditor seeking prevent this will have an uphill battle.  As far as Section 523(a)(9) is concerned, the burden is on the creditor to prove each and every element of nondischargeability by a “preponderance of the evidence.”  This is not an easy matter.  In Re Race, 198 B.R. 740 (W.D. Mo. 1996).

For the purposes of §523(a)(9), the most commonly encountered vehicle will of course be an automobile.  But motor boats also fall under this section, as well as airplanes and even snowmobiles.  In Re Race, 198 B.R. 740 (W.D. Mo 1996).  Incredibly, a bankruptcy court had to rule on whether a “horse and buggy” was considered to be a vehicle under §523(a)(9).  Not surprisingly, it ruled that it did not qualify as a vehicle.  In Re Schumucker, 409 B.R. 477 (N.D. IN 2007).

How, then, does the bankruptcy court determine whether the debtor’s operation of the vehicle was in violation of Section 523(a)(9)?  The court must apply state law, as a first matter.  Every state has its own requirements for what constitutes intoxication, and the bankruptcy court will defer to these standards.  In Re Spencer, 168 B.R. 142 (N.D. Tx, 1994).  The bankruptcy court must be convinced that the debtor was legally “intoxicated” under state law, and that the liability for the personal injuries resulted from such conduct.  If these state law issues have already been determined in another judicial proceeding, there is a good chance that the principles of res judicata and estoppel will preclude these issues from being tried over again.  This can be a slippery matter, however, because frequently in state or municipal court, actual judicial determinations on DUI/DWI issues may not have been made.

It is important to note that Section 523(a)(9) only applies to damages traceable to “personal injuries.”  In other words, drunk driving damages that may arise from damage to property, or from punitive damages awards, will not be covered under this section.  Thus there can arise the situation where the property damage debt is discharged, but the personal injury debt is not.  Regarding punitive civil damages, there are two different lines of reasoning that have developed.  Some courts have held that Section 523(a)(9) was intended to apply to debts directly resulting from personal injury; therefore, punitive damages from drunk driving personal injury claims would be nondischargeable.  In Re Dale, 199 B.R. 1014 (S.D. FL, 1995).

Other courts have ruled differently, holding that punitive damages do not have anything to do with personal injuries, and are therefore dischargeable.  In the rare situation where this type of debt comes up in a case, it will be important to probe into the circumstances of the incident, and to examine the nature of the claim against the debtor.  It is critical in these situations to examine in detail the nature of any civil judgment that may have been awarded against a bankruptcy debtor, in order to determine what (if anything) might be nondischargeable.

Read More:  Title Loans And Bankruptcy In Kansas City

Tax Crimes In Kansas And Missouri

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Overland Park Criminal Defense Attorney

There are numerous different criminal statutes in the Internal Revenue Code dealing with evasions, false statements, and omissions in the filing of tax returns.  While civil attempts to collect tax debts are encountered relatively frequently (liens, garnishments, etc.), criminal prosecutions for tax matters are rare.

The IRS does have a criminal investigations unit which handles such matters, and if a decision to prosecute is made, the file is normally referred to the Justice Department.  Some possible indications that a civil audit may escalate into a criminal investigation may be:  a special agent joining the case, summonses being sent to third parties, or lengthy and multiple audit sessions.

The IRS has the ability to issues summonses to produce records and testimony.  Such a summons can be issued to any taxpayer.  This authority is limited; once a recommendation to prosecute is made to the Justice Department, this authority ends.

For a summons to be valid, it must show that the investigation is done for a legitimate purpose, that the inquiry is relevant and related to that purpose, that the IRS does not already have the information, and that proper procedures have been followed.  U.S. v. Powell, 379 U.S. 48 (1964).  Failure to respond to a summons may be grounds for a contempt action in federal district court.  A taxpayer may assert various privileges and defenses on his or her behalf.

When the IRS’s criminal investigations unit forwards a case to the district counsel, an invitation to a conference may be extended to the taxpayer or his counsel.  After the conference, further decisions may be made on the file regarding whether to prosecute.  When the taxpayer’s counsel authenticates a written instrument, there is some authority that admissions made by counsel during conferences may constitute vicarious admissions which may be used against the taxpayer.  U.S. v. O’Connor, 433 F.2d 752 (1st Cir. 1970).

The mental state required in criminal tax cases is one of specific intent:  the defendant must have acted willfully, not recklessly or negligently.  The government must prove that a duty existed for the defendant to do something, and that the defendant intentionally and voluntarily violated that duty.  An honest misunderstanding of one’s duties (e.g., relying on the advice of a professional) is a defense.  Some of the possible tax crimes are the following:

  • Tax evasion (I.R.C. Section 7201).  The elements of this offense are that a tax payment was due, that the defendant made an affirmative act to evade or defeat the tax, and that he acted willfully.
  • Willful failure to collect or pay over tax (I.R.C. Section 7202).  This provision was designed to cover situations where employers must withhold and pay sums withheld by employees.  Again, willfulness is an element of the offense here.
  • Willful failure to file return, pay tax, or supply information (I.R.C. Section 7203).  This provision was intended to apply to situations where persons are required to keep records or supply information , and willfully fail to do so.
  • Other federal criminal tax offenses may be the following:
  • Fraudulent statement or failure to make statement to employer (I.R.C. Section 7204)
  • Fraudulent withholding exemption (I.R.C. Section 7205)
  • Fraud and false statements (I.R.C. Section 7206)
  • Fraudulent returns or other documents (I.R.C. Section 7207)
  • Counterfeiting or reuse (I.R.C. Section 7208)
  • Unauthorized use or sale of stamps (I.R.C. Section 7209)
  • Attempts to interfere with the internal revenue laws (I.R.C. Section 7212)
  • Unauthorized disclosure of information (I.R.C. Section 7213)

It should also be noted that there are provisions which prevent officers and employees of the U.S. government from committing unauthorized acts with regard to tax collection.  Under I.R.C. Section 7214, agents of the United States cannot:  knowingly extort or oppress under color of law; knowingly demand a greater sum than that allowed by law; fail to perform his or her duties with intent to defeat the application of tax laws; and cannot conspire with any person to defraud the United States.

There is a variety of defenses that can be used in tax cases.  Commonly encountered defenses in tax cases are:  invoking double jeopardy, invoking the privilege against self-incrimination, good faith reliance, voluntary disclosure, and selective prosecution.  Other defenses may be relevant, of course, depending on the facts and circumstances of each case.  It is also possible, in some cases, for other persons to be liable beyond the taxpayer, such as accountants, corporations, or other third parties.

Various methods have been employed in attempting to trace income in tax cases.  These methods may include the “net worth” method, and the “deposits and expenditures” method.  The government is not normally required to reconstitute a taxpayer’s income with perfect precision, but it must establish  the all of the elements of the offense under which a taxpayer is charged.

Read More:  Immigration Crimes

Lien Avoidances In Bankruptcy Under Sections 506(d) and 522(h)

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Avoiding liens can be an important part of the bankruptcy “fresh start.”  There is a variety of methods of lien avoidance in bankruptcy cases.  We will here discuss lien avoidance under two code sections, Section 506(d) and 522(h).  Under Section 506(d), liens securing disallowed claims are not valid.  There are some exceptions to this rule, however.

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Avoiding Liens In Bankruptcy Under Section 522(f)

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As part of his or her “fresh start” in bankruptcy, it is possible for a debtor to avoid liens on property securing dischargeable debts. If this is not done, the liens may pass through the bankruptcy and impair the debtor’s ability to move forward. Section 522(f) of the Bankruptcy Code is one of the principal ways that such liens may be avoided. This section of the code has four paragraphs.

Taken together, the section states how a debtor may avoid judicial liens against his or her exempt property to the extent that the lien impairs the debtor’s exemption. It should be noted here that we are speaking in this article only of Section 522(f). Liens may also be avoided by a debtor using other sections of the Bankruptcy Code, such as Sections 506(d) and 522(h). Knowing which section to use will depend on various factors, such as the nature of the lien, the type of bankruptcy filed, and the specific issues of the case.

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Bankruptcy Debtors Can’t Be Discriminated Against

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The Bankruptcy Code makes specific provision for the protection of debtors who file bankruptcy. One of those protections is the right not to be discriminated against once they file bankruptcy. It is comforting for debtors to know that they are protected by specific legal provisions that prevent anyone from discriminating against them or drawing adverse inferences about them once they file a case.

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Damages For Violations Of The Automatic Stay In Bankruptcy Cases

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The bankruptcy automatic stay is one of the most fundamental protections provided to a debtor in a bankruptcy case. It is not, then, surprising that bankruptcy courts take a very dim view of creditors who ignore the protections granted to a debtor after the filing of a case. The bankruptcy code permits a debtor to recover damages for violations of the automatic stay; those provisions are contained in 11 U.S.C. §105(a) and 11 U.S.C. §362(k).

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Computer Fraud And Computer Crimes In Kansas And Missouri

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Congress centralized computer crimes under one statute in 1984 with the passage of the “Counterfeit Access Device and Computer Fraud and Abuse Act.” The intention was to have a tool to prosecute computer-related crimes under the rubric of one statute.

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