Reviewing Recent Supreme Court Bankruptcy Cases

Do you know about recent Supreme Court cases that could impact our thinking about consumer bankruptcy? A recent article from Bloomberg BNA reported on an event in which bankruptcy experts got together to consider the implications of five different U.S. Supreme Court decisions that deal with questions about bankruptcy in our country. The panel was co-sponsored by Bloomberg Law and the American College of Bankruptcy. The experts summarized the recent court decisions and their implications for future bankruptcy filings.
To give you a better idea of the terrain when it comes to bankruptcy law in 2015, we would like to provide some of those summaries for you here. Take a look at a couple of the ways in which consumer bankruptcy law has been interpreted by the U.S. Supreme Court over the last year.
Converting Chapter 13 to Chapter 7: Harris v. Viegelahn
Back in June, we discussed the case of Harris v. Viegelahn, in which the Supreme Court had to decide whether money that is being held by a bankruptcy trustee in a Chapter 13 bankruptcy filing must be returned to the debtor in the event that the debtor converts to Chapter 7 bankruptcy. Ultimately, the Supreme Court concluded that such funds had to be returned to the debtor; the trustee could not hold onto them in order to pay off creditors, for instance.
Although the amount of money being discussed in this case might seem small in terms of other bankruptcy cases we read about in the news (particularly Chapter 11 filings by businesses), experts at the Bloomberg panel emphasized that this was actually a “huge amount of money” for an individual consumer who is trying to recover from serious financial setbacks. Indeed, one expert cited a study that argued “the stress levels Chapter 13 debtors experience when filing for bankruptcy can be comparable to losing a child.”
Voiding Mortgage Liens in Chapter 7 Bankruptcy: Bank of America v. Caulkett
In Bank of America v. Caulkett, the Supreme Court held that a debtor who files for Chapter 7 bankruptcy protection cannot void a junior mortgage lien “when the debt owed on a senior mortgage lien exceeds the current value of the collateral if the creditor’s claim is both secured by a lien and allowed under . . . the Bankruptcy Code,” according to a news release on SCOTUSblog. In other words, a consumer who files for bankruptcy cannot void a second mortgage when the house she owns is worth less than her first mortgage.
While the decision was not good news for underwater homeowners, the experts at the Bloomberg panel generally agreed that the Supreme Court’s decision was not unexpected, as it upheld previous bankruptcy law precedent (at least in some fashion) under a prior case, Desnup v. Timm.
All in all, the Supreme Court has made decisions that favor debtors in some cases, and favor creditors in others. Bankruptcy law can be extremely complicated, and it is always important to discuss your situation with an experienced Oak Park bankruptcy lawyer before you file for bankruptcy protection. Contact the Emerson Law Firm today to discuss your case.
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